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Investing in Spain: opportunities and sunny outlooks

(and we’re not even talking about the weather)

1. Why we chose to invest in Spain

From entering a nascent market… (pre-2010)

Elaia’s strong interest in Spain is not accidental. Shortly after launching Elaia, Xavier Lazarus, who is half-Catalan, noticed a growing opportunity in this emerging tech ecosystem.

…to structuring an investment thesis in a maturing ecosystem (2010 onwards)

In the early 2010s, the market started showing signs of maturity and the ecosystem grew, receiving increasing local and international attention and financing. This period was one of the emergence of leading local funds, backing the Series A rounds of companies that went on to become Spain’s first unicorns — e.g. Cabify and Wallapop. Seeing this growth, combined with the success of our first Spanish investments, we decided to extend our outreach in Spain. While our 2012 fund did not specifically include Spain in its foreign investment scope, we invested in Marfeel in 2013. This success finally convinced us of the amplitude of the local momentum and the future opportunities it entailed.

2. Building a country-specific ecosystem (today)

Stakeholders of the Spanish ecosystem have successfully built on the country’s strengths to develop a thriving ecosystem. Spanish players have succeeded in fostering innovation in a variety of industries, business models, and levels of technical complexity across the country and in regional hubs.

A. Emerging tech hubs

In addition to country-wide dynamics, local innovation hubs have emerged, all building upon their unique advantages:

  • Barcelona: Spain’s leading hub, with a high quality of life that implies attractiveness for employees, regulatory and fiscal advantages attracting employers, and finally public and private players constructing a fertile international tech hub. The city also counts world-class R&D centers (more on this below), favoring the emergence of a deep tech valley in the region.
  • Madrid: a close follower, with a strong B2B ecosystem that has emerged, as many big corporations are headquartered in the capital city.
  • Valencia: highly worth mentioning, featuring a number of accelerators like GoHub, Insomnia, Social Nest, Demium, or Lanzadera.
  • Malaga: a rising hub where public and private sectors converge, marked by recent multinational arrivals like the HQ for Google Cybersecurity, Vodafone’s R&D center, and the Malaga Tech Park focused on circular economy projects.
  • Bilbao (and by extension, the Basque Country): an area specialized in Industry 4.0, well backed by local capital and a more favorable provincial fiscal regime, as demonstrated by the presence of the Bind 4.0 accelerator or funds like All Iron Ventures which are based there.

B. The Snowball Effect

‘Success breeds success’; and Spain has not been exempted from the phenomenon. A few of its most successful companies have been around long enough to become fertile grounds for the next generation of entrepreneurs and industry leaders to emerge. The first wave of ecosystem players came out of the 90s and 2000s dot-com companies like Grupo Intercom, eDreams, or Tuenti technologies, which played a decisive role in this process.

C. A thriving B2B scene

The first wave of Spanish innovation was largely characterized by its B2C successes and the prevalence of ‘B2C copycats’ in the local landscape. However, for the past 5 years, local VCs and other observers have foreseen the shift from this paradigm towards a boom in B2B software and the emergence of local B2B champions. Our take is that Spain provides B2B startups with a market of extensive depth when it comes to SMB customers. This can be illustrated by the recent unicorn Factorial, or by our portfolio company Holded, which was built exclusively by selling to local customers and was acquired at a 9-digit valuation in 2021.

  1. a landscape of local large corporate companies involved in the ecosystem, as enterprise customers and as promoters of innovation;
  2. the capacity to successfully scale and replicate local models internationally, i.e. growing across Europe and globally.

D. The next European ‘Deep Tech Valley’

Going a step further, the Spanish market has not only adopted B2B tech models but is experiencing a dramatic increase in the number of deep tech players. And as the EU has placed the launch of “Valleys of Deep Tech” at the core of its innovation agenda, Spain is well positioned to become a center for the next deep tech revolution.

  • Over 50 research centers listed in the city
  • 12 universities with 53 research institutes
  • 15 scientific and technological parks to boost tech transfers from public research to private companies
  • Top universities:
  • World-class research organizations:
  • The Google Cyber Center and Vodafone’s R&D center in Malaga
  • Notable universities and research centers: UPV, UCM
  • Silicon Valley’s ingredients for deep tech success: local and international talent + quality of life + education (universities) + adequate funding
  • Spain’s current ingredients: local and international talent + quality of life + education (universities)

“The problem is not the funding gap on its own, but rather the consequence of a lack of investors with scientific and technical know-how and entrepreneurial experience. Investing in deep tech requires a strong scientific background and knowledge of the research industry, notably to conduct tech transfers from R&D labs to the incorporation and the funding of fast-growing companies.” — Sébastien Lefebvre, Partner

E. A maturing ecosystem against the crisis

Today, Spain is a structured and mature tech and industrial market, ranked 5th in funding on the EU tech scene (after Germany, France, Sweden & The Netherlands). This maturity can notably be illustrated by the growing valuation of startups, driven by a burgeoning number of unicorns, and numerous exits at 9-digit amounts and above (Igenomix, AlienVault, Holded).

  • Spain is still a relatively smaller market than its European neighbours, and thus has a greater sensitivity to market downturns leading to quicker contraction of the funding dynamics;
  • Or, the country enjoys less shock absorption effects as France or Germany in the face of economic crisis, and has thus a hyper-responsiveness like the one observed in the US or Israel, which would in turn mean a quicker period to regain growth.

3. The opportunities of the Spanish market for a foreign VC

Spain vs. other EU countries

  • Attractiveness for foreign workers: Barcelona ranks 2nd in the EU among founders as favorite hub to launch a startup, a dynamic illustrated by the acceleration of workforce movement towards Spain after the pandemic.
  • Specific and favorable regulations: through tax incentives, favorable regulations, elimination of bureaucratic obstacles, and flexibility in many procedures, Spain’s Startup Law aims at promoting its ecosystem. Among advantages offered: corporate tax reduction from 25% to 15% for 4 years, lower tax rate for international workers, new visas for digital nomads, increased tax deduction amounts and rates for investors, etc.
  • World-class technology events: Mobile World Congress and 4YFN, South Summit, etc.
  • Education and talent:

Conclusion: opportunities for a foreign VC

In only 10 years, Spain went from a local, very early-stage and B2C focused market, to a full-fledged and thriving tech ecosystem, where successful investors, institutional and repeat entrepreneurs interact to make it grow. Spain is now a dynamic ecosystem that attracts interests from Europe and the rest of the world, but still has room for growth.

  • Funding:
  • B2B:
  • Deep Tech:

Elaia in 🇪🇸

Today, Elaia has invested tens of millions in over 10 Spanish companies, developing a strong network within the tech ecosystem and contributing to it for over 16 years. We believe we were right to take this bet, and we think our presence in the Spanish ecosystem has been a mutually beneficial success, as we grew alongside.



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