Entrepreneurial ecosystem calls transformative Startups Law - "We are far from what we asked for": the entrepreneurial ecosystem calls for a "more transformative Startups Law".

The Startup Law is already part of the Government's legislative horizon. The vice president of Economic Affairs and Digital Transformation, Nadia Calviño, presented after the Council of Ministers this week the draft law, which now opens its consultation period to open up to nuances, proposals and impressions of the entrepreneurial ecosystem.

And movements are anticipated to try to incorporate changes and extra issues to the norm that, in the opinion of the sector, are vital to promote future growth and that should be reflected in the project before it makes the leap to the parliamentary procedure.

Different experts have assessed are the main gaps in the proposal that has been presented. Enisa, an entity under the Ministry of Industry, Trade and Tourism that is responsible for channeling loans to entrepreneurs and SMEs, considers the preliminary project to be a step forward. Its CEO, José Bayón, acknowledged that whenever steps are taken forward "they may seem insufficient".

Entrepreneurial ecosystem calls transformative Startups Law

Aquilino Peña, founding partner of Kibo Ventures and president of the venture capital association Ascri, gave his opinion in a personal capacity. Although he acknowledged that there is finally a Startup Bill "it is to be celebrated", he did consider that the proposal is far from "what we would have asked for".

Bayon and Peña agreed in the event Public and Private Capital in the Entrepreneurship Ecosystem, organized by Enisa in collaboration, in which also participated White Santos, head of Finance and Operations of Clarity, and Laura Urquizu, CEO of Network Points and president of the Global LegalTech Hub.

José Bayón highlighted the role that Enisa had played in the drafting of the Startup Law. The public entity will play a key role from now on, since it will be responsible for accrediting whether an entrepreneur who wants to benefit from the advantages of the Startups Law has an innovative business model.

"[The Startup Law] is in public hearing, " he recalled. "Proposals from other political groups, citizens and organisations will be discussed. Everyone is invited."

Entrepreneurial ecosystem calls transformative Startups Law

"There are many puddles to tread," he acknowledged. "For example, in taxation you have to find a balance sheet. Enisa loans are taxation. If there are no taxes, there is no Enisa and Enisa is proving to be useful for many companies to get ahead."

He referred to one of the measures included in this proposal, a reduction in the corporate tax rate from the current 25% to 15% during the first 4 years of a startup's life. Blanca de Santos, of Clarify, doubted that the idea could be "made the most of". "A startup is not going to reach the breakeven in a short period of time to benefit from that savings. Experience tells us that we need liquidity at the beginning of the project."

Loss-making companies, as traditionally startups are until their business model is consolidated and the growth investment phase is behind them, do not pay this tax because they have losses, which they accumulate as a tax credit to offset with future profits.

Both Santos and Urquizu questioned whether the draft did not sufficiently differentiate a startup from a conventional small and medium-sized company. "A startup is not an SME," said the CEO of Red Points.

Entrepreneurial ecosystem calls transformative Startups Law

The entire panel of experts agreed that the draft itself is positive. "It is very positive that we talk about startups, that we begin to give visibility to this type of companies, to what we are building, to how we are attracting talent, business and technology to the country," De Santos said. "But we don't think you're taking into account exactly what a startup is or what phases it goes through."

"It is good news that the draft has been made, because it is the first time that the startup concept has been put on the table," confirmed Urquizu, CEO of Red Points. "But it strikes me very much that such a short end is put", both " economic "and"temporary".

The board is concerned that the draft Law provides that a startup must meet the following conditions, among others, to be considered as such: have less than 5 years of activity (or 7 in areas such as biotechnology, energy and industry), not to be the result of a division of another company, will not be listed or have distributed dividends, have an innovative nature (which determine Enisa) and a turnover of less than € 5 million per year.

"There are startups that in more than 5 years have managed to develop, but I do not know almost any that have managed in 5 or less to become a scale up —companies that have already raised more than a million dollars, whose model works and that aspire to scale it—", Urquizu stressed.

"Far from what we would have asked." Peña gave his vision as an investor, since Ascri prepares a joint response to the draft by the hand of other employers and companies. "The draft includes improvements, but they are incremental," he lamented.

Entrepreneurial ecosystem calls transformative Startups Law

"We have to take advantage of the consultation period to try to make this not just an incremental improvement, but an aggressive transformation. And I say it taking advantage of the fact that the word transformation is so fashionable. We have to get a country that competes with France, Germany or Italy."

Blanca de Santos gave an example of a case of Clarity, when they signed their current director of Data Science, from the USA. "We brought people from the United States with a highly qualified personnel visa. Our director of Data Science holds a PhD in Theoretical Physics from Harvard. The state asked us for remuneration criteria that he did not understand. Of course I wanted to collect money, but I also wanted shares in the company."

"Spain will be the only country in which we continue to use phantom shares —the right to receive monetary remuneration based on the price of an ordinary social participation, usually when the company is sold, but that does not include a political right— because taxation is not attractive and the concept itself is not known," he said.

Thus, the experts analyzed the role of stock options, which is also intended to regulate the Startup Law. The preliminary draft contemplates, in the case of taxation of these rights, raising from 12,000 to 45,000 euros the minimum annual exemption for companies that are certified as emerging.

Entrepreneurial ecosystem calls transformative Startups Law

Peña subscribed to what he said about Santos. "The problem is not taxation. In that case, the tool is touched. The problem is competitiveness. Clarity competes with French, German, English or Swedish startups to sign talent from Harvard. And the keys to success are talent and capital. For 45,000 euros a year you don't bring in a theoretical physicist from Harvard."

Urquizu recalled that startups, by nature, are companies with risk, for their ambition and their need to grow fast. "Attractive talent is the talent that wants to take that risk." For that, the Startup Law must understand that stock options are also a type of remuneration.

Peña claimed that it is based on good foundations. "Public-private collaboration is good and Enisa is very supportive of the work the funds do." But he regretted that in the draft bill did not appear at any time the word investor: there are investors who see Spain as an attractive country to invest, but they have not just taken the step.

"Our competitors are not startups from Madrid, Barcelona or Malaga. They are from London, Berlin or the United States. We have to give entrepreneurs tools so they can compete. And that's what I missed."

Entrepreneurial ecosystem calls transformative Startups Law

Laura Urquizu also highlighted the concept that the Startup Bill has of "serial entrepreneurs". The document will not consider a "start-up" company if its founder has previously created a company that has benefited from this Law. Urquizu claimed that these serial entrepreneurs " have a good chance of success because they already know what works and what doesn't."

"This profile is excluded from the start. There are serial entrepreneurs all over Europe for whom Spain is an attractive country for many reasons. They could come to the country to set up their third or fourth company. They do not do it anyway, despite the fact that in London the climate or the quality of life are worse," he lamented.

# Entrepreneurial ecosystem calls transformative Startups Law #