Why Spanish entrepreneurs who want to expand have to seek funding overseas
Experts say that the amount of investment they need is "just not available in Spain"
The crisis in Spain, the need to expand on an international scale and the difficulty of accessing funding. These are the main reasons that an increasing number of Spanish entrepreneurs are looking for investors beyond the borders of Spain.
The venture capital sector in Spain has fallen somewhat by the wayside of late. In the first half of last year investment in start-up companies fell by 24 percent from the same period a year earlier to 82 million euros for 335 projects, according to figures from the Spanish Venture Capital Association (ASCRI). That was the level last seen in 2009.
In this respect, things can't be said to be that much rosier elsewhere, with investment in new projects in the United Kingdom, France, Germany and the Scandinavian countries also down in the same period. However, there is a big difference in these countries with respect to Spain: the number of investors and the amounts they are willing to invest are both significantly higher.
For projects that have been on the go for one or two years with proven business models, obtaining two million euros or higher in Spain is a challenging task.
Getting hold of two million euros or higher in Spain is a challenging task
"At the start of 2012, we decided that we needed to grow," explains Andrés Bou, a 27-year-old entrepreneur and founder of Social Point, which develops social games for Facebook and mobile devices. "We needed to find a new round of investment, and we were clear that this needed to be done internationally to gain clout abroad."
The Barcelona-based company has a workforce of 120 and is currently the third-biggest in the sector in Europe, and the fifth in the world.
"The amounts we were looking for - of between five and six million euros - are just not available in Spain," Bou continues. "Very few people will give you that."
Bou, who had already secured 2.4 million euros from the Spanish venture capital firm Nauta Capital, obtained a second round of funding in July of six million euros, from a group of investors led by France's Idinvest.
If you want to go global from the start you should look elsewhere"
The young businessman said that the way to secure such funding is to first show that the idea works locally, by starting off small and building up customers and revenues. "The decision to look for investors within or outside Spain depends on the company's strategy. If in the first few years the market is in Spain, it's best to look locally. If you want to go global from the start you should look elsewhere," he says.
Apart from Social Point, a number of Spanish companies - many of them in the technology and internet sectors - have convinced foreign investors to invest in their projects. Blink, Busuu, Alienvault, Indisys and BlaBlaCar have secured funding from international firms such as Accel Partners, Kleiner, Perkins, Caufield & Byers in the United States and PROfounders in the United Kingdom.
Mark Tluszcz, the founder of Luxembourg-headquartered Mangrove Capital Partners, one of the main European investors in start-up companies, advises entrepreneurs to be ambitious from the start and to look overseas.
"If you are in Madrid or Barcelona, you have to think globally," he says. "If you believe in your product, if you have vision, passion and a good team, you're going to find funding wherever you want."
Mangrove, an initial investor in online communication software Skype, which is now owned by Microsoft, makes bets of up to a million euros on start-up companies. It has yet to invest in any Spanish projects, but Tluszcz believes the talent available in Spain is comparable to that of any other European country. What is lacking is what he calls "an ecosystem."
In Spain there are few funds willing to bet on projects that are expanding"
"The United Kingdom is far from the rest of Europe, but the ecosystem there is well structured in all of its phases," he says. "There is help when you're getting going; there are many start-up companies and venture capital firms dedicated to expansion.
"Then there is Germany. France is not much better than Spain, but in Spain there are few funds willing to bet on projects that are expanding," he adds.
Tluszcz highlights the biotechnology and pharmaceutical sectors in Spain as having potential.
Sean Seton-Rogers, a director of PROfounders, believes Spain has made a lot of progress in a short period of time by helping start-up companies. "Initiatives such as Wayra [Telefónica's start-up fund] and the IE Business School's Venture Lab and others are fantastic," he says. "Two or three years ago there practically weren't any entrepreneurs meeting up on a weekly basis to swap ideas, but now there are.
"The problem is that the market is small, and entrepreneurs are forced to think internationally; they have to move and be ready to go where the money and their customers are."
Of the 21 companies in which PROfounders has invested, two are Spanish - Busuu and Blink. The competition is fierce. PROfounders looks at about 1,500 projects a year but invests up to one million euros in only five or six.
We moved to London for the constant access to international talent"
Bernhard Nieser, an Austrian who was based in Madrid until recently, set up Busuu, a website for learning languages online, in Spain in 2008. Last October, he secured a second round of funding for 3.5 million euros from investors, led by PROfounders. He then moved the company to London.
"The investment community in Spain is fine to start off, but it's small if you want to take the next step - apart from exceptions that focus on the local market or Latin America," he says. "We decided to move to London - not so much because of funding, but because we had constant access here to a lot of international talent."
Nieser believes that it is not necessary to move to where the main investors are, either before or after receiving funding. "The company has to be located where the main resources for growth are - i.e. customers and employees. It helps if you have your investors nearby, but that's secondary."
Apart from venture capital funds there are other sources of seed money for projects such as the Eurostars (Eureka Plan) program for small- to medium-sized enterprises specializing in research and development, the Berlin-based online venture builder Rocket Internet, SeedCamp and Springboard in the United Kingdom, as well as Intel and Google.
For Mangrove's Tluszcz, the key lies in the following: "My advice is always the same; a little local investment and a lot of international."