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"We need to be more competitive with Silicon Valley"

Spain makes much of its high-tech credentials, but the reality for most internet start-ups is a hostile environment encumbered by excessive red tape

I n early 2009, as the Spanish economy shivered under the ever colder winds of the global financial crisis, Miguel Ángel Díez Ferreira was relatively safe in his senior management position with a communications group. But running counter to the very Spanish tradition of holding on to a secure job at all cost, and against the advice of friends and colleagues, he decided to develop an idea he and his brother had come up with for a music social networking site.

After finding financing, he and his brother Richard set up RedKaraoke, an online karaoke site. Over the last three years they have expanded their network to Japan and the United States, even finding a place in Facebook, and are now about to make the move to Silicon Valley.

"After a month in the US we'd made more progress than in six months in Spain"

"If you want to do something on a global scale, here is not the place to do it"

"We went there in April, and the combination of the environment there and the ease with which you can make contacts convinced us that this is where we needed to be," says Miguel Ángel.

The Díez Ferreira brothers are far from alone in deciding to leave Spain for Silicon Valley. "We didn't go to the United States in search of investment, but to hook up with the people who are developing new software and to give the company an opportunity to grow. After a month there we had made more progress than in the previous six months in Spain, so we decided to move to San Francisco permanently," says Ignacio Andreu, founder of Masterbranch, a recruitment site for web designers and developers.

The founders of Masterbranch and RedKaraoke believe that Spain's economic recovery depends on boosting the role of small- and medium-sized companies such as theirs, but bemoan a lack of direct help from the government, along with too much red tape. That said, they see signs of change. "There used to be much less support, but little by little we are seeing greater awareness, and there is more help. If this country is going to save itself, then this will be the way. But if you want to do something on a global scale, Spain is still not the place to do it," says Miguel Ángel Díez Ferrera.

The competitive differences between Spain and the United States are as wide as the ocean that separates them. Firstly, the US economy is investment-oriented: proportionately there are more investors than in Spain, and they have more money. Secondly, the US business climate is more friendly, and unencumbered by bureaucracy.

But there is a bigger problem: as mentioned, initiative and entrepreneurship are still largely undervalued in Spain, if not frowned upon. Most graduates still prefer to work for large organizations, private or public, that operate along traditional hierarchical lines with vertical chains of command that tend to stifle innovation. Few companies encourage their employees to contribute new ideas, and concepts such as disruptive thinking have no place.

In contrast, companies in Silicon Valley try to break these organizational moulds, not only by humanizing the workplace and relations between employees and management, but by putting the employee at the center of the creative process. This is about a lot more than free restaurants, or chill-out areas with sofas and pool tables, it is about creating an environment and culture in the workplace that encourages creativity, and provides the channels to develop ideas.

Spaniards may be open to the charge of having an employee mentality rather than setting out down the road of entrepreneurship, but it should be remembered that in Spain 95 percent of tech start-ups fail. Faced with a worsening economic climate, lack of finance and red tape, it is little wonder that Spaniards look to California.

"The laws in Spain are all about controlling the internet, and completely overlook the fact that it is a global phenomenon: the only thing the government is achieving by its approach is to banish technology companies abroad," says Jesús Encinar, the founder of property website Idealista.com. He cites the example of the so-called Sinde Law, named after Spain's Culture Minister. "This puts any Spanish web site at the mercy of a commission that includes SGAE [Spain's main royalties collection agency, whose board is currently embroiled in fraud and embezzlement charges], and can shut a website down in four days. What entrepreneur would want to set up a digital company in this kind of environment? This is a situation that is not to be found in any of the countries currently leading the internet."

Successive Spanish governments have been talking about increasing R+D spending and creating the conditions for a knowledge economy for the best part of two decades. Little has been done even to pass legislation that would help, and the economy continues to depend largely on tourism, and will in all likelihood end up relying on the construction sector to get things going. It's a vicious circle that does not encourage entrepreneurs to start their own businesses.

Jesús Encinar says that Spain's legal framework is the biggest problem. "Entrepreneurs are tired of the government offering some economic help with one hand, and strangling us with red tape with the other. We don't need subsidies or publicly funded incubation units or municipal innovation centers. We need the government to make it easier to hire and fire people, for VAT to be repaid punctually, and for tax breaks for investors to encourage them to put money into small businesses rather than buying empty apartments. We don't need the government getting involved, we need a legal and tax framework that will put us on a competitive footing with Silicon Valley. How are we to compete if we can't even offer employees share options?" he says.

Other countries have decided to create their own Silicon Valley from scratch. Last year, after a visit to Silicon Valley, Russian President Dmitry Medvedev announced that he intended to build a science park in the Moscow dormitory town of Skolkovo by 2015.

Russia has already produced several successful internet companies, the best known of which is Yandex, a search engine that aims to break the hold of Google. Yandex is already publicly listed, and is seen as a major contender in the search-engine market.

