Is Spain getting its act together?
In a year that saw European tech funding slump, 2023 was somewhat of a moment in the sun for Spain’s early-stage startup ecosystem.
Early-stage funding in the country was up on 2022’s levels, and Spanish startups raked in a record amount of capital. Madrid also broke its record for deal count in 2023, suggesting the local ecosystem is maturing.
Francisco Polo, Spain’s former high commissioner for entrepreneurship, tells me government legislation is partly to thank. He says the nation’s Startup Law — passed a year ago to make Spain more attractive to investors and founders — is partially responsible for an increase in the number of seed, Series A and Series B rounds in 2023, and also contributed to a 42% increase in overall investment levels by national VCs.
“I think this is very connected to the Startup Act, which offers business angels up to 50% tax relief [on the income from their investments] with a limit of €100k, which is one of its star measures,” he says.
Alongside making Spain more attractive for local and foreign investors, the Startup Law was also introduced to attract international talent, by creating a new one-year visa for digital nomads, and expanding the length of residence permits. That brings Spain in line with other countries in Europe, like Estonia and Croatia, in offering incentives for nomads.
So 12 months on, has it been a success?
People working for startups younger than five years (or seven in the case of businesses in strategic areas like biotech, energy and industry) can now receive up to €50k per year in stocks or shares without having to pay any tax on them until they decide to sell — up to a maximum of 10 years from the date they are received by the worker.
Those who drafted the legislation faced resistance from the Spanish treasury, which feared it could become a backdoor for tax fraud, according to people involved in the discussions at the time. However, they say this is a more generous offer than in countries such as the UK, where the tax exemption period is three years for a total of almost €300k.
There are a couple of caveats though. Scaleups and older startups fall outside the scope of the legislation, and to benefit from the incentives, startups need to be certified as such by a new government agency, called Enisa.
Officials had expected around 10k startups to receive Enisa’s green light — but as of the end of last year, the agency had certified about 600 and was studying a further 1,000 applications.
Miguel Ferrer, director of strategy and public policy at the Spanish tech lobby group Adigital, says the numbers so far “aren’t bad” if you take into account that 2023 was “a very dysfunctional year”. Most of the rules associated with the law were published around the summer, when there was a need to beef up Enisa and a reconfiguration of the Spanish government after a general election in July.
He hopes the certification system will inject “seriousness” into the sector by providing it with reliable data on how many startups exist, and what they do — rather than relying on industry reports from private organisations citing vastly different figures. This should also make it easier for the government to channel support into the ecosystem, Ferrer says.
But what I’ve noticed from my conversations with founders is that some of them are still unaware of some of the changes introduced by the law, including its much more favourable tax regime for stock options. It's the second time in just a few months that I've come across multiple Spanish founders unaware of policy moves — some are still only just finding out about the government’s AI sandbox. Is the government reaching out to them?
Polo, who spearheaded the Startup Law while in his previous role, says the government is running a big promotional campaign to make sure founders are aware of it.
Ferrer says there's a widespread view in the country that the law has been beneficial for the country’s tech ecosystem. However, he says the government, which is expected to review the law’s impact at the end of this year, must come up with a package of measures to support scaleups and older startups that are in no man's land.
I’d like to hear from Spanish founders — what do you make of the law? Did you know about the changes? Has it made your life easier? Is there anything missing? Email me.
— Cristina Gallardo, Iberia and deeptech reporter
