Capital efficiency, key factor for driving international investors to Spain?

Updated: Apr 9

- Spanish startup founders make every Euro count.


Spanish startup founders make every Euro count. Image: markus winkler, unsplash

You know the expression for buying any type of product or service: "Fast, low-cost, high-quality, pick two!" What if Spanish tech startups actually live up to all three of these desirable factors, without always being aware of it?


I have been closely following the ongoings in Spain's startup ecosystem for more than three years now and lately I have been asking myself what the unique, common denominator is when it comes to being able to attract international capital. Is there something else worth highlighting, more than "just" the access to tech talent to comparatively low labor cost?


Something clicked when chatting with an American investor who said:


"Early-stage Spanish startups tend to fundraise seed capital on an ongoing bases, rather than sourcing their needs in one go, because they believe money is scarce."

Let's compare this way of thinking with the financial behaviors of founders in the complete opposite startup hub of Silicon Valley, or with other, much more mature ecosystems, where the reality is another with a lot of money circulating and readily available from a large community of tightly connected investors, especially for Fintech, SAAS and Marketplace.


My theory here is that this belief, that venture money is scarce within the borders of Spain, adding the belief that it is difficult to get the attention of international investors, has made Spanish founders a lot more financially strict than their counterparts in the rest of the world.


One proud investor wrote Investing in Spain’s #1 Neobank, giving praise to Bnext, a famous Spanish, Fintech for having: "Amazing KPIs and very competitive pricing vs the industry".


He further states in his blog post.


"In addition to the promising KPIs, beaten month over month, their cost of consumer acquisition was largely inferior to that of their larger competitors in Europe."


"Almost 300K customers that had costed them 15 euros to acquire in average, a fraction of what it costs to any other Bank with a real usage of at least twice a month."

The affordability factor is central


If you believe that money is very hard to come by, then you are probably more likely to take that mindset to product- and service-building as well, carefully breaking down every economic unit into smaller parts to look for cost-savings and efficiencies, coupled with a commitment to lower prices for the end-customer as well.


Indeed, many of the articles in Spanish that I have read, celebrating founders getting funding - both from local and international investors - and reporting on successful startup acquisitions by foreign corporates and private equity firms, follow this reasoning. The affordability factor is often identified as being central for the unique value propositions, service or product alike.


Related read: The 2 biggest startup exits in Spain 2020


Attractive valuations


This same scarcity mindset also seems to lead to very attractive valuations, from an international perspective.


"In Spain, in early stage investing, the revenue multiples typically end up being x3, whereas a similar investment in the US would be x10", the mentioned American investor told me.


I guess this goes hand-in-hand with another Spain-specific remark, more of a complaint, I was told by a French investor saying: "Many Spanish founders give away too much of their equity, way too early on. This becomes a problem when they later on want to raise series A."


Capital efficiency as a competitive advantage


The interviewed American investor also told me: "They (Spanish founders) spend the money wisely, making money last longer. What the Spanish tech startups I have met manage to build with €4 million, would take €40 million to reach the same milestones in the US."


So why are the Spanish startup founders supposedly so much better at squeezing out every cent of every euro of venture capital invested?


Historically, we just have to go back a decade, there was much less money available in the Spanish startup ecosystem which has built a more respectful attitude towards money than seen in other, older tech hubs. Back then, angel or venture capital wasn't just scarce, it was also mostly allocated to Barcelona and Madrid, with the rest of the country having to rely heavily on family and friends to get a venture off the ground.


This previous shortage of capital supply in the ecosystem is rapidly changing now, with new incubators, accelerators and venture capital funds targeting Spanish tech, locally based across all the 17 regions in Spain, being announced so often that it is hard to keep up.

But this healthy - almost stingy - habit of stretching their investors' capital as long as humanly possible, and then some, is likely to prevail among the Spanish startup founders as it seems to be deeply ingrained in their collective soul, and could be talked about a lot more in my opinion, as a competitive advantage when raising capital. (without giving away too much!!)


EDIT April 6, 2021:

There is a lot of buzz around the Series F (!!) of €450 million raised by Glovo to expand its qcommerce (quick commerce), indirectly adding more arguments to above reasoning.


"This is a milestone funding round not just for the company, but its home country: it marks the largest-ever round raised by a Spanish startup", writes TechCrunch in this article.


But why is this "the largest round ever" in Spain? The sum, although noteworthy and very impressive, is not by far the biggest round raised by a capital demanding startup in Europe.


This quote from co-founder Sacha Michaud, in mentioned article, explains the reason why:


“We started in Spain, where you have access to far less capital than in other countries in Europe. We do more with less and that’s made us leaner. We’ve got our own strategy and it seems to be working.”

Crafted by Caroline Lagergren


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