Venture capital and private equity in Spain

Written on 27 Jan 2016

Sector developments

During the last few years, Spain has suffered greatly from the collapse of the real estate bubble and the consequences of the international financial crisis. However, starting from late 2013, the Spanish economy started to recover its strength and, since then, Spain has become one of the fastest growing economies in the Eurozone.

Cities such as Barcelona and Madrid are positioning themselves as innovation hubs in the South of Europe, attracting talented entrepreneurs and international investors. All these factors, together with the new regulatory framework for venture capital and private equity funds approved by the Spanish Parliament before the end of 2014, resulted in a spectacular growth in the number and quality of the deals closed in Spain in the last few years.

Fond-ICO Global: the Spanish public fund

The public sector also contributed to the recovery of investment levels with the creation of Fond-ICO Global in May 2013, the first Spanish public fund that invests in venture capital funds targeting the Spanish market. Fond-ICO Global was the government’s answer to an old complaint from the Spanish venture capital community, motivated by the lack of investment from pension funds due to the existence of a national public pensions system that discourages the creation of private plans.

Fond-ICO Global was initially endowed with €1.2 billion but, in view of the initial success, in November 2015 the government increased the investment up to €1.5 billion. Since the date it was incorporated, Fond-ICO Global has a committed investment of €876m in 35 national and international funds that invest in Spanish small and medium sized enterprises, from early stages to growth capital.

Outlook for 2016

According to the Spanish National Venture Capital and Private Equity Association (Asociación Española de Entidades de Capital Riesgo (ASCRI)) the investment volume returned to pre-crisis levels, especially since the last quarter, and divestment volumes have reached all-time record highs. All the main indicators (fundraising, investment and divestment) show a remarkable level of activity since 2014 and prospects are optimistic for 2016, although this will be subject to the clarification of the political scenario following the 20 December 2015 national election.

In the private equity sector, during the last few years, the number of foreign funds doing transactions in Spain has increased significantly. Main industry players like KKR, CVC, Cerberus, Blackstone and Oaktree have been involved in some of the largest PE deals in 2014 and 2015. Traditional Spanish PE houses, such as N+1, Miura or Portobello Capital, have also been very active in mid-market deals within the last few years.

VC investment has more than doubled its size in 2015, with deals amounting to more than €500 million during the first three quarters of the year. The Spanish VC market has been traditionally dominated by some very well-established local players, investing in small sized finance rounds. However, during the last few years the number of foreign VC firms (mainly from the US and UK) providing venture and growth finance has increased significantly, which has ultimately contributed towards larger finance rounds in sectors such as digital business, fintech and biotech.

So generally these last few years have been great for venture capital and private equity investment in Spain, with an increasing number of deals both by headcount and volume. Most players are optimistic for 2016, although we may have to wait for the clarification of the global economy and the local political scenarios.