Looking at the Spanish tech ecosystem from an international perspective in 2021 🇪🇸 🌍
Creandum recently announced Abacum’s seed round, which marks the fund’s second investment in Spain after Factorial 💚 🇪🇸. We are optimistic about the Spanish tech scene and think the ecosystem is on a great path to becoming an important hub in the European startup landscape.
Two years ago, we did a deep dive into the Spanish tech ecosystem from an international perspective. In this piece, we will revisit this and further explore the role of local and international investors, key geographic hubs, and the startups emerging within them.
Recent development
We have seen very positive developments in the Spanish ecosystem over recent years, such as:
- Increase in the availability of Spanish early-stage capital, especially for seed rounds. In recent years, Spanish VCs have been raising their second or even third funds, and early-stage fund sizes are growing. K Funds, 4 Founders Capital, Big Sur Ventures, Kibo Ventures and Samaipata’s latest funds are great examples of that. First-time fund All Iron raised the largest debut fund in Spain to date last year, and Target Global opened an office in Barcelona. It’s safe to say that the early-stage VC scene is booming and we have been lucky to invest alongside great Spanish funds.
- International investments flowing into the market
Next to local early-stage capital, international capital plays a key role in the ecosystem, and more international investors have been keen to make bets in Spain. Over 80% of the seed and series A rounds in 2020 included international investors. This indicates international investors’ confidence in Spain and VCs investing via zoom only has increased accessibility. But we’ll touch more on international investors later. - Strong development of Spain’s key hubs — Barcelona and Madrid
Unlike many other cities in Europe, the startup landscape in Spain is not dominated by one hub, rather there is a co-existence of hubs. Barcelona and Madrid are at the center of the tech scene and attract entrepreneurs, talent, and local and international investors. We also see other tech centers develop next to these two key hubs, such as Valencia and Andalusia. - Role models leading the way
With the first Spanish unicorns, the floodgates are starting to open; Spain is slowly breaking out its €100M status quo exits. Glovo, Cabify, Idealista and Spanish-rooted Flywire lead the way to billion-dollar valuations. Together with companies like JobandTalent, TravelPerk and Typeform, they serve as a breeding ground for entrepreneurial talent and strengthen the local “halo effect”. We increasingly see former employees of these scaleups choosing to go on to found their own ventures. For example, Sifted recently wrote about the Glovo “mafia”, Abacum’s co-founder Jorge was previously at TravelPerk and Wallapop, and Teo and Pedro from Circular worked together at JobandTalent. We’ve previously seen this halo effect in European hubs like London, Stockholm and Berlin, and are excited to see a similar development in Spain. Moreover, joining or founding a startup has become a serious possibility for students after leaving university. - Fundamentals in place: a) low cost of living with attractive costs for great talent b) good technical and business universities (ESADE, IE, IESE, Politècnica Madrid/Catalunya etc.) c) vibrant tech hubs and scene (BCN/MAD)
Despite considerable progress, the number of unicorns and success stories are naturally not yet at the level of Europe’s major hubs. But we’re confident that companies like Factorial, Onna, Paack, JobandTalent etc. are on a great trajectory and will serve as role models for young entrepreneurs.
🧐 What’s still missing?
From the perspective of an international investor, we have a observed a few challenges that the Spanish landscape faces:
Lack of local growth capital
Similar to our conclusion two years ago, there is still a lack of local growth capital available. Although local early-stage capital has become more widely available, growth capital for series A, B or C+ is still highly dependent on international investors. We believe that for the Spanish ecosystem to truly mature, more local growth capital needs to be available.
Laggard copycat behavior
A multitude of Spanish startups have been known to replicate business models originating from the US or Northern Europe. We see a triangular movement; starting with innovation in the US, then startups in Northern/Western Europe apply the business model to the European landscape, which gets replicated for the Southern European or LATAM market by Spanish ventures.
