World Spain's startups avoided COVID-19 havoc thanks to second-generation entrepreneurs and strong VC interest

20:14  09 february  2021
20:14  09 february  2021 Source:   businessinsider.com.au

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a person riding on the back of a bicycle: A rider of Glovo, Spain's second ever Unicorn, working in Barcelona. A rider of Glovo, Spain's second ever Unicorn, working in Barcelona.
  • The COVID-19 pandemic struck just as Spain's startup scene was reaching its tipping point.
  • But the country's second unicorn was followed with more investments in new companies.
  • They may seem the most vulnerable but their funding has surged, while older companies' has faltered.
  • Visit the Business section of Insider for more stories.

The youngest businesses should have been worst hit by COVID-19. For Spain's startups, it came just as things were taking off.

At the end of 2019, Glovo, the on-demand delivery service app, became the country's second unicorn â€" a startup valued at more than $US1 billion â€" after ride-sharing app Cabify in January 2018. It raised â'¬300 million ($US361 million) in just 12 months, of a total investment of around â'¬488 million ($US587 million). It expanded into more than 20 countries. It was just four years old.

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Despite the world locking down to combat coronavirus, the investments in the country's newest businesses continued. In June 2020, biotech Ona Therapeutic raised â'¬30 million ($US36.1 million) in the largest first round of private funding of any start-up in Spain. Data integration company Onna raised â'¬24 million ($US28.9 million).

On-demand freight logistics platform Ontruck netted â'¬17 million ($US20.48 million). International investors included Atomico, Endeavour Catalyst, Cathay Innovation, CRV, Slack Fund, OGCI Climate Investment and Dawn Capital.

2020 saw far more deals, but smaller ones. There were no "mega-rounds" of more than $US100 million. There was a 35% rise in the number investments in businesses at pre-seed and seed rounds â€" the earliest stages of their existence.

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There was a 78% rise in Series A deals â€" the next stage of investment, according to a Bankinter Innovation Foundation report in October. The more established startups felt the impact: their investment fell by 40%.

An earlier report in July expressed surprise given that young companies "are usually first affected in crisis situations". In the end, 2020 was the second best year ever for investment in Spanish startups.

They earned â'¬1.101 billion ($US1.326 billion), compared with â'¬1,098 billion ($US1.322 billion) in 2019 and â'¬1.227 billion ($US1.478 billion) in 2018, the record year, according to figures from Observatorio de la Fundación Innovación Bankinter and El Referente.

One explanation is the gathering wave of investment that early tech entrepreneurs banked up. Another is investors are increasingly confident to take a risk to unlock talent that will pay dividends.

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For years, Spain's startups were handicapped by over-regulation and a lack of senior talent.

But the startup ecosystem "has gone from being a market with mainly local interest to an ecosystem of global interest," Mario Teijeiro, director of Deloitte's StartmeUP, tells Insider. "More and more international investors are competing in the Spanish market."

Barcelona and Madrid, where most of the activity is clustered, are ranked fifth and seventh respectively in the top 10 European cities for startups. Valencia, Bilbao and Malaga are also firmly on the map.

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It's attractive precisely because it's still several years behind the UK, France and Germany, Teijeiro says. Target Global, which had invested in several Spanish startups from its headquarters in Berlin, says it was motivated to open a Barcelona office in 2019 to support Spain's "amazing breadth of talent and innovation" with expertise and â'¬30,000 ($US36,147) investments.

Likewise, TheVentureCity, headquartered in Miami with a campus in Madrid, runs a five-month program for 25 founders a year that covers product development and the wider, worldlier skills of fundraising strategy, going international, work culture and talent acquisition â€" "a mindset approach that is rarely found outside of Silicon Valley".

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"Evolving takes time but we're advancing," says Jaime Novoa, from K Fund, a major investor in emerging talent. "In the last five years, the quality and ambition of companies has gone up dramatically. There are more startups, so there are more employees experiencing how to build them and leaving to build their own."

He cites how, after Iñigo Juantegui and José del Barrio sold food delivery startup La Nevera Roja for â'¬80 million ($US96.4 million) in 2015, Juantegui launched OnTruck and del Barrio set up an investment company, Samaipata, which later invested pre-seed money into OnTruck.

