Madrid Startup
21 May 2014

Madrid: Next Startup Hub?

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StartUp Europe Roadshow arrives to Madrid on May 22nd! But in the meantime, let’s wonder if Madrid is next European startup hub.

Madrid: Next Startup Hub?

In less than ten days in Madrid holds a: program for entrepreneurs, public call for smart cities oriented startups, management workshop, investment forum, programmers meeting, app hackathon and business growth seminar. It’s Wednesday, 7pm. We are in the new building ImpactHUB Madrid, a mix of coworking space, business incubator and innovation school. One of the events that evening is the opening of Tetuan Valley Startup School, celebrating its 5th anniversary. The project is part of Atalanta an European accelerators consortium with funding from the European Commission and has just moved its offices from the public incubator in Carabanchel to the city center. The program will teach for free ten teams how to go from an idea to a prototype in six weeks. “In Spain no one likes amazing people, neither in school nor in most jobs. If you wake up, you will be punished”, explains the director of an English school, Carmen Bermejo, in the opening speech. “We have no fear of failure, we fear the consequences of failure. Someone saying ‘I told you so'”.

Back in 2009 Techcrunch wondered why there were not more Spanish startups. The article, on Tetuan Valley, remarked the “growing number of initiatives geared specifically toward driving move the Spanish startup scene”. “The founders wanted to help startups and launched a business angel fund (Okuri Ventures). They wanted to invest seed capital, but realized that most startups were kind of lost”, says Bermejo, once her presentation concludes. “There were few entrepreneurs and little real help. Previous work was needed before investing. So they set up the Startup School, a non-profit initiative.”

Five years later, the Startup School is just one of the 80 programs – accelerators, incubators, coworking centres and informal organizations that promote entrepreneurship and technology in the city. Data comes from Startup Spain Map– according to it, Madrid is the second largest startup hub in Spain. There are 438 companies, 25 coworking spaces, 17 incubators and 11 accelerators. Barcelona is the largest.

Madrid’s attempts to become the – both tech and not – business and entrepreneur hub of the country have a lot to do with Madrid Emprende, City Council economic agency’s role. “We support public initiatives for entrepreneurs,” says in an email director Iñaki Ortega. It was born in pre-startup hype times, and everyone we talked to to write this article is convinced of its adequate role. They identify six “market and government failures” (bureaucracy, excessive taxes, business mortality, lack of funding, difficulty internationalization and lack of entrepreneurial culture) and with steps like an incubators’ network or the deduction of municipal taxes for those who have an offline business, try to amend them. They also support the “ecosystem” by working with large and small companies with entrepreneurship programs and offering free space for them (ie Tetuán Valley and SeedRocket incubators or AJE and Iniciador events).

One of their latest ideas is Madrid International Lab. Opened in 2012, the building has free space for, now, 51 business projects in which at the least one of the founders must be from abroad. They offer “‘soft landing’ services for companies coming to Madrid and ‘startup services’ for foreign entrepreneurs starting a project here. We’ve had 31 nationalities, especially France, Portugal, United Kingdom and United States. 80% of projects make technological innovation”, says director Joaquín Muñoz. According to him, Madrid as an international “hub” has several strengths: MBAs, a Latin America gateway (“if you have a project in Europe and want to jump there, Madrid is a good place because of the common language”), and quality of life. “There is people coming to study a master. I think they like it and prefer Madrid to start the business here”.

Beyond public initiatives, private companies are also approaching the entrepreneurial scene. “By conviction or because they do not want to be out”, says Muñoz. Besides banks – Sabadell, La Caixa, Santander or BBVA – large companies – Repsol, Mutua Madrileña or Mercadona – and Telefonica’s Wayra accelerator, opened in 2011 in Madrid and in 2012 in Barcelona – perhaps the “Madrid effect” is clearer in business schools. IE University – the third one in the world and the first one in Spain – organizes since 2012 the biggest startup event in the country: Spain Startup Summit, that brings together investors and international companies. Even the Prince went in the last edition.

