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Starting Up Spanish Growth

Lessons from ‘Spain Start-up & Investor Summit’ in Madrid


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‘Spain has a marketing problem’ said Michael Kleindl an entrepreneur and business angel last week at the Spain Startup & Investor Summit in Madrid. IE Business School along with the Spanish jobs website Infoempleo, ran the Summit, attended by over 1000 people over two days where some 20 start-up companies seeking investment presented to over 120 international business angels and venture capital companies.

Kleindl’s comment was referencing an enduring issue with Spanish entrepreneurs and businesses, where they often lack either the ambition or confidence to fulfil their full potential internationally. Martin Varsavsky, the founder of Spanish telecom Jazztel, amongst other companies, echoed this saying that all too often Spanish (and other European) entrepreneurs tend to sell out to US or other international companies before they have really got into their stride and could become international brands.

In the current economic circumstances it is not surprising that Spanish entrepreneurs lack some of the bombast that their Silicon Valley peers may have. Spain is on the front cover of every newspaper as an economy in collapse and this weekend has sought a bailout from the EU for its banks. But as Carlos Mallo, the Spanish boss of international venture capital company, Permira, pointed out – the Spanish have been investing successfully in risky projects for a long time - venture capital was invented in Spain when Isabel La Catolica sponsored the unknown adventurer Cristobal Colon (Christopher Columbus) to seek a new route to the Indies in 1492. In the intervening 520 years the average rate of return may have diminished from that venture but the ideas are still in evidence and the passion to embark on entrepreneurial ventures is very much alive.

Ali Partovi, gave the morning’s keynote address. Partovi , a Harvard computer sciences graduate, started LinkExchange with Tony Hsieh and Sanjay Madan in 1996 and sold out to Microsoft two years later for $265m. He followed this by investing in Hsieh’s next business, an online shoe shop that was struggling to raise funds from professional investors – but he rated Hsieh so followed him in. That business was Zappos, which was sold to Amazon in 2009 for $1.2bn. Other investments have included Facebook and Dropbox – so Partovi has a very impressive track record. And where has this Silicon Valley boy been living with his family for the last year? Madrid.

Partovi is clear that what makes a good entrepreneurial business is not so much the idea but the people behind it. ‘I am no better at assessing an idea than anyone else in this room’ said Partovi ‘but I am a good judge of people – all my investments have been based on the individuals’. Of course Partovi is not the first to say this – but his track record does underline its importance. For Partovi this underlined one of the major differences facing entrepreneurs in the US and Europe. In Silicon Valley you can get funding if you have a great team and a good idea – but maybe not have crunched the figures out on a cell-perfect spreadsheet. Whereas in Europe few investments followed just the team and idea – they had to be underpinned by a strong cashflow and clear ROI – right from the outset. In Silicon Valley (and Partovi makes a distinction between investment attitudes there, where the Gold Rush mentality to risk still lingers, and the more conservative, more European style on the US east coast) investors will believe that the agile minds and resilience of a good and passionate team will find ways to monetize good ideas, even if they are not obvious at the outset. Facebook is therefore a classic of a business that has caught hearts and minds across the globe but is only lately seeking profitability. By Partovi’s reckoning it could never have been established anywhere else as the investors would have diversified it into other revenue streams too early.

Partovi had mentioned in private earlier that he believed that everyone has entrepreneurial spirit – at least when they are born. But our educational system knocks the passion and appetite for risk (or blindness to it) out of children so that by the time they enter the workplace it is only the minority and not the majority that retain the passion for it. This theme was picked up Esperanza Aguirre, the formidable President of the Comunidad de Madrid, who set out her plan to encourage an entrepreneurial mindset in children throughout their educational career.

Of course, as Partovi identified, it is not just the entrepreneurial mindset that is required but the risk appetite of the investors too. The good news was that there appeared to be plenty of enthusiasm from that side too at the summit. And as was noted by Martin Varsavsky economic crises can be a boon to entrepreneurs, offices are cheaper, talented employees are available and stay once hired and consumers are looking for better and cheaper ways to buy things – so the environment can be viewed as fertile! Let’s hope so – as Spain needs all the growth it can get right now.

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