The tech legacy of James Costos
America’s ambassador under Barack Obama put startups on the map in Spain. Now, as he moves back to the US, we take a look at the ecosystem he leaves in his wake
When he arrived in Madrid in September 2013, US Ambassador James Costos faced a baptism by fire. The National Security Agency (NSA) scandal was breaking across Europe and the Spanish government summoned him to address allegations that the NSA had spied on the communications of millions of Spaniards. After reassuring officials on the matter, he tended to pending military issues, such as the arrival of four new US destroyers that the Spanish had agreed to host at the US base in Rota along with a rapid deployment unit at the Morón airbase.
But what was really on his mind were Barack Obama’s parting words: “Work relationships on all levels; open the doors to your home and let the people in.” As a former HBO executive with a lot of experience in the private sector, this was what he really enjoyed doing. He wanted to go the extra mile, to open up the Embassy and turn it into a springboard for young people with an entrepreneurial spirit.
Not far from America’s diplomatic headquarters, a group of innovators based in the Chamberí district of Madrid had been struggling for years in a less-than-friendly environment to get their tech startups to flourish, even though at that time the term entrepreneur was not even part of their lexicon.
“We didn’t have any contacts,” recalls Miguel Arias, 38, the CEO of Carto, a Big Data and geolocation business that now has offices in the US. “In Silicon Valley, everyone knows each other and they help each other out. Here, there wasn’t even a shoulder to cry on.”
In search of that shoulder, he looked around and found others in the same boat: María Fanjul, the co-founder of Step One, a company designed to accelerate innovation and startups that helped Spanish businesses connect with Silicon Valley – Fanjul would go on to be the CEO of entradas.com and would later be hired by Inditex, the parent company of fashion giant Zara; there was also Alexis Bonte, who cut his teeth at the booking site lastminute.com and went on to head the videogame startup eRepublik – he is now an advisor to the Atomico investment fund owned by a Skype co-founder.
Soon there were others, like Ander Michelena from Ticketbis, Iñaki Arrola, founder of coches.com who now manages the K Fund, and Aquilino Peña, another prestigious venture capital investor. They decided to call themselves Chamberí Valley. And they met for the first time in 2010, back when Spain was still in the dark ages as far as startups were concerned.
A group of entrepreneurs calling themselves Chamberí Valley began meeting in 2010. They ran into James Costos in 2014
James Costos and Chamberí Valley connected in April 2014. The ambassador invited a group of eight people from a range of backgrounds to have coffee at his home. Among these were the core members of Chamberí Valley. He asked them all to outline their credentials and explain why they had taken the bold leap into unchartered territory. Finally, he asked, “What can I do to help?”
His guests asked him to help them gain access to US-based contacts, talent, investors and successful startups. They also asked for help in educating the Spanish establishment about the importance of the entrepreneurial culture. They spoke about generating “intimate” networking activities that would take place behind closed doors, without official interference. And where everyone would be equal.
In June 2015, Costos launched an event called Incubed (IN3) in which innovators, investors and institutions would meet to network and exchange ideas. “You said you wanted access to Silicon Valley,” Costos told them. “Well, I have brought Silicon Valley to you.”
The event was attended by 100 guests – half Spanish and half American. The star of the show was Eric Schmidt, executive chairman of Alphabet, Google’s parent company – “We have friends in common,” Costos explains.
There were also representatives from the world’s largest investment fund, Black Rock, and figures such as Ken Howery, co-founder of PayPal and now a partner in Founders Fund, which has investments in Spotify, Airbnb and Space X. On the Spanish side of the fence, there were representatives of the first dotcom wave such as Jesús Encinar, founder of the real estate website Idealista.com, and Marta Esteve, who started TopRural.com and SoySuper.com. There were also unknown figures who were just beginning to make their mark. The Costos ecosystem was beginning to take shape.
“My country was built by self-made adventurers who found unlimited opportunity through business creation,” says Costos. “And it’s still so today. Businesses that weren’t around 20 years ago now contribute $17 billion to our economy.”
Growing up in a small city, I realized anyone who crossed your path could end up helping you James Costos
A year and a half has gone by, and the ambassador is getting ready to leave his post. He has nurtured his ecosystem, caring for it like one would a bonsai tree. He has made it his business to connect innovators with investors; with big companies; with the US; and, most importantly, with the epicenter of startups, Silicon Valley.
One afternoon in December, Costos hosted another seminar. “The object of this conference is for you to start working together,” he told his audience. “You will be much stronger as a country if you function as a whole.”
Each of the 30 guests was there by personal invitation. Typical in the world of start-ups, they wore name tags. But these were not entrepreneurs with little more than an idea and a laptop. They were startup veterans whose visions have already been transformed into going concerns, eager to grow and compete on a global scale.
