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What to expect from Spain’s Startup Law, with Francisco Polo

Entrepreneurs in Spain are hoping the new legislation, nicknamed the 'Startup Law', could supercharge the country’s ecosystem.

By Tim Smith in Barcelona

Spain’s parliament will soon pass a new piece of legislation that’s intended to give entrepreneurs more tools to compete on the international stage. 

Founders and investors here have long been calling for better investment incentives, reforms to stock options, and new visa options for attracting international tech talent (to name just a few common requests).

The so-called ‘Startup Law’ was unveiled by Prime Minister Pedro Sanchez back in December, and is accompanied by a 10 year strategy document that comes in at 160 pages. So what will end up in the law, and what will founders have to wait longer for?

Francisco Polo is Spain’s High Commissioner for ‘Spain Entrepreneurial Nation’ (a new government body established by Pedro Sanchez), and the mastermind of the 10-year strategy is exactly the person to speak to to find out.

Polo describes himself as a “social entrepreneur”, and founded social campaign platform Actuable in 2010, before becoming director of change.org Spain.

Sifted sat down with him to get his views on the challenges facing Spain’s startups, and some clues on what will feature in the forthcoming ‘Startup Law’.

Tell me how you went about building this national strategy, what was the process of identifying priorities?

First came the understanding of what happened in 2008 in Spain during the financial crisis. In Spain we had an enormous destruction of low-productivity jobs that went overnight, and that primarily affected young people — we had an unemployment rate above 55%. The recovery also took longer than the average for EU countries. 

It was clear we had to change the production basis of the country. After understanding that problem we started investigating and talking to experts about the levers we needed to push in order to increase productivity. 

There are basically three main levers to increase productivity in every country. 

1. One, which affects the long term, is education. If you invest now, in 20 years time you will have people who are best suited to create better products and services.

2. The second level is science, R&D. You make investments today, and in five years you might have a revolutionary invention that changes the economy.

3. In the last 20 years a new lever appeared, that is based on innovative entrepreneurship. We needed to choose one of these levers to build the first national mission.

We decided to start the first national mission, building on the success of entrepreneurs.

When we made this decision we started talking to all the actors in the entrepreneurial ecosystem, associations in Barcelona, Madrid and the rest of the country, investors, entrepreneurs, institutions, ministries.

There are 50 measures in this national strategy document, more than 160 pages. What do you expect will be the main concrete outcomes from the ‘Startup Law’?

As you say, there are 50 different measures that will help us to align the efforts of the public and private sector in order to build the entrepreneurial nation we want to build.

In the short term, we want to pass the ‘Startup Act’. This law is going to be another step forward, showing how Spain wants to be in this competition, and the specific content is going to be the following: answering to the historic demands of the ecosystem.

1. The first is the definition of ‘startup’ that allows this kind of structure to be recognised by the administration, so that we can give them differentiated treatment that allows them to grow faster and have incentives when it comes to creating an innovative business like this.

2. Second, we want to help retain and attract talent. It has to include new regulation for stock options that allows Spain to have the same tools to compete internationally for talent.

The law also needs to review the different visas we have in place, to attract talent to Spanish startups.

We want to study different tax breaks and investment incentives in order for investors to invest in Spanish startups or startups that have their headquarters here in Spain.

With stock options, for instance, many entrepreneurs complain they are heavily taxed at the moment. Can you reassure people there will be less tax on stock options?

I think we fully understand the problem with stock options in Spain. There was a scandal in the 2000s when stock options were used in an inappropriate way, so new legislation was passed that made stock options in Spain unattractive.

Now we understand that stock options are just a tool to retain and attract talent. So we don’t just need certain improvements on the regulation we already have. We need to make Spanish stock options equally attractive as those you find in the UK, France or Germany. 

This is for the ministry to decide, but it has to become a tool that allows Spain to compete internationally.

And what about incentivising investment, what role should public investment play?

We understand that business angels and small investors need to have more incentives. We need to incentivise that they invest in some companies, and we need to make it easier for them to invest and help build the ecosystem.

But when it comes also to investment in this strategy, we have really gone into the main problem of investment in Spain. Basically, and this is in broad terms, there is not a problem with the first stages of investment when you are starting up in Spain. You can find the money in both the public and private sector.

The problem in Spain is when you already have success as an entrepreneur and you need to start scaling up. You need to start going abroad, you need to start buying other companies in order to accelerate your growth and expand. And there we have a problem because for that kind of stage, we don’t have venture funds and we don’t have public funds that are able to provide the amounts of investment that are needed. 

That’s why there’s a number of Spanish companies that need to go abroad in order to get that kind of investment. We need to start closing that gap. We need to start helping companies to find investment in Spain, in order to do the scaling up. 

