Entrepreneurship has become more trendy in Spain – that’s a fact.

A fresh law meant to attract entrepreneurs, a local Dragon’s Den, a TV program showcasing new startups, another highlighting individual entrepreneurs, or inventions made in Spain, and a new one about to go live … you can almost feel the perception of about small businesses and their founders changing throughout the country.

The question beckons, though: is Spain riding the entrepreneurship bubble as hard as it did the real estate one?

A look at the numbers

According to a recent report by Telefonica on the Accelerator and Incubator’s ecosystem,  Spain has had a massive influx of new startup programs in the past few years.

To be precise, Spain has 38 programs (versus Germany’s 31 or France’s 35). Such a scale isn’t supported by the country’s GDP, pointing out a more-than-probable bubble.

Telefonica Accelerators Report

Despite all the excitement and growth, one has to wonder whether the venture capital firms in Spain are up to the task, or lagging behind. I get asked this question quite often, and people get surprised when I tell them that there isn’t really a VC industry in Spain.

Yes, maybe I’m being too extreme, but it’s hard to argue with cold, hard data. The truth is, a quick glance at the 2012 numbers paints a pretty clear picture.

Spain saw 348 VC operations accounting for 158.8 million euros in 2012. Yeah, you read that right – that means an average operation of around 456,000 euros. Per deal. And that’s counting all industries, including foreign investments.

If we just stick to startups and exclude big deals in biotech, nanotech, etc. we’re talking about a mere 69.8 million euros. If we look at the deals tracked by Loogic, we get a similar number of 52 million euros in 2012.

Spanish VC 2010-2012

If we compare the total volume achieved in 2012 with the ones reported in Q3 of 2013 across all European regions, the difference is astounding. The Nordic region moved the same amount of money in one quarter than was invested in Spain in all of 2012.

Q2 2013 European investment

As you see, that hardly qualifies as an industry – it’s really more like a club of VCs.

One interesting development is the new wave of investments coming from accelerators like Wayra, Mola or Plug & Play. They join ‘older’ accelerators like SeedRocket, and have been spearheading the Spanish accelerator trend that accounted for roughly 9.7 million euros in investments in 2012.

Overall, most of the investments landed in Madrid (37.7 million euros) and Catalonia (27.1 million euros), with Valencia completing the top 3 (9.1 million euros).

Interestingly, Madrid accounted for 60 operations, compared to 114 in Barcelona. We should note that the average financing round in Barcelona is half the size of your typical round in Madrid, which is partly explained by the fact that Barcelona tends to have much younger startups, while Madrid probably attracts larger series B rounds for more mature companies.

Charting the landscape

We dug a little deeper and checked the current status of the top VC funds in Spain.

The three most active funds during 2013 have been, without a doubt, Cabiedes & Partners (~13 deals), Kibo Ventures (~10 deals) and Caixa Capital Risc (~10 deals).

Granted, most of those deals were co-investments, and they move in the seed round space with sizes ranging from 200,000 to 1 million euros. Very rarely do you see funds in Spain investing on their own, and the ones that have done it, haven’t fared too well so far.

A close runner-up this year is Active Venture Partners, which has done an outstanding job in the past few years and tends to do bigger rounds (1 million euros or more) than most Spanish VCs.

They also just had a new exit with Golden Gecko (bought by DMI) and saw a couple more last year (one of them was BuyVIP). We’re keeping a close eye on Chris and his team because they will likely be a major player in 2014.

Another interesting new player with deep pockets is Seaya Ventures, which came onto the radar this year and has already done four deals, totalling 20 million euros in investments already.

On a second plane you can find Faraday Venture Partners, Bonsai Venture CapitalVitamina K Venture Capital, Nauta Capital, Fundación José Manuel Entrecanales and Inveready Technology Investment Group, all with two to three deals this year. It’s interesting to note that the Fundación José Manuel Entrecanales is increasingly getting in on general startups and not just cleantech companies like they did in the past, which is great for the ecosystem.

On a third plane, you can find the likes of Adara Ventures and Highgrowth, which are barely doing new deals. Most of their activity is doing follow-on rounds for existing portfolio companies at this point.

Finally, there are a bunch of other VCs that appear to be in limbo – Axon Partners Group decided to invest in India while hiding their deadpooled companies (at least three that I could find) in Spain, so go figure.