The seminar began with introductions. They were a mixed bunch – millionaire fund managers, founders of companies, directors of co-working spaces, business accelerators, analysts and support networks for entrepreneurs. There were also a number of shareholders and officials from the Ministry of Industry, and even a besuited young man sent over from the office of Prime Minister Mariano Rajoy.
It was a peculiar combination of establishment figures and people anxious to shake the establishment up and move it into a new era. After speaking about the goals of the event, Costos told his guests how proud he is of the journey they have embarked on together. Then, he explained that he has to jump ship because he is an Obama emissary. And with the arrival of Donald Trump at the White House, his term has come to an end.
“But I still have a lot to do before they kick me out of Spain,” he joked. There was laughter, suggesting an unusual level of complicity. The ambassador then jumped off the podium and left them to it. A cry went up: “What are we going to do without Costos?”
A professor from the IE business school got up to speak. She began with a design thinking exercise, a process that involves searching for answers and which is popular with the new economy crowd. The speaker challenged her audience to respond to the following two questions: “How can we turn Spain into a reference point for innovation?” and “How can we make the innovator ecosystem stronger and more dynamic?”
The guests broke into groups, each with its own blackboard and a stash of post-its, pens and stickers. In one group, the president of the Association of Young Entrepreneurs was brainstorming with the CEO of Mobile World Capital, the head of Facebook Spain and two of the founding members of Chamberí Valley, Iñaki Arrola and Miguel Arias. Getting up, Arias wrote down on the board what he felt the industry needs: “A common narrative.”
Arias represents one of the more mature elements of the ecosystem. His company, Carto, is headquartered at the Palacio de la Prensa building on Gran Vía. A slogan at the door describes the company’s mission: “Make the invisible visible.” Carto exploits, analyzes and interprets data according to the tracking needs of its client. It helps users make decisions based on maps tracking everything from violent incidents, illnesses or the purchase of sweatshirts in a specific area. “The deputy mayor of New York has Carto for breakfast every morning,” Arias explains. What the company does, he adds, mirrors the basic law of geography: “Everything is related, but events in closest proximity are more closely related.”
His case encapsulates the developments in Spain’s startup world over the last decade.
Costos calls them “great patriots.” He is referring to companies such as Carto, then at the embryonic stage, and now boasting offices in London, Madrid, New York and Washington. The company’s relationship with one of its investors, Salesforce –a leader in cloud computing – was forged at an Incubed event and led, three months later, to €20 million in funding.
There is also Glamping Hub, a Seville startup with an extensive presence in the US, Canada, Australia and New Zealand and a leading platform for finding unique accommodation in nature. Its founder, David Troya, was one of the first Spanish entrepreneurs to meet the ambassador, an encounter that took place when Costos visited his headquarters in 2014 and became “obsessed” with his project.
Costos has nurtured his ecosystem, giving it the kind of loving care usually reserved for bonsai trees
Costos’s enthusiasm was such that he suggested Troya write directly to the king of Spain. “In America,” Costos told him, “we write the President a letter saying, ‘Hey! I want to share my story with you’.” But Troya parked the advice. When Costos launched the first Incubed event, he publicly announced that Troya would be sharing a table with King Felipe. “It was a declaration of intent,” says Costos. “We needed to break down the barriers that protocol and class segregation throw up.”
Costos’ own narrative is, as he puts it, “an all-American story involving people with strong values.” His Greek origins meant he was christened Dimitrios Costopolous. His grandparents emigrated from Thessaloniki and the Peloponnese. His parents met in a lower-middle class area of Lowell, Massachusetts, where he was born. His father was one of the first marines at Camp David and Costos himself was the first member of his family to go to university, where he studied political science.
After graduating, Costos moved to New York and set up his first company, which helped people look for work. He was just 25 years old and he stayed in the city for the next 16 years. “I moved house almost every year,” he says. “Whenever I was able to get things to go better for me.” He switched to the luxury goods sector and worked for European multinationals. Then, after 9/11, he packed his bags and set off for LA. His new surroundings were a challenge. He set up a new company but it didn’t work out, and he was out of work for a year and a half.
The best advice he got during this time was from a Disney executive: “The movie business is just like the luxury goods business. In one, you're trying to sell a bag, in the other, tickets.” According to Costos, “having grown up in a small city, I realized that anyone who crossed your path could end up helping you.” He got a foot in the door of a new movie studio. Then he was signed by the TV network HBO, which is where he was working when Obama named him ambassador.
Cross-pollination is an expression that Costos uses a lot. He loves to nurture a climate in which it can thrive, whether that’s an event behind closed doors or one of his eclectic embassy parties. Izanami Martínez, CEO of the doctor-patient startup Doctor 24, and president of The Spanish Startup Association, calls them “parties with a purpose.” She remembers the first one she went to in 2014. She left at six in the morning. Reality TV stars Alaska and Mario Vaquerizo, singer Miguel Bosé and best-selling author Boris Izaguirre were just some of the Spanish celebrities among the guests, as well as colleagues from the digital sector.