Medvedev sees technology companies as an investment for the future of Russia. In his eyes, they are not simply for economic benefit, but are a way of retaining the country's talent base, as well as of encouraging the creation of new companies. Medvedev believes the only way to prevent a country's brightest and best engineers from leaving for those markets that offer the best conditions is by offering the same conditions. What's more, professionals who work in new technologies are increasingly associated with value-added qualities such as innovation and the ability to adapt to fast-paced change.

Like Russia, Spain has produced several successful companies such as Idealista, Tuenti, Privalia and BuyVIP, which was recently bought by Amazon.

"There is still little knowledge in Spain as to how a startup works, thinks or operates, what the propositions are behind a start-up, what's the working cycle of a start-up, etc," says Alex Barrera, creator of Okuri Spaces, a collaborative approach to start-ups "Spain is missing a state of mind. Society in Spain is extremely conservative and very risk averse. So, to succeed in Spain as an entrepreneur is extremely difficult, not only because of the lack of understanding in technology, but also for the social pressure exerted by all the pieces that need to be in place for a successful venture, such as resources, knowledge, academia, angels...," he says.

"Most initiatives in Spain only focus on the business academics or the money-raising stage. We focus on the actual start-up mentality behind success. The money-raising is up to the teams, even though we aid them in the process, but we try to get them to the point at which they can compete with international start-ups and not only that, but beat them at their own game, be it raising money or grabbing new clients or users," he concludes.

Spain's sources of private start-up capital for technology ventures are limited. SeedRocket provides access to investors and business angels with a strong focus on technology-based start-ups at a seed stage. The company is made up of some 20 mentors with a successful background in the new technologies sectors. Each year the company selects a group of start-ups, and sees them through the early stages of their business. Companies such as Teambox, Habitissimo, Ongest and Uvinum have all benefited from SeedRocket's experience, contacts and knowledge.

Marta Sánchez, who heads SeedRocket's Madrid operation, defines the organization as "an accelerator for technology companies in which renowned entrepreneurs, with a wide range of experiences in the sector, provide knowledge and time. This year we have seen investment increase to ?1.2 million, which makes the existence of this company possible."

In 2011, Palbin.com, a company dedicated to the creation of online shops, has been the star pupil. Not simply for having been among SeedRocket's three protégés (the other two are Deporvillage and Kantox), but also for having won BBVA's Open Talent 2011, a showcase for new technology companies. The challenge facing Palbin.com involves how to expand the range of services it offers to companies operating online. "We can help a large number of companies and businesses that still do not have an internet presence, but who want one, because they are aware that in the not-too-distant future, companies without a web presence will have disappeared," says Enrique Andreu, one of SeedRocket's founders.

Marek Fodor, one of SeedRocket's mentors, and the creator of last-minute booking service Atrapalo.com, says the aim of the company is "to contribute through knowledge, experience, financing and contacts" toward the setting-up of successful companies.

"We are all working toward helping to create the technological ecosystem we would have liked when we were starting out. These are slow but necessary steps. Without them, the best Spanish talent will relocate to Silicon Valley and London," he says.

The question is whether there are enough SeedRockets in Spain to stop the brain drain.

The challenges facing entrepreneurs

Generally speaking it would be fair to say that an entrepreneur in Silicon Valley is better qualified than his or her Spanish counterpart. Academic qualifications in the United States are more oriented toward business, while teaching staff themselves make a major contribution to helping the best students in terms of generating ideas and finding financing almost without them having to leave the classroom. What's more, they are backed up by better communications infrastructure and a business-friendly environment that works in the favor of new business models.

Recent years have seen Spanish entrepreneurs improve in educational terms, and it is increasingly common to find well-trained people running new projects. At the same time, from a personal perspective, I believe that a good entrepreneur must have ambition, be prepared to work day and night to put their idea into practice and never take no for an answer. In other words, they have to be able to defend their ideas to the maximum.

That said, Spanish entrepreneurs tend to lack communication skills, and therefore find it difficult to explain their business. Unlike in the United States, we do not teach our students how to communicate.

The biggest barrier to international success for Spanish entrepreneurs continues to be poor knowledge of English. Despite the positive impact of exchange programs such as Erasmus, more than 50 percent of our entrepreneurs say that they still have difficulties in speaking English, which in an environment such as the internet, is essential for keeping up with new trends, leaders, alternatives, and finding new markets.

Silicon Valley's advantage is that it is an environment created by some of the United States' top universities, along with business angels and venture capital, and counts on the support of some of the world's leading technology companies. These companies are typically the source of much investment in start-ups, and offer an alternative to the NASDAQ; but in Spain we lack both.

This country is several years behind the competition in creating an investment environment able to support the creation of new companies. That said, at least globalization has allowed our entrepreneurs to copy the successful models in the United States, and to adapt them to Spain's needs.

At the same time, we should remember the contribution that has been made by the central and regional governments in helping generate an ecosystem that will allow companies to thrive as they do in Silicon Valley.

Rodolfo Carpintier is president of the Digital Assets Deployment business incubator.

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