Iberian Startup Scene | Q2 2022

I am a VC at Armilar, covering Enterprise Software/B2B SaaS and Blockchain.

In my free time, I write startup-related topics, including this newsletter. Content, opinions, and typos are my own!

Feedback is welcome.

HIGHLIGHTS

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A quick note on this newsletter frequency

In the last few weeks, I took some time off, which completely messed up my writing (vacations can be intense with 3 kids…)
As such, this newsletter is arriving in your mailbox some weeks later than I expected. I will try to catch up in the upcoming weeks and bundle July and August in the same newsletter

What’s happening in Iberia

Data vs. reality
- I have been regularly reporting what has been happening in Portugal and Spain. I believe that transparency and data can help all players – startups, investors, etc. – make better decisions
- Up until the last semester, I feel that the information I have been sharing in this newsletter properly reflects what has been happening in the region
- But last semester, market conditions structurally changed
- Given that it takes time (from 1 to 12+ months) to go from starting to fundraise until publicly announcing a round, the aggregated past data is no longer a good indication of what’s happening now
- So, in this newsletter, I feel the need to put my perspective on what’s happening in Iberia right now, which is not yet reflected in the reported information. But first, let’s start with H1 2022 data
2022 Q2 and H1 data
- Q2 was a strong quarter, with a YoY increase in the 2 geographies on the 2 main KPIs: number of rounds (+4%) and amount invested (+61%). Breaking it down:
  - 176 rounds (+6 rounds vs. last year) in total, of which 30 rounds (+4 vs. last year) in Portugal and 146 rounds (+4 vs. last year) in Spain
    - The Main drivers were the increase in Series A rounds (32 vs. 18 last year, but in line with the previous 3 quarters), Seed (87 vs. 84 last year), and Series C and beyond (9 vs. 6 last year).
    - Despite the positive evolution of the overall number of rounds, there was a contraction in pre-seed rounds (46 vs. 59 last year), particularly in Spain (37 vs. 52 last year), driven by a lower number of rounds announced
      - Demium capital, with was one of the most active investors in Q1 2022 with 16 investments announced, was the largest contributor to the lower investment pace, with “only” 7 investments in Q2 2022
- In terms of the investment amount, €1.2Bn was invested in Iberia (+€469M vs. last year), of which €499M (+€382M vs. last year) in Portugal and €741M (+€88M vs. last year) in Spain
  - A higher number of Series C and beyond rounds, totaling €815M in Q2 2022 (+€472M vs. last year), was the main driver
  - Median Round sizes have been stable at around €1.1M in Seed rounds and ~€6M in Series A
- Looking at YTD, 2022 H1 is aligned (+/- 5%) with H1 2021 in terms of deals and investment amount
What I am seeing now
- Pre-seed / Seed market: 2022 = 2021
  - …though investors seem to be taking more time time to make decisions
- Contraction on late seed and Series A-B: 2022 kind of = pre-2021
  - Funds are (i) taking more time to make a decision, (ii) being pickier, and (iii) more price-sensitive
  - As such, entrepreneurs have been
    - Delaying raising capital (why are you raising now, if you could delay?)
    - Raising bridge rounds
      - The “problem” with bridge rounds is that typically they are not announced
      - As I only rely on public sources, these rounds won’t show up in the data I report
    - Speaking with more investors and taking longer to get yes at the same or inferior terms vs. last year (more in line with 2019-2020)
- Strong contraction in late-stage
  - I have limited visibility, but I am aware of similar dynamics to international markets: strong valuation and round size correction, increasing pressure to increase cash flow generation and revenues aiming to delay the next round of funding, and maintain/limit the valuation drop
- On the positive side, there seems to exist more supply of capital from local investors
  - In line with other European markets, I am noticing a strong capability of local investors to invest in local startups during this downturn. Main drivers include:
    - Significant dry powder to invest in startups
      - Raised from Golden Visa and SIFIDE in Portugal and public entities (e.g. ICO) in Spain
    - Larger (check new funds announcements below) and more mature/professional investor base, also increasingly investing outside Iberia