Bullnet Gestión has no more funds after depleting their two funds, Bullnet Capital I and II, and it’s trying to get some exits going. Mobius Corporate Venture Capital, meanwhile, doesn’t have a functional website anymore, while Inicap went under.

There are a bunch of other players making small investments, ranging from business angel networks to small funds like Big Sur Ventures, Sidkap, Digital Assets Deployment (DAD), VentureCap SCR, etc. but I wanted to focus on the biggest and most active, which as you can see, are few and far between.

Notable trends

There are some interesting trends at play that are worth talking about.

The first one is that more and more European funds are looking for promising startups in Spain, while most Spanish VCs are focusing locally. A mix of regulatory issues and tax exemptions forces them to invest a certain percentage of their funds in Spanish companies.

The only two Spanish funds actively pursuing investments outside of Spain are Nauta Capital and Kibo Ventures. The former VC firm’s general partner, Carles Ferrer, comments:

“There are very few funds that have a defined and tested strategy for internationalization and follow-up of their portfolio companies across different geographies. […] We’re trying to replicate what Israel has done wonderfully for years, where companies have automatic access to leading markets (US) from the very beginning.”

Meanwhile, non-Spanish investment firms are increasingly looking to get in on the action: Sunstone Capital recently invested in Tyba, Point Nine Capital in Typeform, Intel Capital in Indisys, GGV Capital in AlienVault, and so on. Some of them are even adding Spaniard to their ranks, like the recent addition of Marc Ingla to Mangrove Capital Partners, where he will focus on opportunities in emerging in areas such as gaming, e-commerce, financial services, media content and messaging with a bias towards Latin countries.

This isn’t necessarily a brand new trend: last year, we also saw international funds pouring money in Spain, including Index Ventures (Fon, Privalia and Groupalia), Balderton Capital (Abiquo), Highland Capital (Privalia), Kleiner Perkins Caufield & Byers (AlienVault) and Sequoia Capital (Chartboost).

In terms of exits, 2012 was quite good for Spain. This year, we’re also seeing some exits (United Internet bought Arsys, Skyscanner bought Fogg, Groupon bought Blink, Symantec bought Password bank) etc.

This indicates that, slowly but surely, things are starting to happen in Spain. There are some local buy-outs worth mentioning as well: Offerum, the deal clone (and third player apart from Groupalia and Groupon Spain) recently acquired both Planeo and Destiny, which means they’re aggregating verticals as part of its expansion (or survival?) strategy.

On round sizes and internationalization

The rounds we’re seeing are still quite small. Seed rounds range from 100,000 to 200,000 euros, while series A rounds are between 500,000 – 1 million euros. Spain needs more risk-taking and bigger seed, Series A and B rounds before we can really speak of a serious VC industry in Spain.

Small rounds take too much time from the startups and they barely allow them to compete in larger markets like the US or Europe at large. If we want bigger wins, we’re gonna need bigger bets.

Another, perhaps non-surprising trend is the fact that most of the new rounds being raised in 2012 and 2013 are being used to expand the businesses elsewhere.

I’ve been a big believer that Spain never had a big enough tech market to start with, but the economic crisis has made my point for me, and it’s forcing almost everyone to look for business abroad. The interesting thing is that, while some years ago, the expansion was LatAm, there seems to be an increasing number of Spanish startups focusing on UK, Germany and France.

Coincidentally, I think LatAm was always a harder region for even Spanish-speaking entrepreneurs to conquer than key European markets.

Carles Ferrer (Nauta Capital) concurs:

“We should make our startups global as soon as possible. We need to add first-rate international members to the team from day one, have a much better international look and feel, combine local operations with global ones from the inception, and to make the companies seem global in each of the countries they operate in. […] The success of our international Spanish ventures have a very positive impact for the next round of startups.”

Finally, a new mega fund from ICO is probably going to change the landscape. The Spanish government is finalizing the red tape before launchg a 1.2 billion-euro fund that should have a massive impact on several of the Spanish top VC funds.

The new super fund is probably a response to all the criticism about Spain not supporting startups. In true Spanish fashion, they’re cloning, or at least trying to, the Israeli VC strategy from several decades ago by creating a mega-fund to invest in smaller funds.

