- Spain’s startup scene has evaded some of the collapse in VC funding that has rocked Europe in 2023.
- Smaller check sizes and a lack of “ego” has somewhat protected the ecosystem, investors say.
- VCs are now keen to back rounds they may have been priced out of during a frothy 2021.
Smaller valuations, check sizes, and a distinct lack of ego helped Spain’s startup scene evade some of the shocking collapse in venture capital funding that has rocked Europe so far this year.
Spain is home to breakout stars like business travel company TravelPerk, grocery delivery app Glovo, and now-listed EV charger maker WallBox. The market has also lured in some of the world’s biggest investors with the likes of SoftBank, General Catalyst, and Accel all making bets on the country’s startups.
Despite this, Spain was never one of Europe’s “hottest” markets, according to Pablo Pedrejón, partner at Madrid-based firm Seaya Andromeda. The UK, France, Germany, Switzerland, and the Netherlands all regularly beat Spain to fresh venture capital investment.
But this has turned out to be a “blessing in disguise” as it has contributed to lower volatility in the market, according to Pedrejón.
Venture capital funding in Spain dropped 46% to $700 million in the opening quarter of the year, comfortably outperforming the 67% slump in Europe where investment plummeted to $39.6 billion, according to PitchBook data. That said Spain experienced a slightly more pronounced decline than its European peers in 2022 with investment sliding by 20.5% to $3.4 billion on 2021 versus the wider regional average of 15%.
Smaller rounds give Spain’s startups an edge in the downturn
What correction was felt was eased by the fact there is less “ego” in Spain’s ecosystem, according to Max Bray, an investor at early-stage firm K Fund.
“Smaller valuations and small rounds are only a reflection of a cheaper market and one that was less frothy for the last couple of years. I think it’s healthy because it means businesses build sustainably,” he said. This gives Spanish companies an edge in a downturn, Bray added.
The bloc’s cooling-off has given home-grown investors an opportunity to get back into deals they missed when the market was frothy, according Marc Sabas, investment director at Madrid-based Ship2B. Sabas is set on deploying with the same energy while others pull back, backing good teams at logical valuations – deals that weren’t available at the market’s peak, he said.
K Fund, also based in Madrid, is writing tickets with the same velocity according to Bray. The biggest change for him is that there is no longer pressure to have checks written “yesterday,” meaning the firm can take more time to close deals.
Startup ecosystems are often judged on successful later-stage companies and exits – though they took a beating last year. Growth funding in Spain collapsed 57.5% to $779 million in 2022, per PitchBook. There are “basically no growth funds in Spain,” K Fund’s Bray added. His firm is trying to bridge that gap and reached first close on its growth fund, Leadwind, last year.
“There have been very few pre-IPO rounds in Spain,” Seaya’s Pedrejón added. But those rounds that did take place, such as Glovo and Wallbox, were successful and injected liquidity back into the ecosystem, he said. Grocery delivery company Glovo was acquired by Delivery Hero for $2.6 billion in 2022, while electric vehicle charging Wallbox went public in 2021 via a $1.5 billion SPAC.
Glovo founder Oscar Pierre set up his own fund last year. The move highlights how the ecosystem has matured, said Ship2B’s Sabas. Such moves by successful founders help to “pay it forward” and create a positive chain reaction, added Danae Vara, cofounder of mobility startup GoCleer.
Dry powder is squeezing startups
There is plenty of dry powder, investors said – but whether this is being deployed fast enough is another question, according to Vara. Investors holding onto cash until the second or third year of their fund’s investment cycle may take the pressure off them in a down market, but it puts pressure on startups to make huge returns in shorter time frames, she said.
“The problem that I see is that a lot of this money goes towards sustainability programs or impact funds – but impact takes time,” she added.
Ship2B Ventures, an impact fund, hasn’t changed its KPIs or expectations due to the downturn, Sabas said. The climate sector is more resilient and less volatile, he added. Case in point: Investment into Spain-based energy companies increased nine-fold to $160 million in 2022, and deal count also increased 31% to 17. The sector is the only one to see both figures rise; IT joins it as one of the only two sectors to see year-on-year investment growth, but deal count fell.
For Seaya’s Pedrejón, investors are more likely to double down on and support their existing portfolio companies. “This has been an upward trend globally in recent years, and more recently, also in Spain,” he said.
As well as the birth of local growth funds, investors see corporations playing a role in closing the funding gap. Corporate interest in Spain’s startup ecosystem has crept up in recent years, with corporate venture capitalists (CVCs) involved in 24% of its 641 deals in 2022. CVCs played a role in 21% of Europe’s 12,356 deals in the same year.
There’s an opportunity to build startups that solve challenges faced by corporations, according to Félix Ortega, the CEO of Barcelona Activa. His organization, a branch of local government that champions businesses, launched a platform to connect startups and corporates last year. Corporations could help fund new research, support smaller companies in entering new markets, or become exit paths, he said.
Increasing corporate investment – either directly or with investors in other funds – is key to keeping companies in Spain, according to K Fund’s Bray. Startups can otherwise be lured away because access to funding is “considerably easier” elsewhere, he said.
Telefónica, BBVA, Proeduca, SATEC and Go-Hub have all backed K Fund’s Leadwind fund.
One of the perks of a growing ecosystem is that it can whip investors into shape, according to Antler’s Iberian partner Sérgio Massano. “There’s this beautiful moment where entrepreneurs become really demanding and the quality VCs have to deliver just goes up and that’s amazing,” he said.
It happened with Silicon Valley – people pushed the charter up every single day, he said. It then happened in the UK, as founders and investors flocked to London “trying to be incrementally better than the next.”
“It’s what I think is happening now [in Spain] and it’s great. You have to be on top of your game, it doesn’t matter if you’re great today. What can you do to be incredible tomorrow, to help entrepreneurs?”
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