The State of the Spanish Startup Scene

Nov 6, 2014
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Jaime Novoa is a tech writer based in Madrid. He currently works forStartupxplore, the startup funding community connecting startups, investors and accelerators from all over Europe. He also covers the Spanish startup ecosystem at Novobrief.

The Spanish startup scene has changed dramatically in the past 5 years and is now more professional, global and ambitious than ever before. However, the key question to ask is whether that’s because 5 years ago the ecosystem was severely underdeveloped or because the current gap with the UK, Germany, Israel or France has been closed by an increase in the quality -and quantity- of startups, investors and accelerators.

Spain has seen three different waves of tech and Internet entrepreneurs. Those that built companies prior to 2000, before the dotcom bubble burst; those that survived the crash and had the guts to start companies in the early 2000s and then those that saw an opportunity with the 2007/2008 economic crisis and found in entrepreneurship a way out.

Spain was, and still is, one of the European countries that has suffered the most from the financial crisis of 2007. Unemployment rates have not been lower than 20% for several years, half of the young population (18 to 25) doesn’t have a job and many have left the country to join companies -big and small- in the US, UK or Germany, such as María Alegre, Pepe Agell (both from Chartboost), Javier Oliván (Facebook) or Bernardo Hernández (Google, Yahoo).

All of the above has significantly changed the expectations of the young. As Carlos Espinal from Seedcamp said at TechCrunch Disrupt London, “many French and Spanish entrepreneurs have created startups out of necessity” and it will take a few more years to see if the results of such efforts are comparable to those in London, Stockholm or Berlin.

A young and growing Venture Capital scene

Part of the chronic problems Spanish startups have faced over the past few years are twofold: lack of global ambition and, at times, lack of capital at the early and growth stage. The success of companies such as Scytl, Social Point, BuyVIP, Privalia or ZED show that being global from day one and from Spain is possible and scalable.

And the growing number of accelerators, business angels and Venture Capital firms investing at the early stage show that money, for most, is no longer an issue. According to data from research firm Venture Watch, Spanish startups raised €158 million in the third quarter of 2014, a 187% increase compared to 2013, mostly thanks to Scytl’s €80 million round.

Screenshot 2014-11-06 09.43.51

As the graph above shows, both the number of deals and euros invested into Spanish companies have grown steadily over the past few quarters, pointing to a relative improvement of the investment ecosystem and an abundance in private and public capital. Traditional and effective VC firms such as Nauta Capital, Bonsai Venture Capital and angel funds like Cabiedes & Partners have been joined by new and aggressive firms: Seaya Ventures, Kibo Ventures, Vitamina K or Active Venture Partners.

And what’s even most important. The success of some of the aforementioned startups has attracted the attention of international VCs to the country. Seven of the top-10 investment deals in Q3 2014 were led by international firms like Vulcan Capital, SAP Ventures, Greylock, Accel or Earlybird.

The role of the government

It’s an interesting coincidence that hours before the public found out that Gowex was a scam, Ana Botella -the major of Madrid and wife of former Spanish prime minister José María Aznar- visited the company’s headquarters. She was there to give one more prize to the fake company Jenaro García had created and grown with the passive support of public financial institutions, as if Gowex was on its way to become the biggest tech company the country had ever seen. But Gowex was not a startup, it was a money laundering machine that could not be stopped by its greedy founder. Gowex should never be used an example of the Spanish ecosystem because it was never part of it. However, it does show how public money can be sometimes misused.

Entrepreneurs and investors have often complained that creating companies in Spain is not easy and tax incentives are part of a fairy tale that politicians like to mention in press releases and public appearances. And they’re not wrong. The current government of Mariano Rajoy promised two years ago a law that would help entrepreneurs and investors create companies faster and cheaper while facing lower public challenges. But the fact of the matter is that the so-called ‘Ley de Emprendedores’ has ended up being one more farce.

Following in the footsteps of the Israeli Yozma initiative of the 90s and 2000s, the Spanish government also decided to launch FONDICO, a public fund of more than €1.2 billion to co-invest with local VCs and private equity firms. So far the initiative has been controversial for two main reasons:

  • It’s not clear what criteria the government is using to decide which VC firms to support. Cabiedes & Partners, one of the Spanish firms with a better track record, has complained vividly about the lack of support they have received.
  • So far FONDICO has not been able to attract the interest of international VC firms, one of the key facts in Yozma’s success in Israel.

As business angel François Derbaix recently told me, “FONDICO’s selection criteria is very poor and they will probably end up giving money to funds that don’t deserve it as much as others”. There is an abundance of public money in Europe, but it will be interesting to see if for once the Spanish government learns from its past mistakes and supports those that deserve to be supported.

A new and prepared generation of entrepreneurs?

All of the above paint a gloomy picture of Spain and its startup ecosystem. However, it should be noted that the opportunities in the country are big for both entrepreneurs and investors.

Not only can the country serve as a good bridge for European startups interested in expanding into Latin America, but a local market of more than 45 million people and the highest smartphone penetration rate in Europe also transform Spain into a good testing ground for certain ideas before launching globally.

As Martin Varsavsky, the Argentinian/Spanish serial entrepreneur behind Jazztel, Ya.com or Fon, has said numerous times, Spain offers two great things when it comes to work-life balance. Spaniards value family and friendships as much as anyone else in the world and the country offers great resources and infrastructure to focus not only on work, but also on quality of life.

It’s obvious that this is not enough to attract talented Europeans to our shores, but it’s a good incentive and as companies like CartoDB, Packlink or Kantox are showing, starting, growing and competing from Spain is also possible. The investment landscape is still way behind other European tech hubs, but the seeds planted by past and current entrepreneurs, combined with what those who have left the country will learn in San Francisco, New York or London, will hopefully end up transforming cities like Madrid or Barcelona into the next Berlin of Stockholm.