Where Spain's Capital Runs Out
Spain’s finance question is not whether startups can find any money; it is whether they can find the right money at the moment when growth becomes more expensive and less predictable. This discussion follows capital through the Spanish venture lifecycle, from credit and early-stage funding to the larger rounds required by a genuine scaleup. The goal is to distinguish a shortage of finance from a mismatch of instrument, stage, investor expertise and time horizon.
Not every startup needs the same capital
A new business usually spends before it earns. It must pay salaries, build a product, secure equipment or facilities and develop customers while its revenue remains uncertain. The financing choice depends on what kind of business is being built and what evidence it can offer.
Debt is useful when a company has predictable cash flows, collateral or a relatively short path from expenditure to repayment. Equity is better suited to ventures whose value may grow substantially but whose future revenue is difficult to forecast. Knowledge-based startups often have few tangible assets for a bank to secure and may spend years developing a technology before sales become reliable. A bank can be healthy and willing to lend to small businesses while still being a poor substitute for risk capital in those cases.
This distinction is important in Spain because ordinary credit is not the clearest bottleneck. The OECD reports that Spanish SME credit supply is broadly in line with that of European OECD countries, and fewer than 7% of Spanish SMEs reported being credit constrained in the 2023 European Investment Bank survey. That is evidence against the claim that Spanish entrepreneurs generally cannot borrow. It says little, however, about whether a deeptech firm can finance an uncertain research programme with debt, or whether a software company with growing sales can fund a rapid international expansion without giving up equity.
Venture capital also changes as the company changes. Early investors may be financing a team, a prototype and a set of experiments. They are taking a high risk that the problem, product or business model will change. Later investors need a different kind of evidence: repeatable demand, the ability to hire and manage a larger organisation, a credible route into more markets, and a plausible exit. The label “VC” hides those differences. A seed investor and a growth investor do not provide interchangeable services, even when both write equity cheques.
Early money is increasingly available
Spain’s early-stage financing market has grown considerably over the past two decades. The OECD finds that early-stage VC has nearly caught up with France and Germany in per-capita terms and is already ahead of Italy. Early- and later-stage investment each represented roughly 0.03%–0.04% of Spanish GDP in the report’s comparison. Those levels are below the United Kingdom’s roughly 0.07% for each stage, but they do not describe an economy with no venture market at all.
Public and private actors have helped create this early financing layer. ENISA’s participatory loans are an example of an instrument designed for firms that fall between conventional bankability and VC readiness. They do not require collateral beyond the business project and the management team’s professional solvency. They can run for as long as nine years, allow long repayment and grace periods, and include a variable component linked to the company’s performance. Since the instrument was launched, ENISA has provided finance to almost 7,850 companies.
The value of such a product is not that it turns every firm into a venture-backed scaleup. It gives some founders time and flexibility when a conventional loan is too rigid and a VC fund is not yet interested. That can be appropriate for a non-capital-intensive company with a credible growth plan but without the explosive returns or asset base that different financiers require. It also illustrates a broader principle: a financing instrument works when its repayment, control and risk characteristics match the venture’s stage.
Public finance has expanded beyond participatory loans. Axis, CDTI and SETT operate funds, fund-of-funds, co-investment instruments and programmes aimed at SMEs, technology-based companies, deeptech and scaleups. These programmes can reduce early risks and attract private investors. They also make the ecosystem more capable of supporting different kinds of founders than a single national VC fund would be.
But early-stage abundance can create a misleading impression. Many Spanish startups are small, have non-capital-intensive models or do not want to scale beyond a certain point. A company that chooses a profitable, modest trajectory has not necessarily failed because it did not raise a Series C. A policy that treats every new business as a future unicorn will misallocate capital and impose a growth objective the founder never chose. The relevant question is narrower: among ventures with the capability and desire to scale, can the financing system support the next transition?
The missing state is growth-stage finance
The answer becomes less comfortable after early validation. More than 91% of domestic funding rounds recorded between 2017 and 2024 were below EUR 5 million. That distribution is not automatically a weakness. It partly reflects the many firms that need modest sums or do not seek aggressive expansion. But it is a warning signal for companies whose products, teams and markets require much larger commitments.
The OECD reports that Spanish startups with scaleup potential often struggle to find domestic capital beyond Series B. Only 33% of EUR 20–50 million deals and 12% of deals above EUR 50 million were financed by domestic funds in the cited period. At that point, the problem is not simply the amount of money in the country. It is the number of investors with sufficiently large funds, the expertise to evaluate specialised technologies, the patience to support international growth and the ability to remain engaged through a longer route to exit.