After selling Ticketbis to eBay, founders Ander Michelena and Jon Uriarte set up All Iron in their hometown Bilbao and reinvested in the next generation of startups.

TheVentureCity (Miami headquarters pictured) has a TheVentureCity (Miami headquarters pictured) has a

K Fund launched its â'¬70 million ($US84.3 million) K Fund II last July to investments of between â'¬200,000 ($US241,000) and â'¬2 million ($US2.41 million) in 25 to 30 of the most promising. Part of the fund is dedicated to supporting companies that are less than six months old. It follows the â'¬50 million ($US60.24 million) K Fund I which launched in 2016 with the same objective. It backed 28 companies and saw several grow exponentially.

It invested in travel company Exoticca when its turnover was â'¬10 million ($US12.049 million). It went on to double sales each year, to â'¬25 million ($US30.1 million) and then to â'¬50 million ($US60.2 million). Another, Factorial, raised â'¬16 million in a series A round deals at the height of the pandemic. The software services company attracted investment from CRV, a major investor in Twitter and Dropbox.

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It's also a way to beat the competition. "Investors used to be able to set the terms," says Novoa. "The balance of power in the market has shifted the other way. If you're a founder with an interesting product you can choose what investor you want."

The pandemic could have spelled disaster but demand is up for the products and services startups are adept at providing â€" financial tech and cybersecurity to medical tech and biotech. The B2B software sector is smaller than in the UK, France and Germany but the number of investment deals are growing faster. E-commerce sales are predicted to grow 22.9% by 2023, the largest growth in Western Europe and among the highest in the world.

E-commerce growth was part of the reason AliExpress chose Spain for its first European venture. Owned by Alibaba, AliExpress is a marketplace which enables customers to purchase global supplies â€" predominantly Chinese and local. Spanish sellers can sell their products to Europe and Russia.

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Operating largely without shops and entirely without stock, its success depends on building an "ecosystem of e-commerce" by recruiting local partners for logistics, banking and marketing.

"We see ourselves as a startup in Spain," says operations director William Wang. The aim is to help raise the digital capability of partners, buyers and sellers so all mutually benefit, he adds. "We have an online university and live streaming helping Spanish companies upgrade to our capabilities and understand the marketplace."

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Along with major banks and corporations, AliExpress is partnering with other startups. They use the same technology, making it easier to collaborate, says Wang.

"They use the same technology as us, making it easier to collaborate," says Wang. As well as the shipping logistics company Packlink, and mobile-first neobank Bnext, AliExpress â€" which recently launched a food and drink category â€" has struck a deal with Glovo, which already has links with major supermarkets and a presence in almost every major city.

Wang calls Glovo "a good fit", as slow deliveries have been an issue. "We see the potential to work with them but we are starting with more of an alliance approach." Glovo will be delivering international AliExpress orders from depots in Barcelona and Madrid.

Glovo operates successfully around the world and, though the Barcelona startup recently sold its Latin American operation to Delivery Hero, the ease with which ambitious Spanish companies can access Latin American markets is driving investment.

Lalo Lopez in a studio in Shanghai as he live-streams to offer products on a Spanish Aliexpress channel on October 22, 2020 Lalo Lopez in a studio in Shanghai as he live-streams to offer products on a Spanish Aliexpress channel on October 22, 2020

Like most startups, AliExpress plans to create a model and replicate it â€" in Southern and Western Europe and then beyond. When it came to location, Spain was an obvious choice.

"Spain is not the biggest ... but Spanish is spoken in most of Latin America and Spain is part of the EU," says Wang. "It basically opens the doors to two continents for us."

Miguel Vicente, of Antai Venture Builder and president of Barcelona Tech City, says Spain's startups should forget "unicorns". He says they should set their sights more on being "camels" that are efficient, reliable, thrifty.

They should be "more focused on primary activities" and "lean in order to adapt to the changes that are coming", Vicente adds, rather than merely seek "a high valuation and a quick exit".

Spain's business ecosystem benefits from companies being "in it for the long run", he adds. "A startup born in the new normality of Coronavirus has these ideas in its genes."

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