The annual report by the Start-ups Observatory of the Bankinter Innovation Foundation
2020 has put to the test all areas of the social, industrial and financial systems. Despite an extremely complex environment, Spanish start-ups have overcome the obstacles in the way. The year-end numbers are an indication of the good health of the entrepreneurial landscape in our country.
The latest edition of the Spanish Investment Trends Annual Report 2020 published by the Bankinter Innovation Foundation echoes so. It details the information gathered by the Start-up Observatory. It depicts a highly adaptable, stable sector. “This is a counter-cyclical sector that is not directly correlated to the macroeconomic situation”, explains Javier Megías, Start-ups program manager at the Foundation. “If something defines start-ups, it is their speed and ability to adapt, which in many cases has enabled them to react quickly and adjust their models to control losses and leverage new opportunities”.
Even though the total invested volume (€1.105 million) is down by 11.3% compared with 2019, the number of deals has increased by 36%. In particular, the capital has targeted pre-seed and seed stages (up to €1 million) and series A (€1 to 5 million) and series B (€5 to 20 million). These are all very early stages, which draw a very positive landscape going forward.
“The start-up ecosystem tends to work as a funnel, where a fraction of the deals in one stage move forward to the next. The more mature the company, the less deals make it to the next phase”, explains the Observatory manager. “This means that many of these series A deals will likely become series B deals in the next 2 to 3 years, just like series B deals will foreseeably raise series C rounds over the next few years” says Megías, who also points out that there will be more mature deals and “there will be more exits. This will appeal highly reputed international investors and ideally speed up the virtuous cycle of the ecosystem”.
There have also been changes within foreign investment. In contrast to the disappearance of Asian capital for all effects and purposes, North America has increased its activity by 163% vis-à-vis the previous year. It accounts for 45.1% of the total volume invested by foreign investors. According to Megías, one explanation is that Asian investment tends to be cyclical. This has also been felt abroad. Another motive is the new thinking in the US: “there is a school of thought in Silicon Valley whereby its ecosystem is somewhat overpriced and there are magnificent investment opportunities in Europe, more reasonably priced and with very efficient structures and operations”.
There are more operations with at least one international investor (52.5%), and they have participated in earlier stages, in deals under €500K, and very notably, in series A, in rounds between €1 to 5 million.
Series A has experienced considerable growth in 2020 (48.6%), followed by a 34.3% increase in series B, and 30.6% in pre-seed and seed stages. The drop in series C and growth (53.8%) is due in part to smaller investments by venture capital funds, who tend to lead in these tranches. In 2020, their investments have dropped by 21.1%, although they have been more active in terms of volume of operations, which have grown by 39.2%.
Based on the opinion of the Start-ups Observatory manager at the Bankinter Innovation Foundation, this is due to “the macroeconomic uncertainty: a context that undermines big rounds, one in which they may be protracted or even stopped. Besides, many of these deals are cyclical”.
Corporate funds have evolved the most: they have been present in 59.5% more deals than in 2019 and they have invested 81.1% more in terms of volume. The momentum of crowdfunding in Spain is noteworthy: the number of deals and investment volume shoot up to 73.1% and 20.5% more year-on-year respectively.
Sector-wise the pandemic has left its mark. Even though the traditional leaders, such as Mobility and Logistics, Fintech and Insurtech continue to top the ranking, other industries such as Cybersecurity, Healthcare and Well-being—with a record of rounds this year at 48 deals—e-commerce and EdTech, Gaming and Entertainment have positively profited from COVID-19. According to Megías, this is not a fleeting, momentary boost. “The pandemic has accelerated underlying changes that have taken place in months rather than years. This is not to imply that the traditional sectors will not come back fully, I believe they will. But the world has changed for good, and this accelerated digitalization has come to stay, in my opinion”.
This digitalization has also had impact on investments made in 2020. Madrid and Barcelona, the largest players, have seen the volume of investment decrease by 23.3% and 28.3% respectively. Valencia and Bilbao have gone up in the ranking. This is the result of many years’ worth of effort to better their position and of the acceleration we mentioned, since due to the pandemic, the relationship paradigm with investors has shifted and physical proximity weights less.
Let us end this report with a record in divestitures: the greatest exit in the history of Spain took place in 2020 with the sale of Idealista to EQT for €1.321 billion. This has changed the scale of acquisitions in our country to date.
It has been a frantic year in sales, with a total of 47 deals, which amounts to 16.1% more compared with 2019. This is an all-important factor for the ecosystem, since in practical terms this translates into profit-making for investors and the appearance of a layer of start-up founders and employees who can rejoin the cycle, starting up new companies or investing in others.
Download the full report here to read the full analysis.