This is a change of state, not just a larger version of the previous state. In early rounds, an investor may help a team discover product-market fit. In growth rounds, the investor is helping finance a system that has to operate repeatedly: sales, hiring, governance, compliance, customer support, supply chains and expansion. The company’s needs become more organisational and commercial at the same time that the cheque becomes larger. A financing ecosystem can be active at seed stage and still fail at this handoff.
The transition is also selective. The figures do not mean that every startup should be pushed into a large round or that domestic investors should finance ventures with no evidence of demand. They indicate a potential shortage for a particular population: companies that have survived early experimentation and now need patient, specialised capital to capture a larger market. If those firms relocate to obtain it, Spain may retain the early activity while losing some of the value created at the scaling stage.
The lifecycle looks like this:
A public bridge can help a company reach the next stage, but it cannot guarantee that the next stage exists. Foreign capital can fill a large-round gap, but its arrival does not by itself build a domestic growth-investor community. The point of the lifecycle is to keep these paths distinct. They solve different problems.
Why the investor base matters beyond cheque size
Spain’s scaleup gap sits inside a wider European capital-market structure. European financial systems remain more bank-based than the United States, and European markets are fragmented by legal, regulatory and market differences. The OECD notes that fewer than 0.02% of European pension-fund assets went into VC in 2023, compared with about 1.9% in the United States. Europe has consequently produced far fewer very large funds.
Spain’s own investor mix shows the same pattern. In 2023, institutional investors supplied only about 6% of VC raised by domestic private entities, compared with a European average above 15%. Family offices supplied about 33%, the public sector about 23% and corporations and non-financial companies about 20%. Family offices can be important sources of entrepreneurial capital, and public participation can create a foundation for a market. Neither automatically provides the scale, repeatability or specialist operating capacity associated with a mature growth-investor base.
Institutional investors could contribute a longer investment horizon and more capital, but they face genuine risk and governance constraints. Venture portfolios are illiquid, returns are uneven and the relevant expertise cannot be assumed. Corporate investors offer industry knowledge and potential customers, yet internal governance may reward near-term revenue rather than uncertain early technologies. Their decision processes can be slower than those of specialist VC firms, and a corporate may not know how to help a startup grow even if it understands the product.
The strongest arrangement is often complementary: professional VC managers contribute selection and venture-building expertise; corporations contribute industry insight, research relationships or commercial opportunities; institutional investors contribute scale and patience; public actors reduce early risk or improve the conditions for participation. Spain has signs of this model, including externally managed corporate funds and public-private instruments, but the OECD describes it as a developing market rather than an established equilibrium.
Liquidity matters as well. When a fund holds a successful startup for a long time without an acquisition or public listing, its capital is locked up. A deeper secondary market could allow institutional investors to buy existing positions, provide liquidity to earlier investors and free capital for new ventures. That is not a substitute for growth finance, but it affects whether capital can circulate through the ecosystem rather than remaining trapped in a few mature holdings.
Public money can catalyse the market, but it cannot replace it
Spain’s public sector contributes about a quarter of the venture capital raised in the country through development banks, fund-of-funds and co-investment structures. This can be a rational response to a market that is young, fragmented or too risky for private investors to enter alone. Public capital can demonstrate demand, share downside risk and bring private investors into a deal they would otherwise avoid.
The limit is structural. Public funds generally require private partners or operate through funds of funds; they cannot commit the billions needed for every large growth round by themselves. Adding another public programme may increase nominal supply without creating the private fund managers, foreign visibility, institutional mandates and exit routes that the largest companies need. A crowded programme landscape can also make it harder for founders and investors to identify the appropriate instrument.
This is why “more VC” needs a qualification. If it means more appropriately sized, specialised and patient growth capital, Spain likely has a real need for it. If it means increasing the number of small funds while leaving later-stage capacity, investor participation, legal transaction costs and liquidity unchanged, the intervention may improve the early part of the funnel without repairing the handoff.
A sound finance diagnosis should ask five questions. What stage is the company in? What evidence must the next round purchase? Which investor has the expertise and time horizon to help produce that evidence? What legal and market frictions make the round harder than it should be? And what exit or recycling mechanism will return capital and experience to the next cohort? Those questions turn a vague funding shortage into a testable lifecycle problem. Spain’s challenge is not to make capital exist in the abstract. It is to make the path from early promise to durable scale financially continuous.