Investing in Madrid
I recently moved to Madrid. Our family was ready for an adventure, and a period of growth and learning. While our primary motivation for the move was a desire to live here, in this community, with all the vibrancy that permeates an important global city, I also looked carefully at the technology scene.
Madrid is an active startup market. There is a growing community of investors and startups, locally and regionally. And, it is still early in its development. I'm bullish on tech in Spain for several reasons:
- Great talent. Madrid is already a talent magnet: 25% of the city's population was born outside of Spain. People from all over the world want to live in Madrid, bringing in new talent from Latin America, Europe and beyond on a regular basis. Spain also has four of the top business schools in Europe, and the third most software engineers in Europe, behind only Germany and France. There are hundreds of startups building, and larger private companies developing internal talent who will become future founders.
- Natural Access to Large Markets. Spain sits at the intersection of two vastly different, but similarly large, markets. In the EU (450M people), Spain is in the middle, economically speaking, with wage rates significantly lower than Germany and France, but workforce education levels significantly higher than in Eastern European countries. As a result, Spanish entrepreneurs are building products and companies for a large, wealthy market with a relative cost advantage. Among countries with native Spanish speakers (475M people), Spain has the largest GDP. Latin America provides large natural markets for Spanish products, which are increasingly built with teams on both sides of the Atlantic (Belvo, as an example). Though, as we see with startups like Typeform and Carto, language is not a barrier to global growth of Spanish startups.
- Spain's trajectory. My sense is there is a lot of understandable skepticism in Spain, especially in the older generations. It is a relatively small country (47M), that has had perennial high unemployment, disappointing political leadership and an overall lagging economy compared to other large European countries. Yet, I see many reasons to be optimistic. Post Brexit, Spain has a more important role in Europe. France and Germany face worse political and economic conditions - see the protests in Paris this summer and the decline in GDP in Germany this year. According to the EIU, Spain is forecasted to grow at twice the rate of Germany and France from 2022-2024. Spain also has a surprisingly positive immigration stance, 'from laggard to leader' in Europe; a less energy intensive economy; and a declining public debt.
Many observers note the lack of major exits from the Spanish ecosystem to date. I remember the same claim about New York ~10 years ago, when people could only point to DoubleClick's sale to Google. Yet at that time, firms like Union Square Ventures and Lux Capital were building successful firms, with great LP returns. Exits are a lagging indicator. Talent, a few strong early institutional funds, and broad macro tailwinds – all present in Madrid today – are all forward indicators.
I'm excited about Madrid, and getting to know more investors and entrepreneurs.
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