Spain’s ten-year plan to put startups in the economic driving seat

The aforementioned Startup Act is the first piece of dedicated legislation for the sector — and is intended to simplify starting up in Spain, as well as bringing in tax concessions and incentives for foreign investments. So it will be something of a milestone.

Chat to local founders and there’s a litany of administrative, tax-based and fundraising pain-points they’ll quickly point to as frustrations. Wider issues seem more cultural; startups not thinking big enough, investors lacking the necessary appetite for risk, and even — among wider society — some latent suspicion of entrepreneurs. While Spain-based investors are champing at the bit for administrative reform and better stock options. Moving the needle on all that is the Spanish government’s self-appointed mission for the foreseeable future.

TechCrunch spoke to Francisco Polo, Spain’s high commissioner overseeing delivery of the entrepreneurial strategy, to get the inside track on the plan to grow the startup ecosystem and find out which bits entrepreneurs are likely to see in action first.

“The high commissioner for Spain entrepreneurial nation is a new body that’s within the presidency. So for the first time we have an institution that, from the presidency, is able to help coordinate the different ministries on one single thing: Creating the first national mission. In this case this nation mission has the goal to turn Spain into the entrepreneurial nation with the greatest social impact in history,” says Polo.

“What we do is that work of coordination with all the ministries. Basically we have a set of internal objectives. First is what we call impacts — different sets of measures that is contained in the Spain entrepreneurial nation strategy. We also work trying to get everyone together on this national mission so we work on different alliances.

“Finally, we are also very focused on helping let the people know that Spain has made a decision to become — by 2030 — this entrepreneurial nation that is going to leave no one behind. So that’s our job.”

Scaling up on the shoulders of giants

The southern European nation doesn’t attract the same level of startup investment as some of its near neighbors, including the UK, France and Germany. But in some ways Spain punches above its regional weight — with major cities like Barcelona and Madrid routinely ranked as highly attractive locations for founders, owing to relatively low costs and the pull of a Mediterranean lifestyle.

Spanish cities’ urban density, high levels of youth unemployment and a sociable culture that’s eagerly embraced digital chatter makes an attractive test-bed for consumer-facing app-based businesses — one that’s demonstrated disruptive potential over the past decade+, in the wake of the 2008 financial crisis which hit the country hard.

Local startups that have gained global attention over this period — for velocity of growth and level of ambition, at the least — include the likes of Badi, Cabify, Glovo, Jobandtalent, Red Points, Sherpa.ai, TravelPerk, Typeform and Wallapop, to name a few.

Spain’s left-leaning coalition government is now looking to pick up the startup baton in earnest, to drive a broader pro-digital shift in the economy and production base — but in a way that’s socially inclusive. The shift will be based on “an ironclad principle that we leave no one behind”, said Sanchez in December.

For this reason the slate of policy measures Sanchez’s government has distilled as necessary to support and grow the ecosystem — following a long period of consultation with private and public stakeholders — pays close attention to social impact. Hence the parallel goal of tackling a variety of gaps (territorial, gender, socio-economic, generational and so on) that might otherwise be exacerbated by a more single-minded rush to accelerate the size of the digital sector.

“We are a new generation of young people in government. I think in our generation we don’t understand creating a new innovation system or a new industrial-economic system if we are not also talking about its social impact,” says Polo. “That’s why at the basis of the model we have also designed inclusion policies. So all this strategy is aimed at closing the gender gap, the territorial gap, the socio-economic gap and the generational gap. So at the end of the day, by 2030, we have created the entrepreneurial nation with the highest social impact in history.”

There’s money on the table too: Spain will be routing a portion of the ‘Next Generation EU‘ coronavirus recovery funding it receives from the pan-EU pot into this ‘entrepreneurial’ push.

“Specifically, for 2021, the budget assigned to the different goals of the strategy — we have more than €1.5BN for the main measures that we want to start setting up. And for the period 2023 it’s over €4.5BN dedicated to the rest of the measures. So basically between 2021 and 2023 we will be setting the basis/foundations of the Spain entrepreneurial nation,” says Polo.

Execution of the strategy will be down to the relevant ministries of government — who will be enacting projects and passing legislation, as needed — but Polo’s department is there to “guide and accompany” the various arms and branches of government on that journey; aka “to help make things happen” with a startup hat on.