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Life before accelerators

In 2000 there were no public incubators nor private accelerators. There was a dotcom bubble and difficulty to raise money for internet businesses. But some companies, like Idealista (Madrid, 1999), Spain’s largest property website or online, beat that. Some years later, Idealista’s offices were in the same building that Tuenti’s ones. In 2006 the social network (kind of like the Spanish Facebook and the most hyped consumer startup the country’s had) was funded. It started rolling in 2006 in a small apartment on Paseo de la Castellana and moved to the city center in 2008. In Madrid, some things remain close most of the time

Tuenti was acquired by Telefónica in 2010. Former employees have since them founded and developed new startups: this post lists them all. “I am convinced that it will happen the same as PaypalMafia, on a smaller scale but it will happen. Do they have more chance of success than other startups? Probably not, but if it is true that as Tuenti had a hard filter to hiring, so business angels and Spanish funds add a mini-point if any of the founders of the new startup was in Tuenti”, writes his author Javier Escribano. “This is how the ecosystem is created in Spain, not with political agendas trying to imitate Silicon Valley, but with close examples to follow and people taking risks”

As another example of how the “ecosystem” is shaped informally, let’s take the networking group of entrepreneurs Chamberí Valley: mostly based on that Madrid neighborhood, it is composed by technology companies. The admission criteria is that they should make more than 1m revenue or have more than that in funding. “We all shared a factor: we had gone through the Iniciador moment (Iniciador is a meeting for entrepreneurs who are just starting) and we thought we could share valuable experiences”, says Iñaki Arrola, one of its members.

There are more than thirty startups in Chamberí Valley, like coches.com, Weblogs SL, the largest network of blogs in Spanish, ticketing company Ticketea, which just started international expansion, Gowex public wifi network and even some recent exits: eltenedor (Spanish LaFourchette, a french-spanish company), recently acquired by TripAdvisor for 40 million; Sindelantal.es, sold in 2012 to Just Eat and Saluspot, acquired by Telefonica in 2014. And if we’re on great numbers and operations, there’s another recent example in Madrid and outside this “valley”. The classified website milanuncios.com, funded in 2005 in Cáceres, later moved to Madrid and no accelerator in between, was just acquired by Schibsted for €100m.

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Madrid, Spain

Did Techcrunch got it right when wondering why there were not many Spanish startups but an increasing number of initiatives? Do they, both private and public, work – or the startup “scene” just drives itself?

In 2011, Chamberí Valley wrote España Emprende manifesto (similar to the European Startupmanifesto – in short, it recommends promoting entrepreneurial education, facilities for hiring and improving taxation). “We thought ‘politicians do nothing’. Ana Pastor, a national journalist, advised us that there could be some politicians worth talking to. Some visited us. And during the election campaign others tried to take credit because by that time entrepreneurs were “cool, so let’s make a picture”. We saw some ministers, not because we wanted a picture but because it was interesting that we could say something. We thought it would not help anything and time has proved us right”, says Arrola. Anyways, “we did not mobilize anything. I do not think we might be referents… Internet in Spain is small. The other day an investor told me he had gone to see one of his partners who had an entire building. The building was worth 10 times my fund”

Is it a money issue? “It’s a common complaint,” says Muñoz. “We have the mindset to invest in brick, but I think that is changing. However, I do not know if there are many interesting projects to be invested”. Almost every day there are news of small seed rounds, but the question is always whether the country lacks investment or startups. “There is a lot of money in Spain” says Arrola. “I have a small fund. We’ve only invested in 11 companies in two and a half years because we think there are not enough good projects. And it’s not just what I think. What happens is that good projects that need money do not go to any incubator: they set the rules and you put the money. But there are not that many good projects”.

Initiatives such as Madrid Seed Capital, to let private investors invest public money in tech and innovative companies, attempt to address this problem. Should the public support be always there? “I’ve always heard that when the market is mature they will take a step behind. There are public incubators in Madrid since 2005, when there was nothing and now there are plenty of private co-working spaces”, says Muñoz. “It seems that we are in a rush to do things very quickly” adds Arrola. “But large rivers grow bigger as small streams enter. Two years ago in a venture capitalists from Israel roundtable, one of the speakers left the audience silent. Typical first question: what does Madrid have to do to be like Tel Aviv? Or to be like Silicon Valley?” It’s not the first time we hear this – see Athens or Europe. “And he said that within 40 years. We’ve been doing it for 40 years. And you?”