The scaling phase is the moment when all the decisions the startup made at incorporation are put to the test. The corporate structure that seemed sufficient when there were two founders starts to fall short when the first professional investor comes in. The verbal agreement that governed who decided what turns into friction when the team grows beyond the first ten people. The operations that worked with three clients stop working with fifty. And the tax setup that was designed with the goal of starting to operate begins to generate inconsistencies right when the business enters the phase where every decision costs more.
Scaling a startup in Spain is not the same as growing it. Growing means more volume on the same structure. Scaling means redesigning the structure to support a volume and complexity that the initial phase did not anticipate. That transformation, when anticipated with judgment, translates into years of sustained growth and a solid starting position for the rounds to come. When improvised on the fly, it translates into disputes between partners, lowered valuations in investment negotiations, internal processes that collapse at moments of greatest pressure, and, in the worst cases, viable projects that die not for lack of a market, but because of an internal architecture that could not withstand the change of phase.
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What Changes When Moving from Validating to Scaling
The transition between the validation phase and the scaling phase is one of the most delicate points in the life of a startup. It’s not a sudden leap, but a progressive process in which the rules that worked in the first months stop working and need to be replaced by others before the business enters the risk zone. The difficulty is that this moment rarely appears clearly marked: it has to be recognized from signs that the team itself, immersed in daily operations, doesn’t always identify in time.
Signs that the initial phase has ended
There are several signs that, combined, indicate fairly clearly that the validation phase is behind you and that the project needs a different architecture. The first is operational: decisions that used to be made in an informal conversation between the founders now require coordinating several people, consulting several data points, and considering several scenarios. Responsiveness slows down if there’s no structure that organizes who decides what.
The second is financial: the model stops being improvised month by month and starts demanding predictability. The burn rate becomes a daily metric, the CAC payback appears in every conversation about growth, and the tension between accelerating customer acquisition and maintaining cash discipline becomes a recurring conversation. When the financial team (internal or external) doesn’t generate real-time information useful for decision-making, the business is crying out for professionalization.
The third is relational: the first serious conflicts between partners appear, usually linked to roles that are no longer clear, to different expectations of dedication, or to disagreements about strategic direction. These conflicts are not an anomaly, they are the natural symptom of an organization that has grown beyond the informal agreement that sustained it. And the fourth is commercial: the market responds with more demand than the team can handle with the current structure, which opens a window of opportunity that’s only seized if the organization is prepared to scale service delivery without losing quality.
The deferred decisions that now hold back growth
Every startup in the scaling phase carries a set of decisions it consciously deferred in the initial phase because they didn’t seem like priorities. Some of them were genuinely secondary at that time. Others, however, now generate a bill proportional to how long they’ve been accumulating. The most frequent are: the absence of a real shareholders’ agreement adapted to the current state of the project, employment contracts drafted with generic templates that don’t contemplate confidentiality or the assignment of rights over developments, the lack of documentation on the ownership of the software and the intangible assets developed by the founders before incorporating the company, the tax regime applied by inertia without assessing specific incentives of the Startups Law, and the absence of a financial reporting system that allows answering, within forty-eight hours, the questions any investor asks in the first meeting.
Resolving these deferred decisions before starting an investment round is what differentiates a due diligence that closes in six weeks from one that drags on for four months and ends with a valuation reduced by the investor based on the risks detected. The scaling phase is the last reasonable window to do that work without penalty.
Corporate and Decision-Making Structure to Grow Well
The corporate architecture that supports a startup in the scaling phase has to fulfill two functions simultaneously: facilitate daily operations without generating unnecessary friction, and withstand the professional scrutiny it will be subjected to when institutional investors, strategic partners, or potential acquirers come in. Designing the structure thinking only about internal operations and leaving the investor dimension for later is one of the most costly mistakes of scaling.
Capital, governance bodies, and agreements between founders
The distribution of capital between the founders, properly structured from the initial phase, rarely requires structural changes in the scaling phase. What does change is the complexity of the decisions that capital has to make. If in the incorporation phase a sole director or a joint administrative body was enough, in the scaling phase it’s worth considering whether the governance model is still appropriate or whether the project would benefit from a more professional administrative body, with formal criteria for convening meetings, reserved matters, and recurring reporting.
The move from sole director to a board of directors is not always necessary at the moment of scaling, but it is common when institutional investors come in with the right to participate in decision-making, when the plan is to bring in independent directors who provide sector experience, or when the volume of the business justifies a more formalized decision structure. Organizing corporate governance at this moment saves months of redesign when the round materializes.
The shareholders’ agreement that the startup signed at incorporation (or that it deferred signing) must be reviewed or drafted expressly for the scaling phase. What was enough among three founders stops being enough when external investors come in with differentiated political and economic rights, when a stock options plan for the key team is contemplated, or when exit scenarios appear that the initial agreement didn’t anticipate. An agreement well designed for the scaling phase expressly governs the matters reserved for reinforced majorities, the investors’ information rights, the drag along and tag along mechanisms, the non-compete and founder retention clauses, the conflict resolution procedures, and the rules for future rounds. The sooner this document is closed, the easier it is to negotiate with investors on balanced terms.