The national strategy envisages entrepreneurship/startup innovation as the driving force at the top of a pyramid that sits atop existing sectors of the Spanish economy — “spearheading the innovative system that we want to generate”, as Polo puts it. “We are not only focusing on innovative entrepreneurship. We are also trying to create virtuous cycles between this ecosystem and the actual driving sectors of the Spanish economy — that’s why we listed a set of ten driving sectors that represent above 60% of the GDP. And this is of utmost importance.”

The listed sectors where the government wants to concentrate and foster support — so those same sectors can leverage gains through closer working with digital innovation are: Industry; Tourism and culture; Mobility; Health; Construction and materials; Energy and ecological transition; Banking and finance; Digitalization and telecommunications; Agri-food; and Biotechnology.

“We decided we needed to make the cut at some point and we decided that putting together 60% of the GDP in Spain was a clear direction of the sectors that we could be using in order to accelerate the change that we want to see,” says Polo. “Basically what we want to shift with this model is that the innovative entrepreneurship that has been quite enclosed in the past starts working with the different driving sectors that we have in the country because they can help each other solve their different issues.

“So first, for example, for investment — what if big companies start investing more and more than they are actually doing? We accelerate also that path — into innovative entrepreneurship system. That is going to help close that gap… What if startups and scale ups in Spain work together with our international companies in order to attract and retain that talent? That is going to put us as a country in a better position.

“To me the best example is about scaling up: Because what is better than scaling up on the shoulders of giants? We have already a big number of international of world class companies that are in different markets so what is better than being able to scale up with a company that is already there, that has the knowledge and that can help you mature as a scale up in a shorter period of time. So there are a lot of virtuous cycles that we can generate and that’s why we wanted to make also a broad appeal to the different driving sectors. Because we want to let the country know that everyone is called to make this a reality.”

Lime scooters outside El Retiro Park in Madrid (Image credits: Natasha Lomas/TechCrunch)

Digital divides

Digital can itself divide, of course, as has been writ large during a global pandemic in which the development of children excluded from attending school in person can hinge on whether or not they have Internet access and computer literacy.

So the principle of entrepreneurial growth being predicated upon social inclusion looks like an important one — even if pulling off major industrial transformations which will necessitate a degree of retraining and upskilling in order to bring workers of all ages along the same path is clearly not going to be easy.

But the ten-year timeframe for ‘Spain Entrepreneurial Nation’ looks like a recognition that inclusion requires time.

The long term plan is also intended to address a common criticism of Spain’s politics being too short-termist, per Polo. “In Spain particularly it’s been a regular criticism that politics always look in the small term so this is proof that this government is also addressing the short term issues but also is preparing Spain for the future,” he says, adding: “We really believe that [presenting a long term vision is] a good thing and it’s an answer to that social demand.”

The country has also — over the last decade or so — gained a bit of a reputation for successfully challenging digital developments over specific societal impacts in Europe’s courts. Such as, in 2010, when a Spanish citizen challenged Google’s refusal to delist outdated information about him from its index — which led, in 2014, to Europe’s top court backing what’s colloquially referred to as the ‘right to be forgotten’.

Uber’s regulation-dodging was also successfully challenged by Spanish taxi associations — leading to a 2017 ruling at the highest level in Europe that Uber is a transport service (and therefore subject to local urban transport rules; not just a technology platform as the ride-hailing giant had sought to claim).

Anti-Uber (and anti-Cabify) strikes have, meanwhile, been a quasi-regular (and sometimes violent) feature of Spain’s streets — as the taxi industry has protested at a perceived lack of enforcement of the law against app-based rivals who are not competing fairly, as it sees it.

And while gig platforms (even homegrown European ones) tend to try to shrug off such protests as protectionist (and/or ‘anti-innovation’), they have oftentimes found themselves losing challenges to the legality of their models — including most recently in the UK Supreme Court (which just slapped down Uber’s classification of drivers/riders as self employed — meaning it’s liable for a slew of costs for associated benefits).

All of which is to say that the muscular sense of injustice that segments of Spanish society have willingly — and even viscerally — demonstrated when they feel unfair impacts flowing from shiny new tech tools should not be dismissed; rather it looks like people here have their finger on the pulse of what’s really important to them.

That may also explain why the government is so keen to ensure no one in Spain feels left behind as it unboxes a major packet of startup-friendly policies.

Among a package of some 50 support measures, the entrepreneurial strategy makes a reference to “smart regulation” and floats the idea of sandboxing for testing products publicly (i.e. without needing to worry about regulatory compliance first).

