What happens here in Barcelona & Catalonia in the startups arena and why?
This is a summary of a speech I made at University Pompeu Fabra last November. Thanks for the invitation!
We are very proud of certain opinions, like this one! Thank to him!. But seriously we are far from being the next Silicon Valley. The Silicon wants to be replicated everywhere but it is impossible to reproduce. It is a combination of facts that make it unique. But we (Barcelona & Catalonia) are well positioned in the world map of the startups ecosystems. According to Compass, later Startup Genome, (leader organization studying and comparing ecosystems), we have here around 2.000 startups, a figure not far from the ecosystems of cities like Berlin or Paris. The number is big, considering that Barcelona is not a capital city. For example, our figures are much bigger than the ones that have cities like Madrid or Rome, being capitals of their States.
We have had important round investments in the last 2 years. Some of them very big ones: Letgo (with a round of 100 M€), ID Finance, Cornerjob or Wallapop, for example. Our startups receive in total between 400M€ and 500M€ in capital per year. But, the key indicator for investors (and also for entrepreneurs) is Exits. The Exit is the moment when all the actors that participle in the growing process of a startup can monetize the effort they have assumed. And effort means 1) money for the investor, 2) services for the accelerators, 3) and time, passion, life for the entrepreneur (often the entrepreneurs devote the 10 best personal and professional years of their lives to the startup). Exits may occur by Initial Public Offerings (IPO) in a stock market or by acquisition. Barcelona startup ecosystem has already had brilliant Exits.
The m
ost important one is Privalia, acquired by Vente Privée by 500 million of euros. More recently, Social Point was acquired by the American Take Two, by an amount of 250 million dollars. The acquisition of Trip4Real was also relevant because it was the first acquisition of Airbnb in Spain.
Our ecosystem has more than 30 incubators, accelerators and venture builders. They are essential actors that help the startups to grow. Some of them were described in my recent post. It seems a big number of accelerators. But it is relatively similar to the number we find in other more mature and bigger startups ecosystems. Finally, let me mention Fablabs, Makers & Coworking spaces. They are also important for promoting creativity and entrepreneurship in the initial stages. Barcelona is a city with 6 Fablabs that belong to the global network !
But, why this activity and this phenomenon are happening? Technological change is the most important factor of economic growth. Technological changes in key sectors are like a series of explosions that give momentum for future prosperity. These key sectors, such leader sectors guide the economy and provide economic growth. Technology as an engine of economic development has been studied from various viewpoints. One group of economic theories considers an evolutionary point of view of technological change and economic growth. This evolving nature of technology is the one I assume in this post. Considering that vision of change and evolution of technology, let me emphasize its main characteristics:
- Technology means by definition uncertainty, insecurity.
- The technology is dynamic. It changes, constantly improves. New varieties and new options appear persistently.
- Technological change is systemic. Technology doesn’t appear without any change in their environment. New technologies appear at once with infrastructure to produce and distribute it. The car required highways and gas stations. Internet has evolved with the fiber infrastructure. That technological interdependence makes that big changes are slow and expensive.
- Technological change is cumulative. What we can do today depends on the actions taken and decisions made in the past.
Based on the idea of evolutionary change of technology, theories have appeared for drawing the process. Some of them have moved into an almost futuristic context. For example, Ray Kurzweil‘s reasoning is that evolution (biological and technological) provides better products and they in turn are used to create the next generation of products. The technological singularity (also, simply, the singularity) is the hypothesis that the invention of artificial superintelligence will abruptly trigger runaway technological growth, resulting in unfathomable changes to human civilization (a ‘runaway reaction’ of tech self-improvement cycles).
It is therefore a cumulative, evolutionary process. We are well aware of Moore’s Law, which states that the density of transistors in integrated circuits can be doubled every 18 months. Moore’s Law has impacted several industrial sectors and many companies: computer, chip, communications… But also indirectly other sectors, who are being determined by the constant improvement of integration of transistors on integrated circuits, getting machines and tools with a higher computing power. For example, simulation, bioinformatics, medical imaging, diagnosis or drug Discovey. This law remains valid in spite of the various changes in base technologies.
But… What happens in the long term? Instead of analyzing the density of the transistors, we must study the impact and the value translated to the society, to the market. This value is the capacity of calculation, the computing power. It is the one that the market buys. According to this computing power, Moore’s law extends to 100 years, even before the invention of semiconductors, through several types of basal technologies from electromechanical calculators to integrated circuits. The computing power that can be purchased per unit cost has doubled every two years (and more recently each year). The graph below presents the evolution of that variable in a logarithmic scale. Each product in the graph represents the attempt to build the best computer with the existing technology at that time.
