Profitability and business growth are essential factors. But there are extra-financial aspects. Companies must take care of them to raise capital.
The main investments in emerging companies are channelled through venture capital funds. Either from banks or firms with this vocation. A business must meet certain requisites to attract the investors’ attention.
Investors value and deposit their capital in the best companies. Those that respect the environment and working conditions. As well as in those integrated into the new “low touch economy”. Companies are now minimizing physical interactions between people in this new post-covid-19 phase.
Along with the necessary profitability, investors weigh the extra-financial criteria. The so-called ESG (Environmental, Social and Governance) is defined by:
- Environmental sustainability
- Respect for human beings
- Working conditions
- Transparency, ethics and
- Good corporate governance practices.
The inspiration for this trend is found in the 17 Sustainable Development Goals (SDGs). These were listed in the 2030 Agenda of the United Nations (UN). Although this action plan was approved in 2015, the coronavirus pandemic has become its catalyst. It is now the recovery plan of the European Union. On July 21, 2020 it was endowed with 750,000 million euros. It is identified as a priority objective because it promotes the transformation of the production model. It guides society towards an ecological transition and it promotes digitization.
The most attractive sectors
Emerging companies in fields such as:
- Distance education
- Energy efficiency
Will be a priority for investors and financial institutions. This is stated by Manuel Vicente, co-founder of Antai Venture Builder. A company that creates startups in eight countries.
These sectors make up the aforementioned low touch economy. Which has experienced a boom as a result of social distancing as one of the main anti covid-19 measures. Manuel Vicente speaks of “a new economic order” that will make companies abruptly adapt.
Investment in startups seems not to be affected by uncertainty. Despite the ups and downs caused by the COVID-19 crisis. In the first half of the year, an investment of 578 million euros is estimated. (only 20 million less than in the same period 2019). This, according to El Referente, a portal specialized in startups.
Example of success
Goi is one of the emerging companies that synthesizes this spirit. It has a mixture of innovation, digitization, sustainability and real market needs. This in the face of the e-commerce boom due to the pandemic. Goi is an online platform. It is related to the transport, assembly and installation of bulky goods: Furniture, kitchens, bathroom screens or large appliances.
Its model is supported by a national network of collaborators. They are placed in all phases of the logistics value chain. They track shipments in real time, monitor delivery, and optimize routes to reduce deadlines. Based on data analysis, Goi predicts which days there is the most traffic flow. Therefore, it works accordingly to deliver and mount cargo efficiently. It saves up to 25% in the number of kilometers traveled. In addition, as a sustainable startup. It defends the circular economy, and the company itself is responsible for disassembling replaced elements. (Whether it is a piece of furniture, a kitchen or a television.) Then, takes it to a recycling point. Moira Capital Partners recently acquired about 50% of this startup for 17 million euros.
‘Venture capital’ or ‘private equity’
The way in which an investment in these types of startups materializes varies. According to the Spanish Association of Capital, Growth and Investment (Ascri), there are two main modalities. The first is through venture capital, aimed at innovative companies in the initial phase. It requires a smaller amount of investment, but in return the risk is high. This is due to the lack of information and absence of historical results. This results in uncertainty about the acceptance of the product or service by the market. The second way is through private equity. (Its resources are directed to growing or already consolidated companies.)
These forms of investment are carried out temporarily. (With a term of three to 10 years). In addition to financial resources, important added values are provided to the emerging company. Investment funds specialized in this sector:
- Provide advice
- Provide credibility with third parties
- Seek professionalization of management teams, and
- Open doors to new business approaches.
Once the companies have matured, they leave the nest and it is time for the fund to divest. It can be by:
- Direct sale to an interested company
- Repurchase of shares of former partners
- A public offer for sale (IPO) or
- Also,The acquisition of another interested fund.
According to the Responsible Investment Guide for the ‘private equity’: 84% of the investment companies already consider the aforementioned ESG in their investment criteria.
The companies financed under these principles have significant competitive advantages.
Access to new markets
The possibility of joining the supply chain of large companies
The ease of contracting with the public sector and an improvement in reputation and brand.