In the past month the eyes of all people interested in global investing and the future of the eurozone were turned on Spain. Many in the international community have become concerned the country could need a bailout, because the bursting of the country’s enormous housing and construction bubble has paralysed much of the banking sector and created mass unemployment.
Mariano Rajoy, the new president, told local radio station Onda Cero a few weeks ago the markets should give his party a chance to take over and implement reforms. "The winner of the elections has the right to a small margin, which should be more than half an hour."
Rajoy was speaking two days before the Partido Popular, the conservative party he leads, won the biggest absolute majority it has ever recorded, effectively giving him a mandate to pursue potentially fractious solutions to fix the country’s economic woes.
Yet thus far there has been little respite for the country as the sovereign debt markets have been hit by a crisis in confidence.
Yet despite a sluggish economic recovery and a weakening of its macroeconomic stability, Spain has managed to improve its performance thanks to a greater use of information and communication technologies and its resilience in terms of research and development investment and innovation capacity, according to Switzerlandbased non-profit organisation World Economic Forum’s Global Competitiveness Report 2011-2012.
The report added: "Overall, Spain’s competitive edge is hampered by its macroeconomic imbalances. Its very high and increasing public deficit (ranked 134th in the world), its high level of public debt (108th), and its enduring very low national savings rate (83rd) have caused a great deal of distress in its financial markets and are asphyxiating access to financial resources – both in equity investment (85th) and in access to loans (99th) – thus jeopardising future investment plans.
"Regaining macroeconomic stability, not only by decreasing the public deficit but also by adopting the necessary reforms to boost growth, should be a priority in the short run. The rigidities in the labour market (134th) – both in terms of hiring and firing practices (137th) and in the disconnect between wage setting and productivity levels (126th) that eroded much international competitiveness in the past decade – are worrisome."
The country’s corporations are said by one corporate venturing executive to be in a better situation than its government, housing market or many of its banks. He said: "You cannot compare the government to the companies. Many of Spain’s largest corporates have been very quick to diversify away from Spain, and so their future is not dependent on what happens to the country."
Corporates beefing up their involvement in venture include Spanish telecommunications group
Telefónica which has reorganised its units, in turn placing a greater emphasis on venture investing (see related content), and Spanish renewables group Gamesa, which recently committed to invest €50m in corporate venturing deals over the next five years (see related content).
Venture investment in Spain last year rose 9.5% in value from the previous year to €218.6m ($295.5m) in 511 transactions, according to trade association Ascri (Asociación Española de Entidades de Capital Riesgo).
This level of investment was significantly down against the Spanish venture market’s peak of the last decade in 2008 at €420m, but was a level of investment similar to 2005, Ascri said.
The biggest venture investors by value last year were savings bank La Caixa’s corporate venturing unit Caixa Capital Risc, industrial research group Centro para el Desarrollo Technologico Industrial (CDTI), bank Caja de Ahorros de Navarra, the state’s design and innovation body Empresa Nacional De Innovacion (Enisa) and transatlantic venture capital firm Nauta Capital, according to Ascri.
David Mesonero, director of new business development at Gamesa, said: "The situation for venture capital in Spain has become very difficult since the boom.
Many start-ups have had bad experiences with private equity backers demanding dividends and high profits, which you cannot do to a small company. Start-ups feel much more comfortable with corporate funds than financial backers now. From our perspective, the competitive environment is attractive as companies find it difficult to raise financing yet dealflow has stayed the same."
Andres Padilla Fuentes, head of new business and innovation at Telefónica, said: "There are corporate venture capital operations at energy companies and banks in Spain, yet in general compared with the US and other areas corporate investing is not as big. There are also significant examples of local venture firms doing well, and they tend to invest in local opportunities."
Other large Spanish corporates investing in corporate venture capital include energy companies Repsol and Iberdrola. Iberdrola invests through its corporate venturing unit Perseo and looks to deploy €6m to €9m a year in investments related to renewable energy, energy efficiency and other energy-related activities.
Agustin Delgado, Iberdrola’s head of innovation, said: "There are not many corporate venturing firms in Spain, but there are many more than five years ago. There is now enough supply of corporate venture capital, and we now need a bigger supply of entrepreneurs willing to promote their efforts to us.
"We have a strategic focus and would not invest in any thing for a pure financial return. We look for things that will improve our performance in the future."
Diego Diaz Pilas, a venture capital innovation manager at Iberdrola, said: "The value of the portfolio has roughly doubled since Perseo began, although no deals have been exited yet."
Spain-based bank Banco Santander was reported to have set up a £200m ($300m) mezzanine fund for small businesses in the UK, where it diversified during the bubble by buying British savings group Abbey National, while Spain-based bank Banco Bilbao Vizcaya Argentaria (BBVA) runs a venture group and a "global observatory" with 40 employees to foster innovation.
Alvaro Moron, a technology scouting director at BBVA’s Global Observatory, said: "Our group looks for disruptive innovation which can create value for the group and help its growth. In the financial sector I think our approach is quite different from others."
He said his group generally sets up partnership with other institutions such as universities, technology companies or other banks. It has a close relationship with the bank’s venture group, and the observatory group passes on leads to the venture division and vice versa.
Hopes will be high the growing interest in innovation among Spanish corporates will begin to help the country turn around some of the difficulties it faces.
The corporates themselves are keen to ensure they are able to keep their competitive edge in future, no matter what happens to the domestic economy.
Key indicators 2010
Population: 45.3 million
Gross domestic product: $1,409.9bn
GDP per capita: $30,639
GDP as share of world total: 1.84%
Source: Global Competitiveness Index 2011-12 rankings by
World Economic Forum