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Start-ups 09 Apr 2015

Startups: there is money here

It’s very difficult for start-ups to be successful in Spain, but 2014, for example, was a good year for them. We’ll tell you a bit about the scene and how the sharpest and youngest companies in Spain have been doing.

Entrepreneurs are in fashion, there’s no doubt about that. The problem, as we all know, is that fashions die out. They live by selling, creating a product or service that their first clients like, and they tell their friends or family about it and share their experiences via social networks. Once it has been confirmed that there is a potential market and that the product will fit in, the next steps are marketing, business plans and spreadsheets. And thus, bit by bit, a successful company is formed, capable of generating wealth and jobs.

Up to here we have covered the theory. The statistics for failure are scary: eight out of every ten new companies don’t survive their first year. Where is the problem? In general, there is no reason why, but the truth is, after hearing hundreds of stories of those who didn’t make it, you begin to hear some of the same ideas being repeated: “I didn’t choose the right partner”, “none of us had experience in the industry”, “we didn’t have the right business qualities, we thought that it was enough to have a good product”, “we didn’t do enough market research”, or simply “we didn’t have enough time or money“.

Despite the difficulties, 2014 was a good year for start-ups

Especially in the digital world, in which some business models won’t start making net profits for at least five or six years. Having a financial cushion is essential for surviving the Valley of Death – that period in which a young company is investing in staff, technological development, etc., although it only has a very small income-.

This is why I would like to finally banish the myth that setting up an Internet company is cheap. Setting up a dotcom company is cheap; making it grow isn’t. And of course, luck (good and bad) is involved.

Just a few weeks before the information from the GEM 2014 Report is being published (Global Entrepreneurship Monitor), we’re going to take a look at the information from previous years. What are the main barriers that entrepreneurs in Spain are coming up against? According to 63% of the people interviewed, the main factor that needs to be improved is government politics -a reduction in bureaucracy, improvements to taxation, etc.-, followed by financial support (48%) and an improvement in educating and training the country.

Good news. The Tax Amendment that came into effect in January establishes a reduction in Capital Gains Tax and Personal Income Tax (and the not so favourable exit tax, but that’s another story…), and access to funding is significantly improving: risk capital is making a comeback; some financial organizations are re-opening the credit tap and SMEs are actively participating in backing innovative start-ups. Other interesting financing modalities are also arising, such as equity crowdfunding. capital funds) still say that they can’t find sufficient “investible” projects in Spain. However, they do agree that there are many parties interested in good projects.

2014 was a record year for Spanish start-up technology companies, at least with regard to investment. Venture Watch Research calculated that there were 158 operations in the technology industry alone, mainly down to capital risk funds, business angels, accelerators and equity crowdfunding. In total, 320 million Euros were invested in these projects. One year later, Venture Watch counted 138 operations, 14.5% less, for a total of 247.35 million Euros, 29% less.

It clearly distinguished certain industries that are more attractive than others for investors. The electronics business (even though it lost some of its steam) is still attracting the most investments, with 15.2% of the total, followed by the fintech sector (technology applied to the financial world), digital marketing (7.6%) and lifestyle businesses (7.6%). CartoDB, PromoFarma, Inbenta, Social Point, Packlink, Cabify, La Nevera Roja and PeerTransfer are some of the promising national start-ups that managed to get risk capital funding last year.

Could one of them be the next European Google or Facebook? And why not? In his book El mundo que viene (The world that’s coming, Gestión 2000)), Juan Martínez-Barea says that we are going towards a “total meritocracy” where “any person, if they want, can compete with the best in the world”. Silicon Valley will most likely continue to be an important centre of technological talent and investment, although its days are counted.

Investors continue to award good projects.

Let’s forget about local problems faced by entrepreneurs for a minute, and take a look at the global market. As the middle class grows in emerging countries, globalisation is extending and it is creating a world in which there will only be room for the most competitive (either due to price or differentiation).

Just eight years ago there weren’t smartphones, or tablets, or social networks, and who knows what new developments we will have included in our lives eight years from now. There is talk that Europe is facing reindustrialisation -thanks to 3D printing, or additive production-, that we are on the threshold of a vaccine against malaria -with the contribution of the Bill & Melinda Gates Foundation-, and the creation of Enernet, a solar energy Internet that will end our dependency on oil and take electricity to the entire Third World.

The “immaturity” of the Spanish entrepreneurial ecosystem is no more than an excuse. If it does have to mature, sitting around with crossed arms doesn’t seem to be the best option. Entrepreneurs have a great opportunity to make a differencein the new hyper-connected and hyper-globalised world that is emerging. Anyone who has that ambition, the courage to make risks and the talent that is needed will find the means.

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