European Tech Champions. Europe strikes back.

Yesterday I was able to participate in the launch of the European Tech Champions Initiative, ETCI, in which Spain and Madrid had the honor of receiving the first stop of its presentation roadshow, at Axis headquarters.

I felt at home, surrounded by friends and with the privilege of seeing @kfundvc represented at the round table with my partner Carina Szpilka , Jordi Romero , CEO of one of our star investments (Factorial), and one of our anchor LPs, Telefónica, with Pablo Moro , participated. And of course ICO Next tech Fund, represented by Guillermo Jimenez, as host.

In these turbulent times of geopolitical upheaval and high disruption around the tectonic plates of technology, from AI to connectivity, it is essential that we bet on the technological sovereignty of Europe. And I believe it is possible to demonstrate that technology developed with European values such as equality, equity and without losing focus on climate and energy transition, is competitive.

The ETCI is a fund of funds, that is, instead of directly funding startups, it will be invested in large-scale EU venture capital funds. In turn, these funds will have a greater ability to provide growth funding to Europe's tech champions.

The ETCI has the support of five major EU countries and Spain is contributing €1 billion, on a par with France and Germany, showing powerful ambition. The aim of the initiative is the creation of 10 to 15 European funds with more than 1 billion assets under management, so that they can finance European startups in their scale up phase.

It aims to strengthen the work of the European Investment Fund (EIF) in Europe's venture capital ecosystems, with the intention of mobilizing more than €10 billion of public-private investment in innovative scale ups across the continent. The initiative has an initial capital of €3.75 billion to address the 6x larger gap between the US and Europe in the number of funds of over €500 million. Marjut Falkstedt , EIF's CEO, remarked her institution's commitment to European scale ups, so that global champions can be created while she also highlighted the importance of having more gender diverse managers, an area where we have a lot of room for improvement.

The ultimate goal is to encourage these companies to stay in Europe and not have to set up in other countries to seek capital for expansion. The interesting thing for Spain and its entrepreneurs is that of those 10-15 funds, 2-3 are expected to be established in Spain. This is therefore a very significant challenge for our ecosystem, where the largest early growth funds, including Leadwind, have a target size between 200 and 250 million euros.

Will it be possible to mobilize 500 million of private capital so that ETCI and others can complement the investment? And on the other hand, are there enough local companies with unicorn potential to be able to receive these checks of about 50 million euros in the next 4-5 years?

As Carme Artigas , the Secretary of State for Digitalization and Artificial Intelligence, said, Spain has around 300 companies in the scaling phase, of which 20 are soonunicorns, companies with the potential to join the 10 local unicorns. But it is still a maturity challenge that we must face over the next few years.

In addition, with the recently approved Spanish Startups Law, an important step has been taken in the right direction to improve the taxation of investments, stock options and visas for digital nomads, seeking to turn our country into a pole of international attraction for investors and entrepreneurs. We have the right ingredients for this, although there are still improvements in the pipeline, both in the taxation of stock options, as in the qualification of emerging companies or as Jordi mentioned, in the "temporary" rule that requires government approval for investments of more than 10% of foreign capital in Spanish companies.

In order to raise a fund of that size, the support of local corporations is critical, with very relevant tickets and collaboration between different sectors. So an appeal to large and medium-sized local companies, with a country purpose, is necessary. Hoping they can join the rest of the players in the ecosystem and attract international investors, who believe in the potential return on investment, considering that we have more contained entry valuations and that at scale, the multiples of the best companies are equivalent to their Anglo-Saxon competitors.

Of the IBEX 35 companies, Pablo Moro commented, 90% have Open Innovation initiatives, 80% have investment tools, but corporate venture capital investment in our country is only 15% of all venture capital, instead of 22% in Europe. And not only corporations, but also pension funds have to play a much more important role, as they do in other latitudes.

I love the ambition shown, but I also believe that ETCI and the EIF will have to be flexible to understand the difference that still exists in the maturity of the venture capital industry between southern Europe, where the jump to a 1 billion fund can be very complicated for investors and managers, and the situation in countries like France or Germany,

Taking the French case as a reference, there they set a target of 25 unicorns for 2023 and were able to reach it somewhat earlier than expected with strong political support, involvement of public bodies, CAC40 corporations and international investments. And by 2026, they expect these unicorns to be able to contribute an impressive 6% of GDP.

A certain flexibility in the application of the criteria set by the ETCI may allow us to keep pace with the rapid evolution of our ecosystem with our peers and help us recover lost ground and prevent us from missing this train. We have plenty of talent, but we can become indigested with an unbalanced fundraising binge, which breaks the balance of our ecosystem and its different stages of investment and generates a perverse crowding out effect of local funds in favor of European capital.

In addition, Spain has unique differentiating factors, beyond the high quality of life, infrastructure or physical and digital connectivity. We can become a bridge between companies founded in Latin America and Europe. These are global champions that have sophistication and muscle and that can create employment and wealth in our country, as a management hub for their European operations, and that today, look too much towards their northern neighbor, the States.

When we invested in Factorial from Leadwind, we would have loved to co-lead its Series C together with Atomico or GCI, but this would have required a fund of at least 500 million. It is time to pick up the gauntlet thrown down yesterday by the ICO and the EIF and dream big. That part fits well with our DNA ;).

A rich country must have an economy based on the creation of technology, not its consumption.

Let's go for it.