The idea of opening up sandboxing is popular with local gig platform Glovo. “I really believe this is key; allowing innovation to test products/services without having to go through regulatory nightmares to test. This would really drive innovation,” co-founder Sacha Michaud tells us. “This is working well in financial services but could be applied across a wide range of tech areas.”

Attracting more investment to Spain and improving stock options so that local companies can better compete to attract talent are other key priorities for him.

Michaud says he’s fully supportive of the government’s entrepreneurial strategy and the Startup Act, while not expecting immediate results on account of what he expects will be a long legislative process.

He’s less happy about the government’s in-train plan to regulate gig platforms, though — arguing that last-mile delivery is being unfairly singled out there. This reform, which is being worked on by the Ministry of Labor, has been driven by a number of legal challenges to platforms’ employment classifications of gig workers in recent years — including a loss last year for Glovo in Spain’s Supreme Court.

“In Glovo’s case [the government] are specifically looking at regulating only riders, last-mile delivery platforms — yet still allowing over an estimated 500,000 autonomous workers in logistics, services and installations to continue,” says Michaud, dubbing this “very discriminatory; affecting literally a handful of tech companies and ‘protecting’ the status quo of the traditional IBEX35 Spanish companies”.

Asked about progress on the reform of the labor law Polo says only that work is continuing. “I don’t have more transparency on the work they are doing. I have probably the same information that you have and the conversations that we have with the different companies, also the gig companies that we keep an open dialogue with,” he says.

But when pressed on whether reforming regulations to take account of tech-driven changes to how people work is an important component of the wider entrepreneurial strategy he also emphasizes that the “ultimate goal” of the national transformation plan is “to generate more and better jobs”.

“We are always inclined to try to foster the companies that generate these better and increasing new jobs,” says Polo. “And I’m sure that the different gig companies that we have in Spain — I know that they understand this ultimate goal. They understand the benefits for the company and for the country of following this path and that they are willing to transform and evolve as the country is also evolving.”

At the time of writing Barcelona is also being rocked by street protests over the jailing of rapper, Pablo Hasél, over certain social media postings — including tweets criticising police brutality — judged, by Spanish courts, to have violated its criminal code around glorifying terrorism.

Spain’s laws in this area have long been denounced as draconian and disproportionate. Including by Amnesty International — which called Hasél’s imprisonment “an excessive and disproportionate restriction on his freedom of expression”. But Polo dismisses the idea that there’s any contradiction in Spain seeking to rebrand itself as a modernizing, pro-entrepreneur nation at the same time as Spain’s courts are putting people in prison over the contents of their tweets. (Hasél is not the only artist or citizen to fall foul of this law — which has also been infamously triggered by social media jokes).

“There’s no opposition of concepts at all,” Polo argues. “Spain is one of the most robust democracies in the world and that is something that is not us who are saying it — it’s the international rankings. And we have a rule of law. And in this case it’s a very clear case of someone who went across the limits that are established in legislation because the freedom of speech has limits of the rights of other people so it’s something that has nothing to do unfortunately with freedom of speech… The reason why Pablo Hasél is in jail is because he promoted terrorism.”

Pressed further on how ‘jail time for tweets’ might look to an international audience, he reiterates a recent government statement that they do intend to reform the penal code. “There are very specific things that, yes, we want to reform. Because times have advanced,” he says, adding: “We are a more mature country than the one we were in the 1980s. And there are specific things that we want to change in the penal code — but they have nothing to do with the recent events.”

Graffiti in a Barcelona street protesting against the imprisonment of rapper, Pablo Hasél, for crimes involving freedom of speech (Image credit: Natasha Lomas/TechCrunch)

Measures to change mindsets

On the broader issue of cultural challenge — aka: how to change a national mindset to be more entrepreneurial — Polo expresses confidence in his mission. He says it’s about making sure people see the big picture and their place in the vision of the future you’re presenting to them; so they see you’re actively working to bring them along for the ride.

“This is one of the things that I feel confident about. Particularly based on my background prior to being in politics. That is helping change mindsets,” he tells TechCrunch. “In the past I was able to help tonnes of people realize that they were capable of doing things that they thought they were never capable of doing. My understanding is that in order to generate those cultural changes you need to do one thing first: That is generating a vision for the future.

“That’s why we insist so much that by 2030 Spain is going to become an entrepreneurial nation with the greatest social impact in history and that we have a plan for that… Where we take the entrepreneurship and we help them spearhead this new innovation model. We leverage all the driving sectors of the economy so we are actually building on success; on the actual success of Spain as an international economy. And that there’s something for you in that plan. That’s why we are including in the strategy at the basis of the strategy the inclusion policies in order to close the gender gap, the territorial gap, the socio-economic gap, the generational gap.

