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The valuation and investment in Spanish startups have grown notably, even amid the Covid-19 pandemic. In 2020, investments in Spanish startups increased by 4%, with sustained growth continuing into 2021. Europe, including Spain, has seen a rapid rise in venture capital investments, reaching €47.4 billion in the first half of 2021, surpassing the total for 2020 and reflecting a 143% annual growth rate. This surge is driven by the maturation and resilience of the European startup ecosystem, attracting significant international venture capital. In Spain, startups raised over €1.5 billion between January and early April 2021, fueled largely by large funding rounds from prominent companies like Glovo and Wallapop, though the trend is widespread across the market.
Startup valuation differs from traditional companies due to their early-stage nature and lack of established metrics or customer revenue. Valuations are often based on factors such as founder reputation, industry health, and investor intuition, evolving to more defined models in later funding rounds. The rise in valuations is attributed to increased investor interest, expansionary monetary policies by the ECB pushing capital towards startups, and the influx of international investors seeking growth opportunities in Spain’s more affordable market compared to mature ecosystems. This internationalization brings credibility and professionalization, enhancing Spain’s position as a competitive, innovative hub capable of scaling globally. The trend is expected to continue, boosting talent competition, salaries, and funding capacity, which will further accelerate ecosystem development and reduce dependency on external markets for later funding stages.
In recent months, the value of startups in the national market has been rising due to several factors that have been decisive for the ecosystem.
The value of Spanish startups has grown, even in the year of Covid-19, 2020: in Spain , investments in startups increased by 4%. This trend has not stopped and in recent months international markets have witnessed sustained growth in investments in innovation: the right scenario for startups. This also explains the increase in valuations recorded in practically all markets on the planet, including Spain. But the reasons for this success are multiple.
In Europe, the rate of investment in technology companies is growing faster than in North America and Asia. Sifted reports that, in the first half of 2021, venture capitalists invested €47.4 billion in European startups, exceeding the figures for the whole of 2020. It means an annual growth rate of 143%, the highest of any large ecosystem in the last five years. Investor appetite indicates that the European scene is reaching maturity and that it has demonstrated its resilience during the pandemic.
A preview of the upcoming Dealroom report shows that, in 2021, the participation of global venture capital in Europe is higher than ever, and Spain is no exception. Between January and April 1 of this year, startups raised more than 1,541 million euros in the national market, compared to 1,105 million in 2020, according to data from the Startup Observatory of the Bankinter Innovation Foundation.
It is true that these registrations are the consequence of the millionaire rounds led by some of the most high-profile startups in our market, Jobandtalent, Idealista, Wallapop, Travelperk and Glovo. Together, these companies accumulated 1,220 million euros in 3 months and one day (Glovo’s round was held on April 1), but the phenomenon is more widespread.
How is the value of a startup established?
Startups do not work the same as other companies, since, in their initial phases, they do not have previous metrics to know if things are going well or not. They also do not have customers who can finance them directly and they need to go to the market to develop an idea and then a product. Thus, the only ones who can finance them without generating debt are
The pre-money valuation is set before the company raises new capital. It is a fundamental element for those who have to decide whether or not to believe in a startup. Therefore, a coherent evaluation benefits both parties: entrepreneurs and investors. In fact, it lays the foundations for a solid equity story and maintains the right balance between investor shareholders and founding shareholders.
That said, the success of an investment is the result of an alchemy that can only be partly attributed to the presence of certain metrics. It is not a mathematical result and what makes the difference may be the intuition of investors and the skills acquired over time. Often, at least in the earliest stages, a startup’s value is attributed based on external factors, such as the reputation of the founders or the health of the industry in which it operates.
In the successive phases, the rounds already respond to more defined metrics. The Berkus Method or the First Chicago Method, for example, are two of the many models used to value a startup. Of course, there can be differences between entrepreneurs and investors, with the former tending to attribute higher valuations to their own creation.
Venture capital in search of new returns
According to Juan Revuelta, General Partner of Swanlaab, “it is a natural trend that shows the positive progress of the maturation process of the entrepreneurship ecosystem in Spain. In general, the rise in valuations, within reasonable values, has been natural in all those countries that have experienced an improvement in their ecosystem,” he says.
Carlos Moser, Investment Manager at Inveready, he adds that this change in trend in valuations is also due, in large part, to the fact that “there are investors willing to pay them”.
To this must be added some external factors. The first is of monetary origin and is linked to the ECB’s expansionary policies. Low interest rates and Quantitative Easing cause capital to seek returns elsewhere. Many go to private equity funds that invest in companies in difficulty, put them back in value and then sell them. But these companies are scarce and so the attention of venture capital is directed towards startups.
Revuelta explains it perfectly: “The number of active funds is increasing and this inevitably generates upward pressure on the price of assets“. At the same time, the executive clarifies, “the quality of entrepreneurial projects has improved a lot in the last decade, which makes them more valuable, and also attracts the interest of international investors, which tends to increase the availability of capital.” Entrepreneurs are aware of this and believe that their product can achieve higher ratings than in the past.
Foreign investors participated in 18.2% of operations in the Spanish market during 2020, but accounted for 45.1% of the volume invested. Internationalization, in fact, is another cause of the rise in valuations. In more developed ecosystems, such as Germany, France, the United Kingdom and, above all, the US, valuations have long since skyrocketed, so venture capitalists are looking for opportunities in more affordable markets such as Spain.
Internationalization is a consequence of a mature ecosystem
The rise in startup valuations in Spain, driven, among other factors, by the strength of foreign funds, is not a negative fact. As Juan Revuelta explains, this element “has brought credibility and professionalization to a market that was still in a very early stage of development. It is something that puts Spain on the map and strengthens us as a country capable of generating innovative projects with the capacity to scale and compete internationally,” he says.
Carlos Moser values this as something very positive, since “the closer we are to the large international funds, the better the growth capacityof the companies will be, as they will allow them to access greater resources that can promote greater speed in scaling and international expansion”.
The truth is that the most powerful funds have not changed their criteria, and there are few startups in Spain that meet these requirements. On the other hand, the inflow of foreign capital forces it to adapt to a new reality in which local funds are forced to be more competitive.
As for the small investors who, until now, were committed to investing in the earliest phases, according to Revuelta, “each one has their niche“. In fact, he argues, “
Looking to the near future, this upward trend is likely to continue, as the gap with neighbouring countries is still significant. This could even have positive reflections on the labor market. Revuelta believes that “the greater capitalization of startups will result in greater competition for talent and an increase in salaries and remuneration for high-level positions. This, in turn, will make startups more capital-hungry, pushing valuations upwards – it’s a vicious cycle, but also a clear sign of ecosystem development.”
On the other hand, Moser points out that the maturity of the ecosystem will allow “to find a greater capacity to finance projects in the initial stages“, which will progressively evolve towards a “greater amount of funds that will allow financing Series A and subsequent ones directly from Spain, instead of having to go looking for other European markets as is the case today”.
