Entrepreneurial Ecosystem Diagnostics of Spain

Spain has a high level of startups and scaleups. At 17.9% in 2020-2023, its business churn rate (business creations plus exits as a share of the business population) was above the European OECD country average, indicating a healthy level of Schumpeterian creative destruction. At 8.5% in 2020-2023, its employer firm birth rate is in line with the European OECD average. Its rate of equity-backed startups per capita (0.18 startups per thousand people) is similar to other large European OECD countries. Its unicorn rate has increased from less than 0.01 unicorns per million people in 2016-2020 to almost 0.03 in 2020-2023. Spain also has a relatively well-balanced entrepreneurship performance with good performance across different regions and social groups. The share of women entrepreneurs to total entrepreneurs has increased significantly over the past decade, reaching an average of about 17% in the period 2020-2023.

However, there is scope for further growth, particularly in more innovative startups, rates of scaleup and numbers of women entrepreneurs.

Spain’s startup and scaleup performance is underpinned by many highly supportive entrepreneurial ecosystem conditions.

The strongest elements in Spain’s entrepreneurial ecosystem are:

• Infrastructure, including transport and ICT connectivity for business and energy availability.

• Markets, including one of the largest domestic markets in Europe and high integration with global trade.

• Leadership, as evidenced by a high and increasing prevalence of serial entrepreneurs who act as connectors and role models and well-directed public policy support initiatives.

• Intermediate Services, reflecting the rapid expansion of incubation, acceleration and other business support services.

• Institutions, which have been strengthened by important regulatory reforms for entrepreneurship through the Startup Law and Create and Grow Law, including in business registration, talent recruitment, and fiscal incentives for investors and innovative startups.

Certain aspects of these elements could nonetheless be strengthened, namely by:

• Boosting digital startups and scaleups by strengthening the diffusion of digital technologies and increasing access to public data.

• Increasing scale up by better leveraging global markets via soft-landing programmes for startups abroad and encouraging “born global” strategies among founders.

• Developing an underpinning vision and strategy for the development of Spain’s entrepreneurial ecosystem and strengthening linkages among its key actors.

• Improving the quality and range of incubation services in rural areas.

• Reducing regulatory differences between regions by strengthening the co-ordination mandate of the Sectoral Conference and advancing the implementation of the “Régimen 20” framework.

• Adapting the startup definition, certification and related incentives of the Startup Law to the needs of deeptech firms (hard-science based firms) and scaleups.

• Further advancing reforms of the insolvency framework.

Entrepreneurial ecosystem conditions in the following areas are less strong overall compared to the elements identified above.

Finance – Spanish startups can count on multiple sources of funding, including access to bank loans and early-stage venture capital, and many public venture capital funds and funds-of-funds have been launched. However, there is a gap in growth-stage venture capital, with relatively few domestic large funds that can engage in series-C rounds or scaleup deals. In the past seven years, 91% of domestic funding rounds were below EUR 5 million EUR.

Talent – Spain is increasing its education participation rates, numbers of STEM students, and the supply of digital and entrepreneurial skills. However, startups and scaleups face talent shortages in technical roles across skills-intensive sectors.

Knowledge – Spain has many strong universities generating knowledge with potential for exploitation by startups and scaleups. But, despite an increase of over 28% in R&D expenditure since 2018, R&D investments are only 1.4% of GDP and certain legal, cultural and incentive obstacles limit the conversion of academic research into commercial applications and spinouts.

Networks – There are many important startup events like conferences and entrepreneur meet-ups in Spain. However, only 7% of Spanish SMEs have innovation co-operations with other firms and few engage in collaborations with universities or corporates. In addition, connections among ecosystem support actors in different regions are often not strong.

Culture – Spain’s entrepreneurial culture is improving but risk aversion and limited appetite for entrepreneurial careers is still common. For instance, less than 50% of Spanish adults (18-64 years old) consider entrepreneurship as a good career option, and less than 58% think that successful entrepreneurs have a high social status. Recent development of the Spanish entrepreneurial ecosystem has started to change these prevalent attitudes, but cultural change is a slow process.

The following main policy actions are recommended for these ecosystem elements:

• Knowledge

  • Launch a matchmaking programme between startups and corporates and startups and universities through support for joint projects to develop commercial applications of university and corporate knowledge through startup and scaleup firms.

  • Mandate selected sector-specialised incubators, business innovation centres or cluster management organisations to strengthen ecosystem networks within targeted sectors.

  • Incentivise researchers to find commercial applications for their inventions through better defined conditions for spin-off participation, guidelines on how to apply intellectual property provisions, proof-of-concept grants and funds to translate R&D research into spinouts.

• Finance

  • Encourage Spanish institutional investors to participate more in venture capital and private equity funds through fiscal incentives, regulatory reforms, and strategic use of the venture capital instruments of public development banks, while supporting Europe-wide capital market integration.

  ❏ Continue to leverage public development banks and other public-funded entities (e.g. CDTI or SETT) to crowd-in private investors in venture capital markets, and possibly institutional investors.

• Talent

  • Increase the domestic supply of technical professionals and encouraging students to pursue technical programmes in tertiary and vocational education, while also making entrepreneurial education modules universal and compulsory at the secondary level.

  • Incentivising startups and scaleups to hire talent through offering competitive stock option benefits and cuts to tax wedges for employees.

• Culture

  • Continue to build the image of Spain as an entrepreneurial country through reinforcing the already distinctive Spain Up Nation brand, including through a communication campaign promoting the brand beyond entrepreneurship inner circles.

  • Up-skill and re-skill trainers’ and teachers’ entrepreneurship skills and encourage secondary schools and universities to include entrepreneurship education modules.