Adara Ventures MP Nicolas Goulet: “Spain is Great for Deep Tech Innovation”


Nicolas Goulet, managing partner at Adara Ventures, is a software engineer by trade. So is fellow MP Alberto Gómez. Their backgrounds are one reason why Madrid-based Adara has emerged as one of Spain’s brightest venture funds–supporting deep tech startups as they supply some of the world’s biggest clients.

Red Herring last examined the Spanish tech scene in summer 2015, as its economy began to recover from one of the biggest nationwide crises of the global financial meltdown. That recovery has continued robustly despite political uncertainty–not that politics or the domestic economy really governs how Adara’s portfolio performs.

The fund’s companies include some of cybersecurity and big data’s most exciting young brands–from crowd-sourced intelligence security platform Alien Vault, and deception-based CounterCraft, to analysts Stratio and algorithmic adtech solution Seedtag.

Investing in companies with such a technical, deep tech base might appear a difficult task. Not so, argues Goulet–so long as the investment team’s DNA is right. And, as he explained to us recently, complex platforms have an advantage in the globalized economy that other startups may lack.

What is it about Spain that is so attractive to Adara?

Our first two funds have been very much focused on companies originated in Spain–although we have done some deals out of Spain. That strategy came out of a realization that Spain has high-quality engineering resources in the software area, and that those resources come at a very low cost.

We started to focus on companies that were heavy on engineering, and in areas where the large corporates in Spain were very active in acquiring technology from smaller companies. And those were areas of cybersecurity, big data, and then enterprise software more broadly.

The reason why cybersecurity in Spain is a big deal, is that a lot of the financial sector players have a very broad geographical footprint, and have traditionally faced some very significant issues from the IP security space.

Buyers like Santander, BBVA, are very sophisticated buyers who can go globally. But they have promoted a local cluster of companies in the cybersecurity space which is very much thriving, and one that has been a mainstay for us in the shape of companies like AlienVault, and now for IQ and Countercraft.

Will anything change as a result of the fluctuating Spanish economy?

No. If anything we will expand the size of our assets under management. In the future we may expand geographically selectively. And obviously we will seek to take on bigger tickets. But basically we think our investment thesis as we’ve laid out is going to be valid for a while.

The reality is that these areas we invest in are linked to very high-worth companies, which grow strongly, almost independently of what happens in the economy or political situation.

BBVA, for example, is undergoing a very significant growth process right now, with a data-centric model. Same thing at Telefonica. That outlook is not driven by the local situation. BBVA and Telefonica are international companies that happen to have been born in Spain. We see a lot of factors in Spain that are driving the attractiveness of the investment thesis greater.

Adara started investing in 2005. We started raising our funds in 2003. And I can tell you that, at that time, the questions around whether there was anything to be done in Spain were quite distant.

I think now you’re not only seeing a lot of local successes, but also a lot of global and European funds making investments in Spain, because they’re seeing the opportunities as well–sometimes in the later stages of the companies, but also sometimes in the earlier stages.

How much more difficult is it to invest in deep tech companies than more broadly-focused firms?

I don’t think it’s more difficult than investing in other areas. It’s maybe a slightly different focus than other investments, because what you’re looking for are companies built by engineers, ones built around innovation, and then you are talking to the founders, who tend to be pretty deep tech people.

People like (AlienVault founder) Julio Casal and Oscar Mendez of Stratio, have really great technical depth. You want to find the people who have that combination of the technical depth and business acumen to realize they’re sitting on a product that has real market support, and can build out globally.

Our goal is to have a team with a combination of skills who can interact effectively with these founders. Both Alberto Gomez and myself are engineers by background. Therefore we can have really good interactions with these types of founders. I think being an investor in the Internet space is as difficult as being a VC in the deep tech space. We just don’t have that kind of expertise.

What are the biggest trends looking to the future of cybersecurity?

I think the biggest change in the past five years has been moving from the concept of cybersecurity to cybersurveillance, and more broadly moving from looking at the firewallers as being a wall that you need to make as big as possible so no-one can get in–to a much broader, much more open and uncertain context, where you can no longer just hide behind your wall. You need to be out there understanding what is happening in the world, what’s being prepared.

Now you even have areas such as proactive honeypot deception, where you can actually create your own structure so it accepts the fact that you’re going to have incursions and attacks, and learns to manage them within your network.

So you create areas in which you may create deception for people who are inside, and try to manage them on the inside. Countercraft, that we just invested in, is a great example of that.

What are the key factors you consider before taking a company to Silicon Valley?

We look at several elements. First is to make sure that it’s a necessity, and to understand the why it’s happening is very important. That can define a lot of the criteria.

So, if you’re moving to Silicon Valley because you believe the exit of the company can eventually take place in Silicon Valley, then that implies you will need to fundraise in Silicon Valley. And if you need to fundraise in the Valley you need to have a good pipeline of customers before “moving” or even taking the step of redomesticating, which is what a lot of our companies have done.

If you’re purely commercially-driven, and only care about the market there and not the funding, then you should go when your product stands up to the task of US enterprise customers.

Therefore you should make sure your pipeline is good enough and you’re getting good enough traction with your product. It really has to be working for the US market. And the US market in a lot of what we’re working in is the standard.

What are Adara’s funding goals for 2017?

We will just continue looking at our own deal flow. We have a year-and-a-half in our investment period, for the fund we’re currently investing. One thing we’ve realized with respect to the first fund is that the level of selectiveness we can apply is very high–much higher than then–because of the volume and quality of the deal flow.

We have too much to choose from. You will continue to see investments from us in these particular fields: cybersecurity, big data, and adtech, which is an area we have a curiosity about. But it’s not as core for us as is cybersecurity or big data.