What is the startup ecosystem like in Madrid?

Have you ever wondered what the current state of entrepreneurship is in Spain? If you're an entrepreneur or interested in the world of startups, in this article we've compiled some interesting concepts that we hope will help you learn a little more about it. If you have anything to contribute, we'd be happy to add it. We're a community, so we're always helping each other.

We hope you enjoy reading it and let us know what you think.

Entrepreneurial ecosystem in Spain

The Spanish entrepreneurial ecosystem has been growing steadily for years and, according to a report by South Summit in conjunction with IE University, currently represents 20% of the European ecosystem.

As the most common business, software development predominates in Spain, accounting for 49% of startups registered there. And in terms of focus, B2B stands out as the most universal option.

However, the report "Present and Future of Entrepreneurship" published by OBS Business School explains that there has been a certain cooling of the startup ecosystem. According to the study, investment in startups in Spain fell to €2.254 billion, a 43% decline compared to 2023. This is due to the fact that "startups are facing a more conservative investment market that is re-evaluating the valuations and terms of each investment, forcing them to adapt to a challenging environment focused on economic sustainability and self-sufficiency. A correction that was perhaps necessary," according to Ralph Michaud, a collaborator at OBS Business School.

Furthermore, OBS Business School research indicates that the entrepreneurial ecosystem in Spain remains more positive than in Italy or Portugal in terms of volume, transactions, and decline rate. While, overall, the European ecosystem registered a 45% decline in volume.

The two main trends

Thanks to technological progress, some new technologies have seen significant development. One of them is Artificial Intelligence , or AI, which has become one of the most prevalent trends among startups today. Generative AI has strengthened numerous business models and impacted virtually every sector, from the arts to healthcare.

Another notable trend in Spain's entrepreneurial ecosystem is sustainability , which, due to society's growing concern for the environment, has gained increasing importance in the business world. Currently, there are many startups demonstrating their interest in improving the planet through their positive impact, such as businesses focused on renewable energy, sustainable food and products, reusing goods, and more.

Economic impact and investment in startups

Enisa , together with the entrepreneurship hub Patio Campus , has prepared the National Report on Tech and Innovative Companies in Spain 2024 , which explains how entrepreneurship has impacted the country's economy. Among the most notable data, we can see that, of the 7,028 active companies, 3,640 are startups, 1,185 are scaleups, and the remaining 2,203 are SMEs. Together, they generate 64,569 jobs and an economic impact of €9.762 billion, contributing €11.541 billion annually to Spanish GDP.

Regarding startup investment, it has experienced sustained growth since 2016, and after the pandemic, more than €4 billion was invested in 468 rounds in 2021. In 2023, 394 deals were closed, with total investment reaching around €2 billion. 

And among the sectors that have attracted the most investment in recent years are: healthcare, biotech, energy, fintech, and insurtech.

It's worth noting that Barcelona and Madrid are the two hubs that lead the rankings of cities with the most scaleups and startups, and are home to more than 50% of tech companies.

Strengths of the Madrid Ecosystem

Speaking of the capital, according to the Startup Radar madri+d 2024 report , Madrid stands out for its high concentration of technological talent , ranking third in Europe in terms of the number of engineers and fifth in terms of developers. Furthermore, this region offers competitive conditions for business creation, including a low tax burden and a high quality of life.

Chart taken from the madri+d 2024 Startup Radar Report

In 2023, Madrid saw record levels of early-stage startup investment, with a 9% increase in venture capital fundraising , while the rest of Europe experienced a 32% decrease. The resilience of the Madrid ecosystem is reflected in the smaller decline in funding compared to other European hubs. This favorable environment has attracted a significant number of international startup offices, placing Madrid second in Europe in this regard.

The madri+d Foundation explains that Madrid offers high-quality physical and digital infrastructure, ranking third in Europe in terms of connectivity . The region is also recognized for its business attractiveness and global economic potential , ranking sixth and tenth in Europe, respectively. These characteristics make Madrid an attractive destination for entrepreneurs and international investors, supported by tax-reduction policies and a stable economic environment.

Chart taken from the madri+d 2024 Startup Radar Report

The Madrid ecosystem is constantly evolving, promoting innovation through various incubators and accelerators such as Tetuan Valley , Google for Startups , Wayra , and Plug and Play . These entities not only offer resources and mentorship but also foster an environment where innovation can flourish. Startups have access to advanced technologies, cloud service credits, and collaborative workspaces, facilitating the development of innovative solutions. For startups in our community (the Tetuan Valley community), once they complete the program, they receive exclusive perks valued at up to €150,000.

The State of the Madrid Region Startup Ecosystem report also notes that the industries that have garnered the most investment in recent years have been fintech, healthcare, and transportation companies, bringing in €175 million, €139 million, and €75 million, respectively.

Venture capital and investment

Main industries according to the Startup Radar madri+d 2024 Report

Despite the global decline in investment in advanced-stage projects, the strength of early-stage investment remains in Madrid. Today, the Community of Madrid is the seventh European region in terms of the number of financing rounds and the sixth in terms of the number of exits, 40% of which have been raised since 2020. Furthermore, numerous investor groups, whether business angels or venture capital funds, are investing in the region.