Some investors remain skeptical, however. Cedric Kutlu, who manages Internet & Mobile investments at Kibo Ventures, says:

“Only a portion of that fund will will be attributed to VCs. If well-disciplined investment fund managers with relevant experience with technology startups are selected, then this will definitely give a good boost to the Spanish tech scene. In any case and generally speaking, promoting entrepreneurship and injecting capital to get the wheel turn faster is very positive news for the evolution of the Spanish ecosystem as a whole.”

Meanwhile, the corporates haven’t been sitting idle and have been pushing large funds that have ended up in many of the current active Spanish VCs. Kutlu (Kibo Ventures) comments:

“It’s interesting to see Spain being part of the recent growth in Corporate VC with initiatives such as Amerigo (strategic investments in selected funds) and Wayra (14 accelerators worldwide with already close to 300 investments in seed-stage startups) by Telefonica, BBVA ventures (100 million dollars fund for financial technology startups), Innovation foundation of Bankinter with its seed capital program, and Fitalent (5 million euros fund) by Everis.

I wouldn’t be surprised if we see more of these being developed by the large and leading corporations of Spain.”

Closing note

All in all, the Spanish VC industry is tiny, but at least new tastes are being developed. More and more companies are thinking global, forcing local VCs to shift their strategy.

Carles Ferrer (Nauta Capital) says:

“Spain still has a very recent and short VC track record if you compare it with other geographies like UK or US. The industry, which started pretty much centered around small seed funds, has seen a major change since the 90s.

Some funds have grown in total size and venture rounds as well as in number of investment stages they operate at, something that’s very important for follow-up rounds of growth companies. At the same time, top international investors are pouring money on Spanish startups, which is crucial. All in all, we’re seeing exciting developments, although slower than it should be.

We need to promote big and relevant exits in critical sectors so that everyone is more conscious; entrepreneurs, investors and strategic acquirers. I’m sure that we’ll see important advances on this during the next 2 to 3 years.”

True enough – we’re moving towards a more mature VC landscape in Spain, but I also share his frustration on the speed of that change.

Featured image credit: Santiago Cornejo / Shutterstock

  • Jose Cobian

    Great work Alex!

  • Jose Simoes

    Very interesting. In most cases, you could replace Spain by Portugal and the article would still make sense (apart from the volume of course).

  • Galaxier

    Writer’s block has nothing on you. Excellent analysis Alex

  • Ravi

    Spot on, Alex ! The averages clearly indicate the investments are more Angel-like & less VC-like

  • abarrera

    Thank you all! There is so much things we can cover here. Someone asked me to break down investments by type, which I might do on a followup :) Thanks for the nice words guys! Very appreciated! :)

  • Ignaciofonts

    Great article Alex, but check your data about Inveready, we have already invested in 7 companies in 2013 and the year is not over :)

    • abarrera

      Hi Ignacio! 7 companies in the tech space? I was discounting the ones in biotech and nanotech and the likes. Only computing purely tech so that it can be matched with the other VCs. I did the same for other fund like Nauta Capital.

  • Alberto Gomez

    Good article. However, I believe your assessment of the landscape needs further analysis. First, you say that small round sizes are a problem in Spain, yet you rank firms by the number of deals done without commentary about round sizes, or the trajectory of companies backed by those VCs. Secondly, you mention that global VCs (Kleiner Perkins, Balderton, Highland, GGV, etc) are “getting in the action”, yet you do not mention the funding from local VCs that those same companies first received to get going. Third, the level of activity by a firm (mine, Adara, included) is naturally affected by fund raising cycles, and the past several years have been a tough environment indeed… Anyway, I clearly agree that VC-funded companies should globalize as early as possible, but I also believe that the answer is not to ask each single VC to make “larger bets”. That only will lead to poor diversification scenarios given existing fund sizes. The industry as a whole must grow in available funds, with each firm pursuing its individual strategy and preferred stage. To that end, the initiative from FondICO is a substantial positive factor. We also need more success stories and possibly additional incentives, in order to get Spanish private investors will make a greater allocation towards venture.