“In order to change cultures you need align people into working together towards building something that is greater than themselves and I think that with the Spain entrepreneurial nation strategy we made that first step. And this is why — and this is a parenthesis — that’s why we say the [startup] law is as important as having this strategy.”

That startup law — due to be presented shortly in draft (aka as an anteproyecto de ley) for approval by the Council of Ministers, before going to parliament for a wider debate process (and potential amendments) — is the first piece of legislation aligned with the wider strategy. It also looks set to be one of its first deliverables.

Although it’s not clear how long it will be before Spain gets its shiny new startup law. (The country’s politics has lacked consensus for years; Sanchez’s ‘progressive coalition’ was only put together after he tried and failed to get a full majority for his Spanish Socialist Workers’ Party (PSOE) twice in a row.)

“That’s something that is difficult to say because there are laws that have a shorter and others that have a longer period of approval,” says Polo, on the timeframe for passing the legislation. “For us the important issue here is that the startup law has a full process — so it has a full agreement on every side of the hill so it becomes robust and stable legislation for the years to come.”

This “long awaited” regulation which the ecosystem has been calling for for “years”, per Polo, will address a number of different issues — from the first legal “definition” of startup (to reflect differentiation vs other types of companies); to measures to help startups retain and attract talent.

“We need to reform stock options so that they become a tool in order to compete internationally for talent,” he says, noting that the idea is to enable Spain to compete with regimes already offered by countries elsewhere in Europe, such as the UK, France and Germany.

“Also we need to reform VISAs in order to again retain and attract that talent,” he continues. “The president also talked about incentivizing investment and having a certain degree of tax breaks — and we understand that business angels need more incentives. So we have a more ordain and logical system of investment at the pre-seed and seed stage. And many other actions — it’s the Ministry of Economy that will end up with the final text that will be passed in the Council of Ministers in the coming weeks.”

Polo cautions that the law won’t instantly fix every gripe of founders and investors in Spain. Clearly it’s going to be a marathon, not a sprint.

“That’s why we have a strategy,” he emphasizes. “I understand the interest in the startup law but I always say that as important as the startup law is the Spain entrepreneurial nation strategy. Because it’s in there where we address the big problems that we have as a country when it comes to the ecosystem. And in there we have pointed out four big challenges that we have.

“First is investment. We need to accelerate the velocity of maturity of the investment in Spain… The numbers have been growing, year after year, and they look really good. So what we want to do is to help accelerate those numbers so we are able to run faster and close the gap that we have between us and our neighbours: Basically Germany and France. That they have 4x or 5x the number of investment that we have in Spain. We really want to be in ten years in a place where Spain could be leading the investment in innovative entrepreneurship in mainland Europe.

“Second challenge: Talent. We know that in order to build the entrepreneurial nation we need all the talent that we have. So we need to develop the internal talent but we also need to attract international talent and we need to retain that talent. So that’s why we were talking about the different tools that might be included in the startup law.

“The third challenge is scaling up. We in Spain have a lot of companies that assimilate success to selling. And that’s great — it’s totally legitimate. But what we need as a country is to have an increasing percentage of companies in the future that do not think about selling as a synonym of success; but they think about buying other startups around the world. Of growing. Of scaling up. So they started building today the big companies that in the future by 2030 they will generate thousands of good quality jobs in Spain which is the ultimate goal and the bottom line of the strategy.

“And the fourth goal: Turn the political administration into an entrepreneurial administration. Meaning that the political administration, it’s more agile. That we generate a positive benchmark. And that sometimes the public sector makes the investment that not even the riskier of venture capital funds can do. Because that’s the role of the public sector; to generate this kind of visions and to put the means in in order to achieve those. So among all the challenges that we have in the ecosystem it’s something we have put together in the strategy — that is going to addressed not only with one law but with 50 different measures that we included in the Spain entrepreneurial nation strategy.”

The wider entrepreneur strategy talks about nine priority actions to be developed in the next two years via certain projects — which Polo envisages being accelerated in the near term with the help of EU coronavirus recovery funds.

He highlights a couple of priority projects: One to create a network to link entrepreneurs and policymakers with the wider ecosystem, and another to connect incubators and accelerators to build out a national support network for founders — both of which have been inspired by approaches taken in other European countries.