Madrid has seen a significant increase in investment activity due to several factors. First, the favorable regulatory environment and government support for startups have created an ecosystem conducive to growth. Programs such as Madrid Emprende and the Madrid Entrepreneurship, Innovation, and Startup Strategy offer support, training, and financing to entrepreneurs.

In terms of exits, Madrid has managed to stand out with a growing number of acquisitions and IPOs. This has increased investor confidence and motivated more entrepreneurs to launch their projects in the city. 

Madrid offers numerous opportunities that drive the growth and success of new initiatives spanning key areas such as market growth, innovation, collaboration, and access to talent, all backed by strong institutional and corporate support. 

1. Market Growth

Madrid is a city where multiple industries and markets converge, providing a favorable environment for startup growth. The high concentration of companies and the presence of large-scale events like South Summit create an accessible and dynamic market for startups. This facilitates connecting with potential clients, partners, and collaborators, significantly expanding the market reach for startups.

2. Innovation

The Madrid ecosystem is constantly evolving, promoting innovation through various incubators and accelerators like Tetuan Valley . These entities not only offer resources and mentorship but also foster an environment where innovation can flourish. Startups have access to advanced technologies, cloud service credits, and collaborative workspaces, facilitating the development of innovative solutions.

Google for Startups Campus Madrid, photo by Manu Prats 

3. Collaboration

Collaboration is a fundamental pillar of Madrid's ecosystem. The city offers numerous opportunities to establish strategic connections with other companies, investors, and other key players in the ecosystem. In the case of Tetuan Valley, our main partner is Google for Startups , which provides us with the Google for Startup Campus Madrid space, where we manage operations and programs and incubate more than 10 startups, providing product support and best practices, connecting to a global network, collaborating with mentors and trainers, and providing other benefits for the startup ecosystem.

4. Access to Talents

Madrid boasts a large number of highly qualified young professionals and university graduates, which is essential for startups, as it allows them to access a pool of candidates with the skills needed to drive business growth. The proximity to educational and research centers facilitates the incorporation of new ideas and emerging technologies.

According to the National Statistics Institute, the Community of Madrid is home to more than 300,000 university students at prestigious institutions such as the Complutense University, the Polytechnic University of Madrid, and the Carlos III University, generating a constant flow of young, skilled talent in key areas such as technology, engineering, business, and science. Furthermore, the city is home to numerous research and development (R&D) centers that collaborate with the private sector to foster innovation.

The job market in Madrid is dynamic and diverse, with a growing demand for skills in technology, digital marketing, and project management. Startups have access to a network of professionals specialized in these areas, allowing them to grow and compete globally. A LinkedIn report highlights that Madrid is one of the top European cities for attracting digital talent, surpassing other major cities such as Paris and Berlin.

Madrid also attracts international talent thanks to its quality of life, pleasant climate, and vibrant cultural scene. This cultural diversity enriches the entrepreneurial ecosystem, providing different perspectives and experiences that drive creativity and innovation.

Chart taken from the madri+d 2024 Startup Radar Report

5. Institutional and Corporate Support

Institutional and corporate support is another notable aspect of the Madrid ecosystem. Various non-profit organizations play a vital role in supporting startups, offering advice, resources, and visibility to their projects. Furthermore, the presence of various events provides essential opportunities for networking, collaboration, and exposure. 

In terms of corporate support, large corporations and multinationals also play a crucial role in Madrid's startup ecosystem through open innovation programs. Concepts like open innovation allow startups to collaborate with larger companies, facilitating the launch of new products and acting as early customers for these new companies.

6. Strategic Connections

Connections with other companies and people related to the ecosystem are especially valuable in Madrid. The city itself is a hub where individuals with impressive careers and diverse experiences converge, facilitating the formation of strategic alliances and fruitful collaborations. The proximity and access to relevant people and organizations amplifies opportunities for growth and development.

Startups and open innovation in Spain

As we mentioned in the previous section, open innovation continues to grow in Spain. Companies that began their strategic awareness journey around open innovation at some point continue to deepen their operations and gradually narrow the gap with global innovation leaders.

The rapid growth in interest in open innovation in recent years, and particularly in collaboration with startups, is due to a combination of factors such as increased awareness of its models, increased demand for innovation, and greater familiarity with collaboration tools.

According to the report The State of Open Innovation According to Startup Radar Madri+d , more than 60% of startup support organizations in the Community of Madrid work to implement open innovation . And most large companies work with startups, not just directly, but also by involving private accelerators or innovation agencies that support them in their open innovation processes.

Furthermore, public and private programs are increasingly being promoted to foster collaborative open innovation among the various entities in this region's innovative ecosystem.

If you've made it this far, it must be because you're genuinely interested in Madrid's entrepreneurial ecosystem. According to all the reports we've mentioned, it stands out for its dynamism and constant growth. Our goal is to continually grow more startups, with a focus on cybersecurity, disruptive technologies, and sustainability. 

We hope this information helps you be more informed and, perhaps, more motivated to innovate and launch your project in this ecosystem ;) If you have a project and want to move it forward, don't hesitate to sign up for our programs. Visit our website and choose the one that best suits your needs.