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Funding is a major challenge for Spanish startups, especially during their initial stages. Most startups prioritize obtaining financing to ensure project viability, team maintenance, market launch, expansion, and navigating unforeseen business challenges. According to the 2018 Entrepreneurship Map by Spain Startup, 72% of Spanish startups list funding as their primary goal. Common financing sources include personal savings (60%), Family, Friends, and Fools (FFF) contributions (25%), private funds (11%), bank loans (3%), and crowdfunding (2%). Startups typically progress through phases such as pre-seed, seed, early, growth, expansion, and exit, each with different financing options that can determine their survival and success.
The pre-seed phase, focused on transforming an idea into a viable business model, often features limited revenue and requires funding usually below €100,000. At this stage, entrepreneurs rely heavily on the lean startup methodology to develop prototypes or minimum viable products (MVPs). Funding options include FFF investments, which are usually small and informal but crucial; accelerators and incubators, which offer mentorship, services, and sometimes financial support in exchange for equity; and, to a lesser extent, business angels and venture capital funds interested in early-stage projects. Spain hosts around 800 accelerators and incubators, varying widely in their financial terms and involvement, with some taking equity stakes between 5% and 20%. These early financing choices are vital for startups to progress toward market entry and growth.
We explain what the main financing instruments are, beyond equity, in the early stages of a startup.
Funding is one of the main headaches for most Spanish startups that do not know how to choose between the first steps for funding: FFF’s, accelerators and incubators. Check the viability of the project, maintain a team that allows its development, commercial launch, expansion, possible unforeseen events associated with the business… The obligations of startups are high, and private funding often plays a key role in ensuring the continuity of these projects.
72% of Spanish startups, in fact, have funding as their first priority objective. This is clear from the 2018 Entrepreneurship Map, prepared by Spain Startup, which shows that the first source of financing for most projects is own funds (60%), financing from Family, Friends and Fools (25%), private funds (11%), bank loans (3%) or crowdfunding platforms (2%).
Throughout its history, a startup goes through different phases. Although there are different nomenclatures for each of them, broadly speaking, they coincide in: pre-seed, seed, early, growth, expansion and exit. Linked to each of these stages,there are a series of private and public financing instruments that can favour the development (and even make the difference between continuity or closure) of a startup.
The issue that concerns us today takes us to the pre-seed phase, when everything revolves around an idea. An idea that needs resources to become a viable business model and that, on many occasions, will end up mutating before reaching the market. During this stage,
Normally, financing operations during this phase do not exceed 100,000 euros. As the fundamental objective is to develop the idea, the need to obtain large amounts of money is not pressing, but it is no less important: it could mean the difference between the success or failure of the next unicorn in Spain. The shortage of funding at this stage is, in fact, one of the problems faced by startups taking their first steps in the country.
What options do they have? In general terms, and beyond own funds, the following can use these financing instruments:
Family, Friends and Fools or FFF’s
The iconic three F’s (or FFF’s) refer to the money that the entrepreneur will get from their friends, families and other people who may be interested. They will assume the risk of the investment, a risk that usually has more impact on the personal relationships they can maintain with the entrepreneur than with anything else. The contributions are usually small, but they are a lifeline for the entrepreneur, since they are not usually linked to high interest rates or strict repayment terms.
Accelerators and incubators.
Although sometimes the differences between one and the other are diluted, accelerators contribute to the promotion of projects that already existed, with different services (legal and financial advice, mentors, etc.). and a financial contribution. Incubators, on the other hand, welcome teams or entrepreneurs whose idea is still in a very early stage, who they help for a certain time to shape the project so that it reaches the market. Funding is not guaranteed.
However, there are around 800 accelerators and incubators in Spain (according to the latest data from Startupxplore) and each of them offers a specific program that, on occasion, mixes the characteristics of one with the other. There are accelerators specialising in companies in the pre-seed phase, and incubators that offer up to 20,000 euros in exchange for a stake in the company. Therefore, but there are several premises to consider in the strictly financial field when taking into account these two options:
Incubators that finance projects usually keep a small percentage of the business they are incubating, although their goal is not usually to become a majority shareholder. The incubator is interested in the project being put on the market, not in the capital gains it generates. As an example, in Spain Tetuan Valley or Aimark operate.
A large part of accelerators choose to keep between 5% and 10% of the capital of the startup that accesses their program, although this percentage can reach up to 20% in some cases. In this case, the accelerator plays in another league because future divestment is attractive and can generate significant benefits. Zarpamos or Lanzadera are looking for companies in the pre-seed phase.
Business angels and venture capital investment funds.
There are some business angels and venture capital investment funds in Spain that are interested in financing projects in the pre-seed phase (and also in seed), such as Lanai Partners, Sitka Capital or Toubkal. But their activity is less than in more advanced stages, in which we will see exactly what they offer and how they work.