“Among these projects we have one — Oficina Nacional de Emprendimiento — which is deeply inspired by La French Tech in France. So we want to generate a one-stop-shop for entrepreneurs, investors and the rest of the ecosystem to access all of opportunities of collaboration between the central government, regions and CP councils in order to improve entrepreneurship in their respective areas,” says Polo.

“We have other projects like Renace — which is an acronym for Red Nacional de Centros de Emprendimiento — and in there we’ve also been inspired by the network that Portugal has that are doing such exciting things. So what we want to do is help connect the different incubators and accelerators and venture builders that we have in Spain. So they’re at first connected and we add more value — but with one particular focus: The different gaps.

“With Renace in particular we want to help close the territorial gap. Because it’s going to be very interesting to be able to work with engineers in Cáceres for a company that is based in Barcelona. Or to work with a team of designers from the Basque country for a company that is setting up in Malaga. With Renace we can help integrate the country and really talk about an entrepreneurial nation and not just cities. So Spain has the potential to build that. And there are many others issues.”

France alone spends billions annually both on R&D and on direct support for the digital sector. And even with EU funding Spain can’t hope to match the level of ‘ecosystem’ spend of richer, northern European countries. But Polo says the plan is to make the most of what it has with the resources it can marshal — hence, with the Renace project, it’s about linking up existing incubators/accelerators (and adding “a new layer of value” such as via public-private partnerships).

“When you end up reading the Spain entrepreneurial strategy you realize it’s not a billionaire plan of money that you put on the table in order to start building this Spain entrepreneurial nation,” he says. “It’s instead it’s a very robust plan in order to create that vision and putting together the different pieces that we already have — the different assets that we have as a country to start working together intelligently so we can make the best of everything that we can.”

Polo also argues that Spain is already doing well on the startup cluster front — saying it stands alone with Germany in having more than one city ranked among the top ten ‘most entrepreneurial’ in Europe, per such listings. More recently, he says, Spain has risen further up these listicles — as more of its cities have popped up in the “global competition for innovative entrepreneurship”.

“Meaning that in different places of Spain there are many cities and regions that have the hunger to become a place that is helping entrepreneurs to create this kind of economy. And we can get many more,” he suggests, pointing to Renace‘s hoped for value from a social inclusion angle.

“With Renace what we want to do is generate this network and add more value — provide services, get into public-private partnership in order to add the value of the different places that we have in the country. So let’s say that a company in Barcelona can find tonnes of engineers in a city like Cáceres. The company in Barcelona becomes more competitive because the salaries in Cáceres — if you pay them the best salary in Cáceres they could be two-thirds of the salary in Barcelona. So the company in Barcelona becomes more competitive. But also the engineers in the city of Cáceres who want to stay in the region, who want to stay with their family or to have a life-project in Cáceres they can stay. So this is an example of how we can close the territorial gap and also become really integrated startup nation in the full term of nation.”

“The ultimate goal of the Spain entrepreneurial nation strategy is turning Spain into a country that is able to avoid the effects of different crises. And particularly the effects of that we saw in 2008 when the most vulnerable jobs were destroyed overnight — and they were counted by tens of thousands. That particularly struck the young people with unemployment rates that were above 55%. The immigrants and the people over 50. We don’t want that to happen again. So there’s been a very profound reflection on what needed to happen in Spain for that to change. And the conclusion was that we needed to change the productive basis of the country,” he continues.

“That’s why we are putting together a strategy that is going to help the innovative entrepreneurship sector spearhead these new models, this new economic model for Spain. That is going to be leveraging the different driving sectors of the economy — those ten sectors that we state in the strategy — and that as it could not be differently in a 21st century strategy, and particularly a strategy designed by a new generation of politicians and trying to respond to the ambitions of the new generations that is a strategy that is not including the social impact of this phenomenon. So that’s why we are also focused on putting together inclusion policies.”

Polo won’t be drawn into naming any especially promising startups he’s encountered on his travels around Spain — referring instead to the “tonnes of super innovative companies” he says he’s sure will soon be disrupting business as usual in Spain and (the government hopes) internationally — from battery charging companies to retail disruptors working on new ways to make clothes. (“Different kinds of innovations that people can’t imagine,” is his pithy shorthand.)

“What we are trying to do every time we have an opportunity is to also promote the knowledge of these companies — and also help Spanish people and also people abroad — to know that we have everything that we need in order to succeed as a nation and become that entrepreneurial nation with the greatest social impact in history,” he adds, acknowledging that a big part of his mission is “to tell the rest of the world that we are here”.