10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Investment Fourth best figure on record for Private Equity and Venture Capital1 investment in 2023 in Spanish companies. Following two great years for Venture Capital and Private Equity, the challenging macroeconomic environment and geopolitical situation have impacted Private Equity & Venture Capital investment2 in Spain in 2023, shrinking to €6,709M3, in line with pre-pandemic levels. This represents a 27.4% decrease from investments recorded in 2022 (€9,238M), a new all-time high. Nonetheless, and despite the difficulties presented for M&A activity worldwide, Venture Capital and Private Equity investment in Spain was the fourth best figure on record. 87% of total investment was allocated to new investments4, in line with 2022. The remaining 12% (€829.5M) was allocated to follow ons. A comparison between the two main segments of this sector shows that Private Equity investment reached €5,810M (-18% from 2022) across 157 investments. Venture Capital investments totaled €899M (-57.7% from 2022) due to the fewer number of large funding rounds for late stage venture, across 687 investments. This decrease in investment can be explained by several factors directly affecting the momentum of Venture Capital and Private Equity activity, with three factors standing out in particular: 1. Increased financing costs caused by interest rate hikes and growing at a higher rate than any other period since 1980. This tightening of debt market conditions has had a direct impact on the closing of fewer transactions that combine equity and debt, as is typical for large transactions5 (equity investments over €100M per transaction), and which saw a 20% decrease in investment amount in 2023. 2. Uncertainty about the economy and the geopolitical environment and price volatility, leading investors to exercise greater caution. 3. Diverging expectations of sellers and buyers for asset prices for sale, slowing several processes. These last two factors contributed to the slowdown in investor activity, particularly in the middle market6 (equity investments between €10M–€100M), which has been incredibly robust since 2018 and contributed to the excellent Venture Capital and Private Equity investment results in Spain, but which fell by 44% in 2023. The evolution of market conditions has had a disparate impact on the Venture Capital and Private Equity sector throughout 2023. In the first half of the year investment volume totaled €2,973M (-47% from the first half of 2022). A majority of the year’s investment activity took place in the second half, with €3,735.7M (+4% YoY growth). T he intense investment activity of international GPs in recent years has played a key role in the expansion of the Venture Capital and Private Equity sector in Spain7. In response to the attractiveness and opportunities offered by the Spanish industrial fabric, total investment of international GPs in Spanish companies reached €5,041.9M (75% of total amount invested in Venture Capital and Private Equity in Spain), a figure that despite falling from 2022 (-31%) is the fourth best on record for these funds. The presence of international GPs in recent years shows a growing investor focus on investment in a wide array of projects, both in mature and early stage businesses. Specifically, in 2023, international funds closed a total of 166 investments, three and a half times higher than the number of transactions recorded 10 years ago (47). Following the trend of recent years, the activity of international GPs stood out in large transactions (equity above €100M) albeit at lower levels than in 2022. The rebound in activity was especially prominent in the middle market after two years of record highs, impacting both private equity and late stage venture transactions. Nevertheless, the strong presence of international funds was maintained driving the Spanish entrepreneurial ecosystem by financing early stage start-ups. Furthermore, domestic private Venture Capital and Private Equity firms invested a total of €1,470.3M (-12.8% from 2022) across 535 investments (-9.9% from 2022), a new record high. As in recent years, the contribution of Private Equity GPs mainly focused on the middle market8, thus driving the funding of growth companies. By number of investments closed, domestic private Venture Capital GPs stood out again due to their intense activity. Direct investment activity by domestic public Venture Capital and Private Equity firms increased to €196.8M (+34.9% YoY) across 143 investments (in line with 2022). Likewise, the public sector continued supporting Venture Capital and Private Equity through its intense investment activity (as Limited Partner or “LP”) both in Private Equity and Venture Capital vehicles, as further explained in the “Fundraising” section of this report. The transaction value of Venture Capital and Private Equity in 2023 reached €13,073M. The bunching effect of Venture Capital and Private Equity investment on many of its transactions, given that the equity provided by Venture Capital and Private Equity9 GPs is accompanied by the financing of other investors, is referred to as the (total) transaction value.10 In 2023, this figure totaled €13,073M (-34% from 2022), of which €11,376M were Private Equity investments (€5,810M in equity + €4,836.6M co-investment and debt) and €1,697M were Venture Capital investments (€899M in equity + €798.4M co-investment). Atotal of 569 Spanish companies (90% SMEs) received Venture Capital & Private Equity funding in 2023. Regarding the number of investments in 2023, and notwithstanding the challenging environment, 844 transactions were completed11 in 569 companies, the third best figure on record. 54% of investments were made in new companies12, six percentage points less than in 2022. Between 2018 and 2023, the Venture Capital and Private Equity sector has funded approximately 3,637 companies, approximately 90% of which are SMEs. Positive outlook for the second half of 2024. Venture Capital and Private Equity activity during the first months of 2024 is performing very similarly to 2023, marked by high interest rates and geopolitical uncertainty. In this regard, in the first quarter of 2024, Venture Capital & Private Equity is estimated to have invested €1,191M, representing a 42% decrease from the first quarter of 2022, in 229 investments. Nevertheless, experts agree that positive factors driving investment are still present: dry powder available for Venture Capital and Private Equity GPs, numerous companies waiting to be launched, investor appetite and the commitment of international funds to the Spanish market. Once the announced interest rate adjustment begins and macroeconomic indicators stabilize, investment activity is expected to experience a gradual resurgence starting in the second half of 2024. Notes