In 2009, Spain hit a low in terms of overall venture capital investment, with just €120m ($134m) invested. After the recession, Spain was one of the troubled economic countries known as Pigs – Portugal, Ireland, Greece and Spain. Investment has grown since, and Spain has relatively recently developed a reputation as an innovation hotspot.
Spain has undergone significant political turmoil, with a corruption scandal ending Mariano Rajoy’s administration in 2018, and continuing debates surrounding Catalonia’s independence. Spain’s legislative agenda has not been as focused on innovation as those of other countries, and it has an effect.
Suzanna Chiu of Spain-based travel giant Amadeus pointed out that the legal framework was a problem. “Spanish law is not yet flexible enough to accommodate VC investment structures typical in the US or the UK, and investors take a higher risk under the Spanish legal framework. A lot of the promising young startups – especially serial entrepreneurs – go to the US and have their legal entity established there instead of staying in Spain.”
Spain’s active corporate investors are also relatively few and far between, especially compared with the UK or France, but those that are active now have more investment experience. Nearly 30 active or putative corporate venturers attended the recent GCV Connect network meeting hosted by IESE Business School (see report). La Caixa and Telefónica each have 41 global investments under their belt, while Santander is now at 25. Total venture capital investment in Spain is now up to €562m ($629m) in 2018.
Of those investments, La Caixa has invested in Spain 34 times, while some external CVCs like Bertelsmann and Rakuten have spotted potential in Spain, backing a handful of startups each. More foreign money is flowing into Spain, with $366m of investment in 2018, compared with just $169m the year before.
This money helps the startup scene in Spain more broadly, which Chiu said would continue to grow, in part because the relative cost of talent. “There is a well-educated labour force in tech and engineering here in Spain at a fraction of the cost compared with major startup hubs.”
While the talent is there, like many other European countries, Chiu sees Spain’s problem as partly a function of its domestic market. “The challenge for Spain is probably quite similar to other European countries, where the domestic market is not as big and homogeneous as places like the US and China. A startup needs to go international very quickly, overcoming language and legislation barriers and competing with startups that have a bigger home market advantage. In terms of culture, tech and startups are not a mainstream career yet and the cost of failure, both personal and financial, can be huge.”
Spain’s population of nearly 47 million offers a significant domestic market. Within that market, a cultural shift is under way with greater promotion of startups and a developing innovation ecosystem. Chiu cited matching funding from the public sector for certain VCs who meet eligibility criteria, and the possibility of EU funding. Chiu also noted: “US funds have started to look into Spain by investing through or co-investing with local based funds. Now with two homegrown Spanish unicorns, it helps to put Spain on to the global startup map.”
Spain enjoyed a record level of venture capital and private equity investment last year – €5.8bn ($6.5bn). Much of that investment was external, with international funds making up 77% of the total volume. However, corporate venture capital investments made up some $484m, a rise from 2017’s figure of $295m.
Chiu’s own company, Amadeus, is headquartered in Spain. Chiu said: “We interact a lot with the local ecosystem, work with accelerators and major business schools in the country, we sponsored startup events, and exchange dealflow and perspectives with local VCs.”
Spain’s corporates are starting to move, and not just within Spain. The deal count has risen from just three in 2011 to 38 last year, when Spanish corporates invested $303m globally, with a strong focus on IT and media.
An interesting development is the rise of Spanish corporates investing outside Europe and the US, which have previously grabbed the lion’s share of cash. 2018 saw multiple deals done in South America. There are also signs of an increasing interest in the Middle East.
Spanish universities are increasingly becoming a source of innovation and startups. Amadeus invested in Situm, the result of years of research in the University of Santiago de Compostela.
Chiu said: “They work on the problem of indoor navigation at a fraction of the cost of mainstream solutions and it is gaining traction across industries and geographies. Telefónica, through its accelerator Wayra, plays a significant role in Spain and beyond. When corporations develop further understanding on the importance of innovation, we will continue to see vertical-specific accelerators emerging.”