Preparing the structure for investment rounds
Preparation for an investment round starts months before the first meeting with a fund. The questions investors are going to ask are reasonably predictable, and the quality of the answers depends almost exclusively on the prior preparation work. Investors want to see, at a minimum, a clean company from the corporate point of view (no registry contingencies, with an updated incorporation deed, with legalized books up to date); clear ownership over intangible assets (especially over the software, registered trademarks, and intellectual property developments generated by the team and by third parties); an orderly labor situation (signed contracts, equality plan where applicable, pay register, whistleblowing channel if Law 2/2023 applies); a coherent tax situation (no outstanding debts, with returns filed on time, with eventual certification as an emerging company before ENISA where applicable); and traceable financial metrics (MRR, CAC, LTV, burn rate, runway) that allow validating the model and projecting growth.
The Startups Law 28/2022, in force since January 1, 2023, has introduced a specific framework for emerging companies that’s worth taking advantage of before the round. Certification as an emerging company before ENISA opens access to several incentives: a reduced rate of 15% in Corporate Tax for a maximum of four fiscal years, deferral of tax debts, a tax exemption on stock options up to 50,000 euros per year, and a specific regime for self-employed workers who are partners. To be considered an emerging company, the company must meet cumulative requirements: be newly created or have a maximum age of five years (seven in strategic sectors), be based in Spain, have at least 60% of its workforce under contract in Spain, an innovative and scalable business model, annual turnover below ten million euros, not have arisen from restructuring operations, and not have distributed dividends. The certification is granted by ENISA and should be processed before the round closes, not after.
In parallel, non-dilutive public financing through ENISA participatory loans is a route complementary to private capital that many startups underestimate. The lines in force in 2026 allow obtaining up to 1,500,000 euros without guarantees, without an equity stake, and with broad repayment terms, with the added advantage that ENISA’s approval acts as institutional validation of the project before subsequent private investors. It’s worth understanding well how to fund a startup with ENISA without guarantees before closing the round, because the compatibility between ENISA financing and private capital rounds is complete, and combining them properly reduces founder dilution in the early phases of scaling.
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Processes and Internal Control That Prevent Operational Chaos
Scaling destroys more startups through lack of processes than through lack of a market. When the team grows, information flows multiply and decisions are distributed among more people; what used to work through informal coordination between founders stops working and starts generating errors, duplications, inconsistent decisions, and internal wear. Implementing processes in the scaling phase is not bureaucratizing the project: it’s giving it the structure it needs to keep growing without losing quality or control.
The first area worth formalizing is the financial one. A monthly reporting system covering accounting close, the evolution of key metrics (MRR, ARR, churn, CAC, LTV, burn rate, runway), budget tracking against forecast, and a twelve-month cash flow forecast, is what allows decisions about growth, hiring, and investment to be made on a real basis, not on intuition. Good fiscal and accounting coordination that integrates these elements is what prevents the fiscal year-end close from becoming an unpleasant surprise and allows tax decisions to be anticipated with margin.
The second area is labor. As the workforce grows, obligations appear that didn’t apply in the initial phase: a mandatory equality plan upon reaching 50 employees, a mandatory whistleblowing channel under Law 2/2023 also from 50 employees, a mandatory pay register for all companies, harassment protocols, LGTBI measures under Law 4/2023. Anticipating these obligations before crossing the threshold, not after, avoids costly inspections and sanctions that in the worst case can reach 225,018 euros for serious breaches of the time-tracking register, for example. The stock options plan provided for in the Startups Law also requires careful technical implementation to activate the tax benefit and to avoid labor contingencies due to its remuneration nature.
The third area is contractual. Contracts with clients, strategic suppliers, and partners must be standardized, archived, and reviewed periodically. The templates used in the initial phase usually have relevant gaps (poorly defined limited liability, poorly governed intellectual property, absent exit clauses) that, at a high volume of contracting, become a systematic source of risk. Business scaling also requires reviewing GDPR compliance as data flows, the suppliers that process them, and acquisition channels increase.
The fourth area is information. As the team grows, sensitive information is distributed across more hands. Establishing a clear policy on what information is confidential, who has access to what, how documents are shared, and how the departure of employees with access to critical data is managed, is what protects the intangible assets built during the validation phase. A trade secrets policy under Law 1/2019, with standardized NDAs, technical access control, and team training, stops being optional as soon as the business exceeds fifteen or twenty people.
Signs That Your Startup Needs to Professionalize
There’s a set of signs that, seen in isolation, may seem irrelevant, but that combined draw an unmistakable pattern: the startup needs to professionalize, and the sooner that professionalization is addressed, the less expensive it is.
The first sign is the difficulty of answering basic questions about the business with precision. When the internal or external CFO can’t confirm in less than a day the exact burn rate of the last month, the consolidated MRR, the CAC by channel, or the projected runway, the information system is not up to the moment. The second is the concentration of critical decisions in one or two people who have become bottlenecks. If operations grind to a halt when the CEO or the technical cofounder is away for a week, the structure is not scalable and must be redistributed before the problem becomes structural.