    • abarrera

      “Granted, most of those deals were co-investments, and they move in the seed round space with sizes ranging from 200,000 to 1 million euros.” <- I did, although I agree with you. It's hard to get everything in a single post. You're right about international firms getting into the game after seed, but some of them are already playing in seed directly like Point Nine for example. They're moving from doing series B to getting involve in series A, and hopefully into seed soon. I agree that not all the VCs should do large bets, there are many styles and strategies. I just suggested that it might be a good time to start doing something unknown so far, which is to take bigger risks with larger funds. As you say, doing this with the existing funds would be suicide, but creating larger funds and doing larger bets would be interesting to see. Specially as it would force the companies to go big from the beginning. Totally agree with your final comments :) Thanks for sharing!!

  • Gary Stewart

    Thanks, Alex, for providing this much-needed analysis. To figure out how to get to where we want to go, it’s important to have a clear sense of where we’re at. Great job!

  • Aquilino Peña

    Great way to start your coverage in Spain. Good info and post to kick off the discussion

    • abarrera

      Yeah will definitely do an in depth piece with each VC, that might be fun indeed, but for that I need the help of all of you guys 😉 Yep that’s the usual comment, is it a lack of VC or a lack of good projects. I’ve heard that so many times. I tend to agree with you though, good entrepreneurs hustle their way through. I guess my point would be that’s sometimes it’s painful for them to have to struggle so much when they have good projects when other so-so get investment. All in all, this is a two sided equation and you’re very right in that there are problems on both sides :)

      • Fèlix Arias

        First of all, great article Alex! Really enjoyed… Let add my view from the VC side on that money/projects equation: no doubt for me there are there are more good early stage projects than money willing to invest.

  • Marcos

    Es trendy enough escribir en espanish o si no lo hago en ingles se me tildara de paleto primitivo?

    • Nick Lekuona

      El escribir en inglés en un foro de estas características no es una cuestión de ser trendy, es una cuestión de llegar a un público relevante se encuentre donde se encuentre, y no limitarnos a los hispanohablantes. Si tienes la necesaria desenvoltura con el idioma, no te dejes por el camino el dialogar con gente interesante de cualquier lugar del Mundo por mantener una postura “patriotica”. Si no, pues no puedo mas que invitarte a que te pongas las pilas, o te vas a perder muchas cosas interesantes…

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  • Katelyn Melan

    Awesome work Alex! From talking to investors do you think the smaller rounds have to do with spray and pray attitudes at earlier stages, risk aversion or an inability to fundraise more to make larger investments? (its obviously a combination- but Im interested in what kind of things you were hearing while researching this) Keep the good stuff coming!

    @nicklekuona:disqus bien explicado :)

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  • Alex

    Great article and analysis!

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  • That’s a great analysis Alex, as usual. Based on this post and the situation on the VC firms in Spain, we made our own analysis some days ago, and our conclusion is that there’s still a gap between Spanish VC and the rest of Europe. Some years ago there weren’t much VC firms or startups, but VC firms and their quality have been increasing at the time that the number of startups has been increasing too.

    On the other hand, it is important to understand every VC firm itself, and some important characteristics like which stages, which sectors do they invest in, what investments and co investments have they already made, etc.

    We gather this information about the most active VC in Spain on this post we would like to share with all of you


  • Gonzalo Martinez de Azagra

    Alex, great analysis. I agree with your conclusions, the VC market is inexistent and the companies have generally struggled to internationalize. The good news is that certain parameters that are vital for a healthy ecosystem have changed. The main one being the culture. A few years ago no top ranked student would consider being an entrepreneur. Today, entrepreneurship is trendy (due to the lack of alternatives and low opportunity cost). This is attracting more talent and coupled with more investment indirectly from ICO will generate more quality startups (albeit also a bubble).

    Nonetheless, lessons will be learned and the system will flush the uncompetitive startups out.

    The early stage nature of the industry can be demonstrated by reading the news surrounding the industry. People are celebrating rankings on numbers of investments and volumes rather than exits. Exits are difficult because there is a disconnect between Spain, Spanish startups and the global technology leaders. Few VCs have been capable of attracting international co-investors and have been successful at exiting their investment via a large foreign technology company.

    Our biggest challenge now will be to find VCs capable of connecting these startups with the rest of the world for business development and eventually for an exit. I am optimistic about the future and I think 2014 will be remembered as inflection point for the industry.

    • abarrera

      Very true :) Stay tuned as I’m about to release an update on this post :)

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