Spanish Startup Bill good news startup definition falls "short" and the measures are "insufficient", according to several agents of the entrepreneurial ecosystem.

The second vice-president and minister of Economic Affairs and Digital Transformation, Nadia Calviño, has unveiled this Tuesday the draft Law of Startups, a text long awaited by the ecosystem of entrepreneurs, investors, and institutions to promote entrepreneurship in Spain, which is mostly considered as a "good news", but whose definition of startup "falls short" and the measures are "insufficient" to meet the needs of emerging businesses, according to the entrepreneurs, investors, and the bodies consulted.

The project, a promise of long, long journey of the president of the Government, Pedro Sánchez, that spoke for the first time a law of startups in the South Summit of the year 2018 and whose approval "in a few weeks" again promise in February of this year, we met in the first place only by what is revealed by the minister Calviño after the meeting of the Council of Ministers, until in the afternoon of Tuesday, the Ministry of Economy published the text of the draft that will be submitted to public hearing, so that may be received contributions to its improvement.

Spanish Startup Bill good news startup definition falls

As a starting point, having a preliminary project is "a very important first step", point out from the Startup Association, which has had among its objectives for 5 years that legislation of this type be implemented. "There has been work by the association and many people in the ecosystem to convince parties and governments that this was important. And the Government has to be recognized that it has done so, with a little more delay, but it has started it", says Agustín Baeza, Director of Public Affairs of the Association of Startups, in conversation. However, the association has not hidden that the rule "may be even more ambitious" in its first public reaction on Twitter.

For this organization, the fundamental thing is that the Government collects the framework that they promoted: that a law is needed that recognizes the uniqueness of the startup as a business model. Another thing is how the startup is defined, since the Association proposed a broad definition, which was linked to validation by public bodies that grant funding to innovative projects such as Enisa or the CDTI, or European public funds to innovation. According to the draft, Enisa would be responsible for certifying that a startup is an innovative company. "It is much easier with an existing law to make changes, than to start a debate about what should be done. Let's solve problems, " adds Baeza.

Spanish Startup Bill good news startup definition falls

The perception of positivism for already having a preliminary project in hand is shared by Antonio Iglesias, general director of Endeavor Spain, an accelerator of entrepreneurial projects with social impact. With nuances, though. "It's super good news, anything that makes it easier to start businesses and investment is good. Then in the detail we can see if they have fallen short or not, " he explains.

From the perspective of an entrepreneur, Guillermo Vicandi —co— founder of fintech Bnext-considers that there is "much to be defined" in the public hearing process, but the measures are in his opinion very improvable. "Although all the advances are positive and the willingness to attack issues that are traditional demands of startups is fine, what is announced is very insufficient," he summarizes.

The definition that announced Calviño and is collected in the preliminary notes many points about what is an entrepreneurial company: a company with social club and the 60% of its employees with a contract in Spain, which is a new creation —is not considered new creation to a company whose founder has already founded another benefited by this law— or have less than 5 years of activity, or 7 in areas such as biotechnology, energy and industry, that is not the result of a division of another company, is not listed or has distributed dividends, with an innovative character (which will be demonstrated through Enisa) and with a turnover of less than € 5 million per year.

Spanish Startup Bill good news startup definition falls

This definition "falls short", in the opinion of the CEO of Endeavor Spain. "I think it touches well the phase of creation of a company, the first 5 years, low turnover, it is interesting that they make a nod to more intensive companies to research such as industrial or biotechnological, but it falls a little short. We need to be able not only to support the creation of businesses, but to help their growth. A company that bills 5 million is a business, but not a global competitor", says Antonio Iglesias in statements.

In fact, among the Spanish companies that are identified as potential unicorns —aspiring ratings of 1,000 million dollars— as Jobandtalent, Wallapop, Ravenpack, Codigames or Travelperk, none of them fall within this definition because they all have more than 5 years of experience. The most recent is Travelperk, founded in 2015, according to Crunchbase.

The draft bill reduces the corporate tax rate from 25% to 15% for a maximum of four years, provided that the company maintains its status of emerging company —the requirements set forth above, among them not more than 5 years or to bill more than 5 million— but this theoretical advantage may not be seen in anything handy if, as is usual in many startups are companies that are not profitable and therefore do not have to file this tax.

Spanish Startup Bill good news startup definition falls

"It is a cosmetic measure, it does not have a real impact," says Guillermo Vicandi, co-founder of fintech Bnext, in statements. "Most startups have negative results, losses, during the first years, so they do not tax companies, it does not make sense to reduce the rate to companies that de facto do not present corporate tax," he adds.

The bill also provides for this tax reduction in the income tax of non-residents, and the possibility of deferring tax debts on any of these 2 taxes for 2 years.

Another of the key elements on the investment side is the increase of deductions from 30 to 40% and the increase of the maximum base from 60,000 to 100,000 euros per year for investments in companies that meet the aforementioned requirements. Foreign investors will no longer have the obligation to obtain a foreign tax identification number and will be able to do so with a normal NIF.

Spanish Startup Bill good news startup definition falls

The 100,000 euros are also a "short" amount, says Antonio Iglesias, of Endeavor, who believes that it should be more ambitious not only in terms of exemptions, but also in terms of facilitating venture capital investment to institutions, such as pension funds. It matches Vicandi. "100,000 euros are tiny tickets, and they are not going to encourage investment in Spain, they can encourage the mega small investor who is going to make a very small round in an incipient startup, but they are not going to attract investment," he warns.

Another element that had been claimed for a long time by those responsible for emerging companies was the taxation of stock options, the options for the purchase of shares that start-ups use as variable remuneration for their employees. The preliminary project allows companies to deliver 20% of their capital as part of these remuneration plans in which their exemption from taxation as labor income is raised to these stock options, from 12,000 to 45,000 euros per year.

For Antonio Iglesias, of Endeavor Spain, this exemption "falls short again", since in startups that begin to have some growth and want to use stock options to attract executive talent, the value of the exemption may not be enough to make it appealing to convince a senior manager to leave a multinational to go to a startup.

Spanish Startup Bill good news startup definition falls

"For professionals who are in large companies to dare to make the leap to a startup, one of the keys is how to compensate those executives, and many executives would be willing to go with a component in important actions, if you limit it to 45,000 euros you will fall short," he says.

From the point of view of Guillermo Vicandi, the problem is not so much the exemption, but that it continues to be taxed just for having the option to buy, even before it has materialized. "If the stock on which you have the option is revalued, you have to pay for it, that's the problem. If it were taxed by materializing the gain, we can discuss what taxation is reasonable, but the problem is that an employee who has not materialized the action has not had that equity gain, but taxes. This does not solve the real problem, " he argues.

# Spanish Startup Bill good news startup definition falls #