April 28, 2010

The need for early-stage investors

On April 15 Istanbul hosted EBAN's (European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players) 10th Annual Congress, including the 5th Annual Award Ceremony to the best business angels operating in Europe over the past year.

It is funny to see that a year ago I was attending the 9th Annual Congress, which took place in Madrid, representing the Revista Espanola de Capital Riesgo. I remember it was a quite interesting day with some presentations about the status of VC and angel investing in Europe. The global economy, the Spanish one in particular, had already taken a hit but, at least in Spain, the situation is even gloomier a year later.

On the day where we have known - thank to an involuntary leak by the national statistics authority -  that unemployment in Spain has surpassed 20%, becoming an entrepreneur becomes the only alternative for a lot of people who have gone down the unemployment road.

In a time of crisis like the one we are living early-stage investments play - or should play - an important role in supporting entrepreneurs with the courage to start potentially good businesses. Plus it is also a fact that by investing in such uncertain times investors are able to obtain lower valuations which might result in higher future returns.

In any case, governments should be legislating to provide a more favorable framework for these investments. All tools - not just tax raises and public expenditure cuts and some recurring others - should be put in place to help us get out of this situation. This is particularly interesting to note at a time where there is a global push for increasing financial regulation, including that of alternative investments by means, for instance, of the proposed AIFM Directive.

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