At the second Incubed event in June of last year, figures were cited suggesting startups in Spain were in expansion. In 2015 they had attracted more than €500 million in venture capital – almost twice as much as 2014 – with 13 startups breaking the €10 million ceiling. The digital sector would end 2016 making a 3.1% contribution to Spain’s GDP. Almost immediately, some of these initiatives started to be snapped up by bigger, more established companies. Ticketbis, the ticket buy-and-sell company, for example, was bought by eBay for €147 million; and Airbnb acquired Trip4Real, the company that puts tourists in touch with local experts.
These acquisitions are known in the world of startups as exits, and an exit injects life into the ecosystem. “Money attracts more money,” explains Ander Michelena, 33, the co-founder of Ticketbis. “Investors can see that there’s money to be made.” In Michelena’s case, part of the money from the sale has gone into an investment company and been put back into six Spanish startups. As Gloria Molins, founder of Trip4Real, puts it: “We are nurturing economic growth. The ambassador was clear about the importance of entrepreneurs to society. He knew how to deal with us and he knew how to listen. He hooked us up with extremely prestigious companies. I’m a total fan of his.”
What is most surprising about the relationship between Costos and the entrepreneurs is the sense of camaraderie. During the photo session, there are hugs and plenty of affectionate chat. “We are going to miss you,” the entrepreneurs tell their American champion.
The session takes place at the Google Madrid campus, the venue for the first Incubed event. Meghan Mercier, the US Economic Attaché, plays with Izanami Martínez’s baby while Martínez poses for a group photo with Costos. Lluc Martí, 30, explains that they are all so close to Costos because he has bent over backwards to be of service to them. “The US Embassy is the institution that has helped me most,” he says.
An engineer with experience developing top-of-the-range racing cars, Martí invented Plactherm in 2010, a floor-heating system that uses intelligent tiles that are now starting to be installed in offices. Each tile is independent from each other and generates information on heat and consumption, producing energy savings of around 30%. He compares it to a cooker – “To fry an egg, you don't turn on all four rings.” The initiative has won a number of awards and received almost €1 million in investments and grants. According to Martí, almost 60% of the money has gone into research and development.
Martí heard about Costos in 2015 when he was developing his idea in the Impact Hub, a co-working space in Madrid. A friend gave his name to the embassy. And Mercier invited him to a talk by a Georgetown University professor and innovation consultant for the governments of Canada, Finland and Sweden. Shortly afterwards, he was invited to a global summit of entrepreneurs in Nairobi. He also participated in Incubed. And he attended a reception for then-Secretary of State John Kerry. Following his visit, Kerry cited Marti’s invention as an example of what was happening in Spain. “It was proof that anything is possible,” says Martí.
The entrepreneurs agree that Costos has all it takes to be one of them. “He is casual, friendly and effective. He does things differently. And he has modernized the embassy,” says entrepreneur Sira Pérez de la Coba, who recently found herself at a Thanksgiving dinner along with a number of high school students. “This is your chance to reach out to the next generation,” Cobos told the startup guests.
Pérez de la Coba, 39, an experienced engineer who has worked for tech companies Indra and Telvent, heads the startup Shazura. With one foot in Madrid and the other in San Francisco, she is finishing a series A round in America – her first significant round of venture capital financing – closing at almost €5 million. She wanted to be an astronaut and studied at the Polytechnic University of Madrid. She then got a doctorate in Chicago specializing in artificial vision, and developed an algorithm for image compression that, in her words, “improves on the JPEG”.
“The legacy I want to leave is this investment in the next generation,” says the ambassador before his departure
Ever since she was a child, she has done everything from thinking to remembering in a visual format. Now, to the envy of many, she is challenging Google Images with her own image-based search engine.
On the bookshelves at Shazura’s headquarters in Madrid, manuals on artificial intelligence are stacked alongside fashion catalogs. This is one of her applications: if, for example, you find a dress in the catalog you fancy, you upload the photo, press enter and thousands of results will appear.
Luis Reyes, Shazura’s data chief and a former physicist at NASA’s Goddard Center, compares Spain and America’s take on business. “Here, a student might dream of joining a big company,” he says. “In America, they dream of setting one up.”
This is something Costos has tried to address. Just before leaving his Madrid home, he says, “The legacy I want to leave is this investment in the next generation. There is a lot of darkness in the world; there are people encouraging others to do evil; ISIS recruiting among those who feel dispossessed. We need to offer hope, advice and show that success is attainable. And I hope that in 20 years’ time, the young people who have visited this house will be able to say to the future ambassador: “I’m a business leader, an artist or a politician because I was inspired by that nut, James Costos.”
English version by Heather Galloway.