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Business

Big investments, low wages: Spain's start-up boom

This year, venture capital investments in start-ups across eurozone member Spain could almost double. And despite lower wages, even German entrepreneurs are being lured to Madrid with hopes of a new future.

Sarah Mildenberger had a good job in Frankfurt before moving to the Spanish start-up Spotahome to become its director of communications for the German market.

"I like the work ethic, the spontaneity, and the creativity of the Spaniards, the climate, all of which match my open nature."

Spotahome is a website for the international rental market, which not only offers photos but also apartment videos and numerous guarantees. Mildenberger, a native of Kaiserslautern in Germany, still only speaks a little Spanish, but nonetheless feels comfortable in Madrid.

"The friendliness of the people helps," she says.

Follow the money

After many years of financial and economic hardship, money is again flowing within and into Spain. The country was once considered the poor stepchild in terms of venture capital investments, but now up to 4 billion euros ($4.8 billion) is just waiting to be used - double the amount recorded for 2016, according to ASCRI, a venture capital and private equity association.

"Fever has broken out," confirms Mildenberger's boss, Alejandro Artacho, one of the founders of Spotahome. New venture capital funds have been launched, including the K-Fund based in Madrid.

Seaya Ventures has been particularly successful. It was founded by Beatriz Gonzalez, the daughter of one of the most important bankers in the country. Her father, Francisco, has been chairman of BBVA, the second-largest bank in the country, for almost 20 years. The young woman also got help from Michael Kleindl, a German already well known in Spain's start-up scene. Besides Spotahome, the fund has invested in cabify, glovo and the marketplace wallapop.

Low wages facilitate new firms

But it's not the money that has prompted young and talented people like Mildenberger to come to Spain. The average wage of a simple programmer hovers around 30,000 euros (gross) per year and an average of 26,000 euros across all sectors. According to Eurostat, that's way below the wage average of OECD member countries.

Sarah Mildenberger und Bryan McEire (Spotahome)

Sarah Mildenberger und Bryan McEire are an integral part of Spain's booming start-up scene

In Germany for instance, people earn some 47,000 euros (gross) per year, in the Netherland's it's 50,000 euros. But life in Madrid is a tad cheaper. Nevertheless, "low wages are an important factor why Madrid and Barcelona have become a hotspot of start-ups this year," says Rodolfo Carpintier, a household name in Spain's investment scene and a man, who's now investing exclusively in start-ups.

His firm, Digital Assets, helps Business Angels to spot the right companies. "There's something going on in Spain," said Carpintier.

"In Madrid, you can feel this particularly in the fintech sector which enjoys the financial support of big lenders."

Spaniards are no strangers to mobile payment services. They are keen to try out new apps and put their faith in cellphones to a much larger extent than people in northern Europe. Fintechspain.com offers people a tool to keep abreast of new trends and companies. On October 19, Madrid is to host the Fintech Startup Summit 2017.

Impact of economic improvement

Start-ups such as sales portal Privalia have been successfully sold in recent years which has added to Spain's attractiveness as an investment location. Privalia changed hands for 500 million euros.

Capital flows have also increased in the wake of stronger "Made in Spain" awareness among domestic enterprises - something that hadn't been there before. Spanish entrepreneurs have finally begun to invest in national domestic start-ups. Many big firms like Telefonica and big banks have incubator units and run contests to lure suitable candidates for them to support.

"There are really big names among our Business Angels, among them owners of small and medium-sized companies," said Carpintier. He believes Madrid takes fourth position in the European table of start-up hotspots, behind London, Berlin and Amsterdam.

An improved economic situation has no doubt also done its bit to increase the number of start-ups. Francisco Gonzales, who's behind tienda.com on the Canary Islands, has already made it into positive territory.

"That's to do with the fact that people have started to consume more and have helped e-commerce in Spain to experience a boost," he said. "Previously, we've been far too much focused on conventional retail purchases."

Moose Cityburger

A former police van now helps the team of Moose City Burger do business

Crisis good for Spain?

Back in 2012, Spanish banks had to be rescued in huge bailout actions, but a lot has changed since then, claim Alvaro Rodriguez and Cesar Martinez, who with their "Moose City Burger" got a foot in the door of the booming Spanish foodtruck and burger business.

"Quality and trust are important assets for Spaniards," the said. "They turn a euro twice before spending it, but our gourmet burgers are unique, and this is why we've been successful while many other competitors had to throw in the towel."

Almost everything the two entrepreneurs earn gets invested in four former police vans - the vehicles they need to expand their business in 2018.

One thing is for sure: Money keeps flowing in Spain, and it's not only being put in real estate. Which is to say that Spain seems to have initiated the very structural changes that economists have been demanding for years.

Sarah Mildenberger is in cheerful spirits. Her employer is among the most successful start-ups in Spain and has already received many awards.

"Everyone's bending over backward to fight die-hard stereotypes about Spain with something new and innovative."

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