Startups like Glovo and Spotahome topped fundings raised in 2018 despite local regulatory risks, as Spanish tech firms conquer overseas markets
Startups in Spain’s sharing and gig economies have been increasingly embroiled in regulatory tugs-of-war. This has so far culminated in a new law in Barcelona this February, aimed to severely cap the operations of on-demand ride-hailing services in the second-largest Spanish city. A month later another new law, this time in the capital of Madrid, has targeted the booming holiday rentals sector.
After protracted demonstrations by licensed taxi drivers demanding curbs on ride-hailing services, locally known as VTCs, Barcelona authorities have ensured that these on-demand transport apps are now only able to accept customers who have booked at least 15 minutes in advance. In response, the two principal providers, Uber and Spain's Cabify, withdrew their services in the Catalan capital.
"The obligation to wait 15 minutes to travel by VTC doesn't exist anywhere in Europe and is totally incompatible with the immediacy of services upon demand, like UberX,” Uber said in a statement. Cabify, with 1 million registered users in Barcelona, said the new regulation's “only objective is the direct expulsion of Cabify and its collaborators from Catalonia and Barcelona."
Meanwhile, gig economy startups like Glovo and OnTruck are facing increased scrutiny and action over the casual employment status of gigsters, who several courts have ruled should be treated as salaried workers.
Yet, despite these prevailing regulatory challenges, gig and sharing economies startups – including Glovo, Cabify, Spotahome and OnTruck – were among the best-funded Spanish startups in 2018.
International investors still view Spanish startups as undervalued, especially since they tend to expand into global markets, and therefore offer high revaluation potential vis-à-vis other more mature European markets such as the UK, said crowdfunding platform AccessToCrowd.
Spain is also "a magnet for technological talent," growing faster than in other parts of Europe, said a report by Atomico, the London-based VC firm co-founded by Skype founder Niklas Zennström.
At the national level, neither the current ruling Socialist Worker's Party (PSOE) nor its predecessor the conservative Popular Party (PP) has implemented any restrictions on these sharing or gig economies. After the general election on April 28, 2019, the national government would most likely continue to welcome tech companies and their investors, both local and foreign, to add value and further expand Spain's tech and business influence at home and abroad.
AirBnB listings down 90%
In Spain, where tourism accounts for 16% of the economy, the “Airbnb effect” has become a term in Spanish to describe the fast-rising rentals in touristy neighborhoods. In 2018, accommodation booked on short-term rental platforms grew 10 times faster than hotel reservations from the previous year.
Madrid passed a new municipal law on 27 March 2019 to impose highly restrictive measures on short-term rentals, including a 90-day cap and an obligatory separate building entrance for short-term renters or tourists. These new restrictions in effect apply to 95% of the city's short-term accommodation rental stock, a move AirBnb lambasted in an open letter to Manuela Carmena, the Socialist mayor of Madrid.
Madrid’s crackdown on rental platforms like AirBnB follows similar clampdowns by other major cities, from New York to Paris. It’s a result of years of tension with local resident associations and hotel operators. Complaints about rowdy holidaymakers and rising rental costs for locals due to reduced housing stock have put the property tech sector in the spotlight, well before the ride-hailing VTC debacle over unfair competition.
In fact, AirBnb has only 1,000 listings for Madrid on March 27 when the new requirement came into force – a sharp drop from over 10,000 earlier in 2019. In its letter to Carmena, AirBnb said the new local law had stopped "thousands of families in Madrid from benefitting from tourism" and for "putting at risk thousands of jobs." The new guidelines won't ease the housing shortage, it added, and "will only benefit a few large companies."
President of Madrid's residential holiday lettings managers' association Asotur Chema González also predicted the same repercussions. González, who is also the CEO and co-founder of the online Spanish holiday lets and management platform Alterhome, subsequently took down most of its Madrid listings.
But Spotahome expanding
Another player Hostmaker called the regulation "anti-competitive" and said it would now have to work with owners offering longer-term lets of at least 90 days. Airbnb's Spanish competitor LaComunity, the largest holiday rental platform in this country with listings set to double to 1 million in nearly 130 countries by end-2019, has yet to comment on the new law.
Meanwhile, local rental startup Spotahome continues to flourish in the medium to longer term rentals sector it plumped for from the outset, avoiding the problems of holiday rental platforms. Backed by Kleiner Perkins, Spotahome clinched Spain’s first Silicon Valley-led funding and now has 85% of its total bookings outside Spain.
In the gig economy, startups are facing increased scrutiny and action over the casual employment status of gigsters, who several courts have ruled should be treated as salaried workers. Logistics platforms like GOI Travel and OnTruck have complied with the new employment law. Specializing in the higher-value bulk delivery sector, OnTruck completed a €25 million Series B funding round in May 2018 – one of the biggest startup investments in Spain last year.
Glovo, Deliveroo and Uber Eats are challenging the requirement for employment contracts and benefits for riders. In a rare case, Glovo succeeded in convincing a Madrid court that the plaintiff delivery worker did not qualify for an employment contract with social security and other benefits. However, Glovo has also lost in other cases brought by various staff in Madrid, Zaragoza and Valencia.
Spanish techs go LatAm
Indeed, like Spotahome, many Spanish startups grow outside of their home country.
A large number have continued the nation's strong historical, cultural and business connections with Latin America. In 2017, Cabify joined forces with its on-demand delivery compatriot Glovo to provide door-to-door shopping delivery services in Latin America.
A year later, Cabify continued its expansion by merging with Maxi Mobility's Latin American taxi app Easy Taxi. "We are taking the necessary steps to become the biggest Mobility as a Service (MaaS) platform in Latin America and Iberia," managing director Vicente Pascual told media.
The combined services were initially launched in 20 cities in Brazil, Chile, Colombia, Mexico, Peru and Ecuador. There was a positive response of "more than 50% of Cabify users in the region who were also interested in traveling by taxi via the app," he added.
In 2018, Glovo raised €115 million in Series C funding to drive expansion overseas in Latin America, Africa and eastern Europe. It is already planning a new fundraising round to boost continued growth in Latin America.
Cabify back in Barcelona
However, the Spanish Digital Economy Association (Adidigital) has pointed out that legal certainty is essential to guarantee investment and not endanger new models of investment.
"Spain is the only country in which the government has opted to prosecute the sector, in stark difference to the rest of Europe… where they are in dialogue and adopting laws pertaining to the modernization of the economy and new forms of work," managing director Jose Luis Zimmermann told media.
Barcelona's 15-minute requirement imposed on ride-hailing services on February 2019 has been condemned by the CNMV, the Spanish public body tasked with overseeing transparency and ensuring fair economic competition. It warned that fares could rise as a result of the reduced competition between taxis and VTCs. Madrid's new strict regulation on short-lets was also criticized by the CNMV as being detrimental to the local economy.
Meanwhile, Cabify has returned to the Barcelona market, citing a legal loophole that the 15-minute rule only applies to first-time customers and not regular users. The Madrid-based company has also expanded into Spain’s Murcia region. Uber, on the other hand, has started operations in Valencia and hasn’t returned to the Catalan capital.
Overall, municipal authorities nationwide have largely focused on restricting the number of VTC licenses issued, instead of directly trying to change the successful business models of these tech companies.
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