And in that sense, as has always happened in countries that decided to become startup nations, it has to be the government that shows the direction, and that’s why we have a wonderful tool which is the ICO and the public arm that allows us to make investments. We are working in order to be a first mover in there so that the private sector can come together and we can close that gap.

We understand that the levels of investment in Spain are four times lower than France and five times lower than Germany. We really want to run in the next ten years in order to close that gap and make Spain one of the main countries in mainland Europe when it comes to investment in entrepreneurship.

With respect, when I speak to entrepreneurs about their main priorities and issues, one thing I hear is that attracting early investment, pre-seed and angel investment, is a problem in Spain. Entrepreneurs would like to see tax incentives for that kind of investment. Is there going to be anything in this ‘Startup Law’, or this strategy, that will address those concerns about early stage investment?

I was not denying that there are things that can be fixed when it comes to early stage. We have been talking to associations of business angels specifically and they have told us about the specific barriers that they have, the difficulties etc.

We know the specifics and the small barriers that the seed investment has in Spain. But what I was trying to explain is that there are small things that need to be fixed, but the challenge as a country is on the scaling up. That’s the big one.

The proof is that we have a taxonomy of SMEs in Spain that is around 99% of the economy and we have few big companies, and that’s what makes the Spanish economy less competitive than other economies. We really need to fix that problem, so yes we will make the little tweaks we need in order to make business angels and early stage investment take off but we are not going to forget the big issue that we have as a country.

So you say “little tweaks”…but tax incentives aren’t just a small tweak are they?

Well it depends, because we already have some things on the table. As I say, I would love to go into details but this is something that’s being discussed in the Ministry for the Economy and it’s for them to decide and find the balance of what we can do.

Ok, but you can say at this point that this kind of policy is being looked at?

Absolutely, and in addition it’s something that the president said in the presentation of the Spain Entrepreneurial Nation strategy, that this law is going to contemplate tax incentives.

You mentioned attracting talent and one thing that you hear often when you speak to entrepreneurs is about visa programmes, and visa programmes for international tech talent. I notice that this is a separate point in the strategy, so do you expect that that visa is something that will be delivered through a different piece of legislation to the Startup Law?

We would love to see it together with the Startup Law but it could also happen that we need to treat it separately, so that’s why it’s a different measure. We also wanted to give it more visibility. It’s the same as what I just explained about stock options. It’s something we want to see in the Startup Law, but it could happen that we need to treat it separately because we need further discussion. But both things are important and are independent measures in the strategy.

We believe that the best way to make a law that stands the test of time is to put everything under the umbrella of the Startup Law.

There are a couple of other priorities mentioned in this document that I wanted to ask about. The National Entrepreneurship Office, and the Flagship Programme. Can you explain what those are, and how they will have a tangible impact on startups?

Well they are different projects. The National Entrepreneurship Office is inspired by La French Tech. We want to address a problem that we have in Spain, that we have different places where you can go in order to ask what the government can do for you. Also the regional and local governments. So we want this to be a one-stop-shop, in order to facilitate entrepreneurs, investors and others, to have one point where they can get all the information. The same that happens with La French Tech — we’re deeply inspired by the good work they’ve been doing in recent years.

The first stage of the National Entrepreneurship Office, as the Ministry for the Economy announced, is going to be a digital platform. 

In the strategy we will further that vision. We understand that this needs to be something tangible and needs to also be embodied in RENACE (National Network of Centres of Entrepreneurship) the network of incubators and circles that we also contemplate in this strategy. It also needs to become a body that helps dynamise the ecosystem in the country.

As you know one of the strengths of Spain is that we don’t just have one but two cities among the top ten cities in Europe for startups. We have even more cities that are helping to build Spain Entrepreneurial Nation, so we want this body to help connect and to dynamise the ecosystem.

The second project that you mention, this is really important for us. We in Spain have seen, and here in Barcelona is the best example, that international events are great tools to attract investment, to attract talent and to show the world the possibilities of Spanish companies. So it’s a tool for this scaling up challenge that we have in the country.

We understood that and we also saw was, after studying how different events and mainly Mobile World Congress coming to Spain, that it was a sum of factors that were not structural. So it depended, at that time with MWC, on the vision and talent of a minister who was able to realise how interesting it was for Spain to attract this event. He made everything possible for it to happen and it happened.

The big improvement that the Flagship Programme is providing is that we want to make this structural. So we want a body of public servants working on the development, the retention, and the attraction of international events, so that this happens in a way that isn’t dependent on the context. It’s happening all the time, and working in order to make Spain a place to be a flagship for international events and accelerate the attraction of those investments and talent.

It’s an interesting time to be doing this interview because the Spanish government is currently in the process of passing another law, the Riders Law, which many in the entrepreneurial community have criticised, saying that the government has not listened to some of the country’s most successful innovators. Obviously I’m thinking of Glovo and the team there. So what is your response to that criticism?

