Outrunning the bulls: A look into Spain’s developing startup ecosystem

After a devastating economic crisis brought the country to its knees, Spain has started to build itself back up — in part thanks to the country’s developing startup ecosystem.

Spain has had a difficult decade, with its unemployment having risen to as high as 26 percent in 2013. However, last year Spain’s economy finally returned to its pre-recession size, with new opportunities for entrepreneurs promising to combat the still-high level of unemployment.

This past year I had the chance to visit Spain with my Partner Eddie Arrieta, and while conversations about Spain may be still be dominated by stereotypical topics like tapas, soccer or flamenco, the county’s startup scene is now making a name for itself. After two years of double digit growth in the percentage of new startups, Spanish startups witnessed a milder 7 percent growth in 2017, pointing to signs of consolidation within the startup community.

With that in mind, here’s a look at the most important factors that have helped Spain bounce back and support the growth of its startup ecosystem.

Local, highly educated human capital is finding opportunities at home

A high quality education system is the bedrock for the development of any startup ecosystem — and Spain excels in this regard.

Not only does the country boast a tertiary education rate of 40.1 percent, higher than the average for the European Union, it also is home to a number of impressive educational institutions, with three Spanish universities making the top 10 in Financial Times’ annual European Business School Rankings for 2017. Moreover, Barcelona’s IESE has been ranked the number one executive education program by Financial Times three years running.

In years past the economic crisis drove an enormous brain drain, forcing many Spanish graduates to leave their home country in pursuit of careers abroad. However, as Spain’s economy stabilized and its startup ecosystem developed, more bright young minds came home to be involved in their local scenes once again. In just a few years, the country’s youth unemployment has fallen from nearly 60 percent to below 40 percent.

In a VentureBeat article, investor James Cameron of Accel Partners notes a surprisingly positive outcome of the economic hardship saying, “The recession that plagued Spain after 2008 seems to have created a new breed of entrepreneur — one that isn’t phased by a fear of failure or red tape, the two traditional Achilles heels of the Spanish startup ecosystem.”

And Spanish entrepreneurs agree. “Being an entrepreneur is something that’s now very accepted culturally,” said Carlos Matilla, founder of drone startup FuVeX, to the Financial Times. “Before, you practically had to be a civil servant.”

And as more and more graduates are deciding to stay home and take advantage of what the vibrant startup community has to offer, Spanish entrepreneurs have the competitive advantage of being able to snap up skilled developers and engineers at a fraction of the Silicon Valley cost.

What’s more, favorable living conditions and an attractive lifestyle continue to draw international entrepreneurs and digital nomads to set up shop in Spain, too. In fact, a number of Spanish cities are featured as some of the most attractive for places for digital nomads, including Barcelona and Valencia, based on cost, internet, fun and safety.

Public and private institutions picking up the slack with funding

The truth is, though, starting a business in Spain isn’t easy. In fact, the World Bank ranks Spain 86th of 190 countries in this regard. But that’s not to say that the government has sat idly by.

In the heat of the economic crisis in 2013, the Spanish government launched an Entrepreneurs’ Law that was designed to foster its startup culture, and in turn boost its economy. Despite the good intentions, critics would go on to label the effort ineffective, and later chastise the government yet again for an “Exit Tax,” among other measures, that harmed entrepreneurs and their startups.

Yet in step with more and more talent embracing the entrepreneurial mindset, the Spanish government and other private institutions have finally set out in supporting the startup environment in a major way. With funding.

Historically, finding capital has been Spanish entrepreneurs’ — and venture capitalists’ — biggest obstacle. In 2013, the Spanish government responded to this challenge by launching FOND-ICO Global, a €1.5 billion fund-of-funds, to support the creation of venture capital funds that would invest in the country’s most promising startups. Since then, the country’s venture capital scene has exploded; Spanish startups have seen venture capital investments skyrocket from about €150 million in 2013 to almost €800 million in 2017, marking an all time high in amount invested and number of deals.

These findings suggest that the seeds of the startup ecosystem are finally being sown. In 2017, the number of pre-seed and seed deals, in particular, grew tremendously, accounting for almost 50 percent of the rounds closed. Accordingly, the country has begun pumping out a number of new startups, as well as institutions to support them. Science and technology parks that encourage this type of innovation play a very important role in the country’s startup ecosystem, which is home to more than 80 technology parks, with about 6,500 operating companies. Entrepreneurs can also rely on the support of a growing number of incubators and accelerators designed to bring their ideas to life.

Said K FUND investor Jaime Novoa in an interview with EU-Startups.com, “The Spanish startup ecosystem is fairly young. Although the first tech companies in the country were created around the dotcom era, it hasn’t been until very recently that we’ve seen an explosion in the number of tech companies and entrepreneurs in the country… We’ve had several in the past few months, Ticketbis acquired for eBay for €160 million, Privalia sold for €500 million, SocialPoint acquired by more than $250 million, and hopefully that trend will continue in the near future with some great Spanish startups such as Typeform, Carto and many others. It’s a great time to be an entrepreneur and investor in Spain.”

Support organizations are making Spain a geographic hub-of-hubs

In most countries, startup activity is centred around one main dominant hub. Think London in the United Kingdom, Berlin in Germany or Paris in France. There might be smaller regional players too, but everyone knows who is boss.

What makes Spain unique, however, is that its entrepreneurial activity is spread throughout the whole country. Barcelona and Madrid have long battled it out for the title as the leading Spanish hub, however smaller regions like Valencia, Andalucia and the Basque Country are beginning to come into their own as well.

According to the European Digital City Index (EDCI), which measures how well different European cities support digital entrepreneurship, Barcelona is the highest ranked in Spain, and the ninth ranked overall. Local authorities have put extensive effort into making it the world’s leading digital city with a number of initiatives, such as smart traffic management, free public wifi, an open data initiative and the creation of the 22@ Innovation District.

Following close behind Barcelona on the EDCI is Madrid, which ranked 14th overall. In Spain’s capital city, incubators and accelerators play a particularly important role in the growth of the startup ecosystem. Telefónica’s accelerator program Wayra has a strong presence, in addition to others such as Tetuan Valley, Seedrocket and IE Business School’s Venture Labs — not to mention Madrid also hosts South Summit, one of Europe’s leading startup conferences. Together, these support organizations have created a healthy environment to launch more startups like Cabify, which can proudly call Madrid its home.

But outside of these top two, other regions have showed extreme promise as well. One of these cities, Valencia, was also ranked on the EDCI at 42nd, due in part to its extensive entrepreneurship network of more than 33 investor funds, 500 startups, 40 startup communities and 60 coworking spaces and accelerators, including Silicon Valley’s Plug and Play. However, the autonomous communities of Andalucia, which is home to 150 startups and the largest number of incubators in the country, and the Basque Country, are both gaining fame as hot Spanish startup hubs as well.

Despite a devastating economic crisis, governmental challenges, Spain has managed to develop an impressive and thriving startup ecosystem. There is no doubt that a number of challenges remain, but the country’s resilience instills confidence in the prospect of its future as a global startup hub.

This article was Co-Written by Zachary Laval

Featured photo by Jean-Pierre Dalbera