Scaleup Spain. Good, But Not Good Enough

Though the Spanish scaleup ecosystem is showing a growing pattern, it is also growing slower than the most immediate comparables, preliminary numbers of 2018 suggest. This is what emerged from the last SEP Report “Tech Scaleup Spain 2018” by Mind the Bridge with the support of Acciona.

“As of December 2017, we tracked 256 ICT scaleups in Spain, and those companies collectively raised $3.3B in financing – commented Alberto Onetti, Chairman Mind the Bridge and SEP Coordinator – According to our ‘Scaleup Country Index’, the Spanish ecosystem ranks 5th in the number of scaleups, behind UK, Germany, France and Sweden, and 6th for what concerns the capital raised. Among the Southern European countries, it ranked 1st with about 50% more scaleups than Italy. But the gap with the UK, Germany and France is simply too broad to be bridged.”

Spain shows a “Scaleup Density Ratio” equal to 0.6 scaleups produced every 100,000 people, below the European average (equal to 1) and better than Italy (0.5), but it is slightly below Portugal (0.7). For what concerns the “Scaleup Investing Ratio”, equal to 0.25%, Spain is overperforming the value recorded across the Southern European countries (0.15%), although still underperforms the European average (0.45%). In the Scaleup Europe Matrix theSpanish innovation ecosystem shows to be much smaller than its potential, considering the size of the economy.

2018 – A growing year?
In the first 9 months of 2018, Spain added 54 new scaleups to its previous count, bringing the total number of Spanish scaleups to almost 310. The total number of scaleups added as of Q3 2018 is significantly higher than the total number of scaleups newly established in 2017 (37 in the whole year). Spanish scaleups have been able to collect about $635M in the first nine months of 2018, which is already outperforming the 2017 figures ($479M across the year).

“However, the progress is not enough to narrow the gap with the main countries: in the same period of 2018 (Q1-Q3) UK added 450 new scaleups and invested almost $8.7B; France 180 companies and $2.4B new capital, while Germany 125 new companies raising $3.1B – added Telmo Pérez, Chief Innovation And New Business at Acciona Group – And the gap with the most immediate comparables – Switzerland and Sweden – has been widening too: 71 new scaleups and over $1.2B raised in financing for the first, 71 and $1B for the second. There’s a need for Corporates to work more closely with startups to pick up the pace.”

A Young ecosystem
The 60% of Spanish scaleups are between 4 and 8 years old, 27% were established before 2010 and only 13% in 2015 or after. 2016 was the peak year in terms of scaleups financed (58, equal to 23% of total), while 2017 experienced a general slow down in the funding activity (52, 20% of total).

Startup funding still dominated by Venture Capital
84% of capital raised by Spanish scaleups, equal to $2.7B, was collected through VC funds. The remaining 16% ($0.6B) was secured on the public market (IPO). In Spain, there are only two scaleups that went public, namely Only-Apartments and Odigeo, also known as eDreams. Odigeo solely raised over $500M through IPO on the Madrid Stock Exchange in 2014, amount equal to the 15% of total capital available.

“To address this issue I’m pleased to announce that Startup Europe Partnership platform will land in Spain in December through a dedicated SEP Scaleup Summit hosted in Madrid by the Spanish Exchange – said Isidro Laso Ballesteros, Head of Startup Europe – This is a great opportunity to stimulate corporate-startup collaboration at European level as well as to increase the involvement of the stock exchanges. We are happy that the Spanish Exchange – after Boerse Stuttgart, London Stock Exchange, Budapesti Értéktőzsde, Borsa Italiana – agreed to join Startup Europe Partnership and increase its involvement in supporting the startup ecosystem.”

“BME is proud to host the first ScaleUp Summit in Spain. Access to stock markets is a driving factor in the development of Spanish innovative companies and BME markets offer them an excellent alternative”, added Jesús González Nieto-Márquez, General Manager of Mercado Alterativo Bursátil (MAB), Grupo BME.