Well first, I haven’t seen the text. And on the process, there’s been a table that reunited the unions, the Spanish Confederation of Business Organisations and the ministry and they have the conversations to negotiate between the interests of the companies and the workers. That said, the companies and specifically Glovo, have always been in conversation with the high commissioners, we have talked with them every time they have asked us and we have been following the issue and we understand the issue.

It’s also important to understand that there’s nothing incompatible between building the Spain Entrepreneurial Nation and supporting the generation of jobs that are good quality jobs, because this is precisely the ultimate goal of the strategy. 

We are hoping the innovative entrepreneurship will become the spearhead of a new innovation model in Spain. There needs to be a campaign by the different driving sectors of the economy and we are also working in order to make this innovation model one that closes the different social gaps. That is the gender gap, the territorial gap, the socio-economic gap and the entrepreneurship gap. At the end of the day what we want to achieve with this strategy is a new economic model that helps generate good quality jobs and I’m sure that Glovo and other companies and platforms can understand this vision and they can help build this and transform into companies that support this vision.

OK, obviously they’re not happy about it. But you think they will learn to be happy about it?

To me, politics is about conversation, understanding and reaching points were we can balance that together. It’s very clear that there’s a big discussion, not only in Spain, but in Europe and we had this recent Supreme Court ruling in the UK about Uber. I’m sure they understand that they need to turn these workers into employees and they understand also why it’s important. We have a very specific model that we want to promote in Spain and it’s also a matter of fact that they (the riders) are dependent on the company and it’s the same thing that different judges say.

I know they understand this. I know that they are willing to walk that path and I’m sure that we will come out of this situation stronger on every side of the issue.

How much of a role do you think Podemos played in that decision? It’s obviously an interesting coalition government at the moment with Podemos who are very worker and union focussed.

This is one government and we have an agreement of what we want to do as the first coalition government in the history of Spain, so it’s a shared goal: to work in order to have a productive system that generates better jobs.

It’s not only been an issue of government, you’ve been able to see different judges telling many companies that riders were dependent workers so they needed to be employees with all their rights and it’s a path that is also seen in other countries. It’s a compromise of government to advance towards that direction.

The national strategy also mentions supporting “high risk research of the most disruptive types of innovation”. Some people think that Spain has a problem with creating deeptech companies and creating innovative business models in more scientific fields like AI. And one criticism that you hear is that university programmes are a bit old fashioned here, they don’t give people the skills needed for Spain to become an entrepreneurial nation. What is the role of your department, in communicating with the Ministry for Education to change something like that?

The most innovative thing about the high commissioner is that, for the first time, an institution that is embodied within the presidency of a government. So that helps us talk with different ministries and show them that we want to put together a national mission.

We actually have conversations with every ministry, and in particular the universities and also the education ministry fully understand the need to transform Spain into an entrepreneurial nation. They really understand that we need to change the basis of the production model in Spain, and also they understand the role that education, universities and R&D play in this.

What we are doing is helping them align with this strategy which we are already doing.

For example, as you know there is a big push when it comes to education with vocational training in Spain which has not been treated fairly and hasn’t had the social recognition that, for example, it has in Germany. 

There’s a lot being done there. On universities and R&D, in the current budget, the one we approved at the end of last year, we increased the R&D budget by 60% compared to the previous one and we have confidence that we can keep increasing it.

We understand the challenges, we understand where we are. But you were also saying about deeptech. When we mentioned in the Entrepreneurial Nation Strategy that we wanted to work with one of the driving sectors which is biotechnology, this was because Spain has been doing huge investments in biotech and we are starting to see the strength of some companies in biotech. 

So we are spearheading some areas and we need to double down on those areas. That’s why I said before that there are different driving sectors with different personalities, let’s say, different characteristics, but say that each of the sectors that we point out in the strategy have the potential to help Spain grow.

Tim Smith is Sifted’s Iberia correspondent. He tweets from @timmpsmith 

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Guiri Enbarcelona
Guiri Enbarcelona

Fully agree with Ben! The equivocation in this interview does not inspire confidence. I invested in and worked in spanish startups over the past 10 years. The talking points have not changed in a decade. We had to take our startups abroad to scale. Spain is wonderful to visit, but its a world of friction and pain for business owners. Talk is cheap. I’ll believe it after it actually happens.

Ben
Ben

What a joke, I’ve lived in Spain, and until you fix the tax system none of this matters. There will be no investment in startups while the wealth tax punishes investment in risky investments. People and organizations with money are forced to put that money into real estate or special life investment vehicles to avoid the wealth tax. Imagine this, you invest $1m in a startup to help it get going… every year you pay wealth taxes on the valuation of that startup. So every year you pay not for what is created by the money, but what it is… Read more »

Ed Gonsalves
Ed Gonsalves

@ben , any chance we could connect ? Ed