Below are a few examples of this triangular movement:
Robinhood was founded in the US in 2013, in 2015 Trade Republic brought the model to EU, and copied in Spain in 2018 by Ninety Nine. We see a similar pattern for neobanks: Chime launched in the US in 2013, Revolut in Western Europe in 2015, and Bnext and BNC10 in Spain in 2016 and 2018 respectively. In delivery there is a clear triangulation between Grubhub, Delivery Hero and Glovo.
Although Picasso once said “Good artist copy, great artists steal” and Steve Jobs added that Apple has always been “shameless about stealing great ideas”, questions remain as to how much innovation originating from the Spanish tech scene has the potential to be a European or global category leader. We would love to see even more companies from Spain being the “first” ones coming up with business models or executing as a first mover in Europe. Some hypothesis what it requires to get there:
- More role models from the ecosystem, which breed the next generation of ambitious entrepreneurs i.e. more “Glovo mafias”, similar to the Paypal, Stripe or N26 Mafia
- Even higher availability and more local capital
- An increase of the size of seed rounds to be competitive with international levels
- Increase of R&D expenditures. Spain only spends 1.1% of GDP on R&D, whereas countries like Germany spend 3% and the UK is at 1.7%.
- time…
Building for local markets
In addition to replicating business models later than other EU hubs, we see that many startups try to focus on building solutions for the regional or LATAM market. As international investors, we would love to see even more companies with clear ambitions to build for the largest markets in Europe, like the UK, Germany and France, or even try to conquer the US! We get excited by companies that innovate, think big and build solutions that can become category leaders. Redpoint, JobandTalent, Circular, Factorial, Tinybird or Abacum are great examples of companies that move away from the conventional focus on Spain and build businesses primed to succeed internationally early on.
🌍 🇪🇸 International and local investors
To get a better feel for the role and importance of international investors in the Spanish ecosystem, we did a side-by-side comparison of the number of funding rounds and their average size.
What becomes clear from the graph below is that a significant share of rounds is happening with international investors, especially when it comes to series A+ rounds. The number of deals with only Spanish investors only is limited, highlighting the lack of local growth capital.
In addition, international investors are very apparent in seed rounds; there are 3 to 5 times more seed deals with international investor participation than purely Spanish investors. When looking at the size of an average seed round, the differences are striking: Seed deals that involve international investors are double the size of those that only have local investors. This means that there is still a discrepancy between international and local market standards regarding round sizes and valuations.
Next to this, we would love to see larger seed rounds in Spain for startups to go after European or global leadership from the get go. Even when a Spanish startup raises a seed round from international investors, the average round size is still smaller compared to what Berlin orUK based startups raise. This results in Berlin/UK based startups having a capital advantage to go after international leadership from the start.
One of the primary reasons we see for this is the difference in fund sizes between larger international VCs and local funds. To overcome this capital disadvantage and discrepancy in seed round sizes and valuations, it is likely required that local funds will need to increase their fundsizes in their next generation.
Geographic focus
The majority of the international investments are still made in Barcelona and Madrid, which we don’t expect to change anytime soon. However, it is encouraging to see great companies rise outside these main hubs, such as in Valencia. In addition, the recent shift to remote work has made it possible for Spanish startups to more easily access talent anywhere.
Another promising development is that more and more up-and-coming companies have received international funding and have been able to raise that capital faster. For instance, companies like Paack, BNext, Jeff and Bipi had all not raised more than USD 10M before 2019, but have recently been able to reach total funding amounts of over USD 30M. The pace of the ecosystem is picking up! Below is an overview of the current landscape of larger, internationally funded startups:
Conclusion 👉
Is the Spanish ecosystem at the point where London, Berlin or Stockholm was 2 to 3 years ago? Not yet… but progressed fast in the past years and will continue its strong growth trajectory. Many of the fundamentals are in place. More local and international early-stage capital is available, companies have been able to raise more and faster than ever before and a clear halo effect is emerging that will spark even more new ventures in the years to come.
We are, and have been, bullish on Spain for a while and will continue to closely engage with the ecosystem and to hopefully add more Spanish companies to the #CreandumFamily. We have a penchant for companies that build to become international winners, so if you are a founder of one — get in touch (you can email me at peter@creandum.com).
