May 30, 2019 Last updated May 29th, 2019 93 Reads share

Scale up Spain via Developing Startup Ecosystem: Good, or Not Good Enough?

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Valuing the startup ecosystem in a region is a complex issue due to the multitude of variables that must be taken into account and the volatility of these variables. Bloomberg has created the “barometer of startups in the US” where it reflects the situation and the evolution of the situation of the startup ecosystem of the country in a single index.

In addition to these quantitative variables, other more complex factors must be taken into account. In this sense, we are going to analyze the situation of the startup ecosystem in Spain.  

Location of the startup ecosystem

At the beginning of 2018, there were about 1400 startups, 20% more than the previous year and ended the year 2018 with 4115 new startups according to data from the Mobile World Capital of Barcelona (MWC).

65% are located in Madrid and Barcelona, ​​8.5% in the emerging poles of Valencia and Bilbao. So we can clearly see that the startup ecosystem in Spain is very concentrated in a few regions.

It has about 200 business accelerators/incubators and 129 co-working spaces. Some examples are Plug & Play, Lanzadera, Connector, Metaxa, Demium…

It is the second country in the European ranking just below the United Kingdom. Valencia is the leader in hosting these types of business assistance and acceleration programs in the early stages.

Activity sectors

Technology and the innovation of Spanish startups dominate the activity sectors. They lead the e-commerce (17.8%), followed by the mobile (15.5%) and the enterprise and web consumption with 11% each. The sectors that are gaining strength are tourism or fintech according to the latest annual report of the Start explorer.

However, the startup ecosystem in Spain does not stand out for having disruptive ideas or great innovations, but it is based on traditional businesses, in the digitalization of them or in social applications.

Companies must look and listen more to new entrepreneurs, new ideas and market trends should be one of their inspirations. We are in the process of transformation, and large corporations must reinvent themselves to adapt the digital age and above all, to new consumers, customers or workers; Millennials who have very different behavior and vision of things.

The figure of the entrepreneur

The statistics show the typical entrepreneur in Spain as a man of 40 years, medium / high purchasing power and with higher education, generally in ICT and/or business.

It means that even young people find it difficult to start up their ideas, often due to the lack of resources or funding, and the older ones are still immersed in fear of failure. Spanish culture has fostered the fear of failure and to take refuge in more stable and secure jobs instead of taking risks. This way of being is a negative point when undertaking.

Investment

In 2017, investment in startups increased by 40% which is figured €784 million, and in 2018 the growth of startups investment was 53% figured €1.2 billion which is breaking a new record according to the Deal room.

195 operations with a total size of 4.18M invested. That is the number of operations decreases and investment increases, which indicates that the funding rounds are longer. In turn, this is an indicator of market consolidation.

Attraction and flight of talent

“The 6.7% of the best developers in Europe are in Spain, although they are far from the concentration of talent that countries like Germany (21.5%) or the United Kingdom (20.5%) have. MWC data ”

In Spain, there is a good pool of digital talent, which is demanded by startups. Spain is the third European country where entrepreneurs and ICT professionals and entrepreneurs want to work, and that is due to:

  • The connectivity of the startup ecosystem that Spain presents. That is, there is a large number of accelerators, co-working spaces, international congresses, financing aid programs such as the ENISA loans, ICO or the proliferation of business angels network that invest in Spain.
  • Although the market is small and serves to test the products in the first instance, it is the gateway to Europe and is well connected with the rest of the countries of the continent where they can continue the internationalization of the business. Besides that, the Spanish language is the second most spoken language in the world, which invites many foreign entrepreneurs to locate themselves in Spain and learn it through the extensive market they can reach.
  • In recent years, high funding rounds are being raised, which indicates that these startups have previously obtained capital in the first phase of financing and have done well to continue growing. The indicator is optimistic, especially since the number of foreign investors has increased compared to local ones, although investment is still scarce compared to other areas such as the US, Germany, the United Kingdom or Israel.

 

However, there is a great drain of talent to other countries of the European Union or the US, and this is due to such important factors as:

  • Salaries are uncompetitive. For example, a senior web developer can earn more than double in London or California than in Spain. This is still a great burden.
  • The economic crisis: It has pushed many people to create their own business, put them into the situation of taking action with the ideas that were parked and earn a living through self-employment. The keynote is to start in the local Spanish market, which is quite affordable, and if it goes well, jump into the international market and migrate to countries like the US where it is easier to get large rounds of financing and consolidate.
  • Taxation: In Spain, it remains the unfinished business because of the little that favors the self-employed and entrepreneurs who want to start from scratch. Despite some reform that has been done in this aspect, the new entrepreneurs are bureaucratic obstacles and have to face payments and taxes for those who have not yet billed enough. On many occasions, it is one of the main reasons to leave and close the company. There is still a long way to go in this aspect.

Next “law of startups”

Last December, the Spanish Ministry of Economy and Business, through the Secretariat of State for Digital Advance, promoted a process of public consultation until January 25, in order to ask citizens for their needs in the startup ecosystem

The objective was to gather information for the elaboration of the law for the “Promotion of the Startup Ecosystem.” In fact, the Secretary of State of Digital Agenda maintained contacts with the main agents of the sector.

Among the measures to be adopted that are being considered, the following should be highlighted:

  • Tax incentives for research activities, and technological development and innovation.
  • Labor incentives in Social Security and the recruitment of talent.
  • Positive discrimination measures.
  • Incentives for large companies to integrate the activity of startups.
  • Bureaucratic reduction.
  • Improvement of the second chance system.
  • Promoting public purchase instruments to encourage the participation of startups in Administration projects.

Conclusion

Finally, this legislative initiative could be the backing that the national entrepreneurial ecosystem needs to rise to the top of the world ranking and become an engine of economic growth and wealth generation. Only time will tell.

Business Start-ups

Carl Cotton

Carl Cotton

An entrepreneur with experience in finance and journalism. Fascinated with the intersection of current digital footprints, modern entrepreneurial eco-systems, and world events, particularly when they culminate in subtle, or significant shifts in the global business terrain.

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