US investors are very active
In Spain the first source of financing comes from the US-based investors accounting for 35% of total rounds (about $1B with an average round of $14.6M), mostly later stage. Only 31% have been domestic ($800M, average rounds value of $2.7M) and they have been mostly focused on early phase. UK-based investors led only 8% but they poured into each round over than $10M. Other European funds count for 6-7%.

Spanish scaleups moving to the US
In Spain 31 “dual companies” – those that moved their headquarters abroad, maintaining a strong operational presence in the country of origin – have been identified. They are 12% of the total as of the end of 2017 and cumulatively secured 20% of capital available (more than $650M). 23 out of 31 preferred to move to US (14 to Silicon Valley), 2 to Mexico while the remaining are spread across the top European hubs. The average amount of funding raised by dual companies is $21.1M, twice the capital raised by companies following a domestic funding path ($11.5M).

4% of the scaleups take the 55% of the capital invested
Small scaleups characterize the Spanish ecosystem. 81% have raised less than $10M securing a total of $600M (about the 18% of the capital made available to Spanish high-tech companies). 15% of scaleups were able to attract between $10M and $50M, securing the 27% (about $850M). The remaining 4%, able to raise more than $50M, secured the 55% of the total capital alone (i.e. about $1.8B). 6 of them were “scalers” (companies that raised more than $100M in financing).

Hotspots in Spain
With 125 scaleups, Barcelona is the largest hotspot of the Spanish Scaleup Ecosystem. Madrid and Valencia follow with more than 90 and 10 scaleups, respectively.
Both Barcelona (7th with 125 scaleups and $2B raised) and Madrid (10th with 92 and over $1B raised) appears in the top 10 of the European City Hub Index. Spain is the only country with two cities among the top European city hubs for startups establishment, accounting for 85% of the scaleups and 95% of capital invested.

Based on the “StartupCity Future Growth” indicator – comparing the share a city has in the country’s startup economy and the current contribution to the national GDP – Barcelona and Madrid show values well above the parity (indicating they are likely to increase their economy role over time) while important cities like Bilbao, Seville, and Malaga are positioned below the parity (might be experiencing a decline in the medium term). Valencia is just “au pair”.

According to the “StartupCity Innovation Potential” – assessing the potential of tier-two cities to turn into larger scaleup hubs – no Spanish cities got a valuation above 3 in a score ranging from 5 (maximum potential) to 1 in the top 150 list. Valencia is the best positioned with a 3-star valuation, followed by Seville (2.5), and various cities with 2. For these cities it is key to develop startup strategies to regain centrality.

Say Spain, say E-commerce and Travel
In Spain E-Commerce sector is the most populated with 37 scaleups and $420M raised, equal to the 13% of total capital available. Travel follows with 24 and about $600M raised (18%, the majority). Enterprise Software (21), Advertising (20), Fintech (18), Mobility (17, about $400M raised, 12% of total), Digital Media (16) are also represented.

Startup M&A: Is Spanish Scaleup “On Sale”?
According to the “Tech Startup M&As” report, 290 exits of Spanish startups have been identified, bringing the country in the 6th position among all the European countries. Quite far from the Netherland and Sweden (approx. 400 exits each), but still in a better position than Italy and Switzerland (below 200). The gap with the UK, Germany, and France is once again too wide to be bridged, with respectively 2544, 835 and 782 exits identified.

On the buy side, 161 startup acquisitions carried out by Spanish corporates have been identified since 2010, bringing the country in the 8th after Switzerland (252) and Ireland (209). A worrying 2:1 ratio between exits and acquisitions could lead to a situation where technology, innovation, and new capabilities leave the country and industry turn into obsolete. In this scenario Madrid is characterized to be the main hotspot with 104 exits and 63 acquisitions.

“What’s needed to make a substantial step forward? First and foremost, more capital needs to be invested in startups – ended Alberto Onetti, Chairman Mind the Bridge and SEP Coordinator – Then a deeper involvement of stock exchanges, more corporate-startup collaboration and open innovation and, last but not least, more startup hotspots beyond Barcelona and Madrid. Because too much concentration does not trigger sustainable growth.”