Technology is associated with expectations. This is more accentuated in the initial stages of the technology, that is, when the technology is emerging. Expectations are the driving force that marks the evolution of the system Expectations move the respective actors and oblige to act, legitimizing the process and attracting investors and other agents. Therefore, expectations are “performative” by nature and shape the dynamics of a technological trajectory. It is well known that the adoption of technologies by users has traditionally followed a pattern of curve S. The following chart shows the curves adoption of certain technologies in common use: telephone, electricity, etc. etc.
Today, the adoption line of certain new technologies is practically a vertical line. Innovations, technologies are rapidly introduced into the market and accepted by society (at least this type of related consumer electronic innovations). The S-curve is practically nonexistent. Another way to look at it: time needed for innovation to reach 100 million users.
This can also be seen from another perspective: the valuation of the companies responsible for the disruption. The following chart shows that in the last few years the time needed to become a unicorn (company valued at more than 1,000 million) has been reduced.
So, today we face a high rate of disruption and technology adoption. A part from that, the emergence of new technologies is increasing over time. Today new disruptive proposals appear constantly. Both factors (more disruptions and reduced time of diffusion) introduce enormous challenges in traditional companies. Remember: the introduction of a new technology means (in many cases) the vanishing of existing companies and sometimes of entire sectors.
The role of the startups in that context. Technology (innovation, novelties, disruption… whatever you want to name the new things, concepts and services that our society can enjoy) traditionally, has been created in two main spaces:
- Traditional, established companies
- Public and private research centers (universities, technological centers, etc.)
In recent years there has appeared a third actor: Startups
But… really, are there differences between an established traditional company and a startup? Yes, many. In a previous post I suggested the elements that define a startup (only in Spanish). By definition, a startup means risk and velocity. By definition, a traditional company hates these two elements. Summarizing, startups are the risk (and so, the novelty) and the speed that the traditional companies don’t want to assume. Startups provide disruption based on the constant search of opportunities and unmet needs. The major societal challenges are one of the fundamental objectives of those startups. But traditional companies see also startups as a way of innovation. Corporate Venturing today has been extended and systematized. Established companies define challenges for the young entrepreneurs & startups and then they try to buy them (when the risk is out).
However the startup process is something uncertain. Awareness of unpredictability generates a real entrepreneurial process where all stakeholders are aware of risks they take and share. Failure is a highly probable scenario perfectly accepted. So, if entrepreneurs fail, they try again.
What is a startup ecosystem? A startup ecosystem is an economic process for a city, country or region. New startups are created each year and they receive money from investors to grow. Many of the startups fail (and they are asked today to fail quickly, for not consuming unnecessary resources). But in those cases entrepreneurs and investors try again. In fact, repetition and diversification are key elements in startup ecosystems. In cases where there is success, the effort is monetized, through the Exits. And an important part of the money from these Exits goes back into the system. Successful entrepreneurs also create new businesses or turn themselves into investors. An ecosystem of startups is this: the creation of technology, disruption, novelties in the form of startups and the subsequent sale to traditional companies or growth of the startups. The best example is Israel. Israel sells technology encapsulated in the form of startups by an amount between 10 and 15 billion dollars per year.
How to generate a startup ecosystem? TALENT is the most important factor. Startup ecosystems compete for talent. The big amounts of money devoted to knowledge (universities, R&D, education) have generated people trained in science, innovation and technology. These people are also open, creative, tolerant, traveled… Our society is today formed by persons that can generate or recognize ideas and by means entrepreneurship, put them into practice.
Talent today is mobile and itinerant. If an ecosystem is developed enough, it has no fear to lose talent. It goes and comes back. Brain Drain is not the right word. It is Brain Circulation. Take for example the Catalan case of VERSE. Some young (very young) university students decided to create a startup. Nothing new. But… they decided to create it directly in Silicon Valley and not in Barcelona. They went there, knew fast the ecosystem and initiated the venture. In two months they had raised 1.8 million of dollars and 8 months later, a new round provided them 8 additional millions. Recently, they have come back to Barcelona, where they have moved the company … with a third round of 21 million dollars provided by the same initial investors. Barcelona gives many advantages to them.