The third sign is the recurring appearance of operational errors that didn’t happen before: duplicate invoices, lost contracts, clients billed incorrectly, legal deadlines missed. These are not individual errors but symptoms of a lack of process that, at high volumes, multiplies geometrically. The fourth is growing friction with the team: unexpected turnover in key positions, delays in selection processes, competitive offers that candidates reject because the value proposition isn’t clear, or recurring conversations about stock options without a formalized plan.
The fifth is the appearance of gray areas in contracts: clients who question billing, suppliers who claim penalties, employees who leave taking information without clear restrictions. The sixth is the feeling, shared by more than one member of the management team, that the project is growing faster than the organization can absorb. That feeling, although it may seem subjective, usually anticipates structural problems that materialize in the following six to twelve months if there’s no intervention.
Mistakes That Hold Back Scaling and Destroy Value
The catalog of mistakes that destroy value in the scaling phase is reasonably well known, which doesn’t stop them from being repeated with notable frequency. Identifying them before committing them is the difference between a project that scales in an orderly way and one that reaches the next phase with half its potential value already destroyed.
The first mistake is delaying the shareholders’ agreement or keeping an outdated one. When the first professional investor arrives, the conditions they impose on the agreement will be much more demanding than the ones the founders could have agreed among themselves months earlier. Negotiating from urgency is always worse than negotiating from planning.
The second is delaying the professionalization of the financial team until the situation becomes critical. Bringing in a financial control profile, whether internal or external, should happen at the start of the scaling phase, not when the errors that function would have avoided have already been committed. The third mistake is confusing growth with scaling: investing in massive acquisition without having consolidated the operational structure that has to support the growth, which spikes the burn rate without generating sustainable value. Venture capital funds have moved from the mantra of growth at all costs to that of grow efficiently: efficient scaling is the kind that combines speed with operational discipline.
The fourth mistake is underestimating the labor obligations that activate when crossing certain workforce thresholds. Complying late and poorly is always more expensive than complying on time. The fifth is deficient documentation of intellectual property: in tech startups, ownership of the software, the algorithms, the databases, and the accessory developments must be perfectly documented before the first relevant round. A single external developer who hasn’t formally assigned rights can paralyze a due diligence.
The sixth mistake, especially frequent in startups with foreign founders or international expansion, is not reviewing the company’s structure and incorporation before starting internationalization. What works in Spain as an operating limited company may require a redesign toward a holding structure with local subsidiaries to scale into Latin America or Europe without generating tax or operational contingencies. Doing it later, when the complexity has already materialized, is always more expensive and slower.
If you’re considering professionalizing the structure, processes, and governance of your startup before the next investment round or expansion, the difference between scaling with control and scaling by force is measured in preserved valuation, in time to close rounds, and in years of growth without surprises.
At ILLAY Legal we support founders, management teams, and boards of directors of startups in the scaling phase, articulating legal advice for startups in Spain in corporate, tax, labor, intellectual property, and corporate governance matters in a single strategy adapted to the moment of the project. If you’d like our team to audit the current state of your startup and design the transition toward a scalable architecture, contact us.
Frequently Asked Questions About Scaling a Startup in Spain
When is the right time to create a board of directors in a startup?
There’s no automatic threshold, but the most widespread practice places the decision at three key moments: when the first institutional investor comes in with the right to participate in the company’s governance, when the workforce exceeds twenty to thirty people and operational decisions require coordinating several senior managers, and when the volume of business or the sector complexity justifies bringing in independent directors with prior scaling experience. The transition from sole director to a board doesn’t require unanimity: it can be formalized through a statutory amendment with the legally required majority, and the shareholders’ agreement can govern matters reserved for the board, qualified majorities, the regularity of meetings, and the information rights of non-director partners. Making the decision too late usually complicates the negotiation with investors; making it too early can generate operational friction without real added value. The correct criterion is functional: the board is created when collegiate decision-making adds real value to the project.
Is it preferable to finance scaling with ENISA or with a private capital round?
They are not mutually exclusive alternatives, but complementary instruments used in combination. ENISA offers non-dilutive financing through participatory loans of up to 1,500,000 euros without personal guarantees, with long terms and a variable cost linked to the evolution of the business, which makes it a suitable route for startups with traceable metrics and realistic projections. The private capital round, on the other hand, provides permanent capital, validation from professional investors, and a network of contacts in exchange for equity, which makes it suitable at moments of intensive acceleration or when seeking strategic expertise from the investors themselves. The usual combination is to use ENISA to reinforce the financial structure before or in parallel with the round, presenting the institutional validation as a positive element in the negotiation with funds. The optimal ratio between the two routes depends on the phase, the business model, the dilution the founders are willing to accept, and the project’s milestone schedule. This decision requires detailed financial analysis before closing any instrument.
What requirements must a company meet to obtain emerging company certification before ENISA?
Law 28/2022 establishes several cumulative requirements. The company must be newly created or have a maximum age of five years, extendable to seven years for companies in strategic sectors such as biotechnology, energy, industrial, or those that use proprietary technologies. It must have its registered office, registered address, or permanent establishment in Spain. At least 60% of the workforce must have an employment contract in Spain. Annual turnover cannot exceed ten million euros. The company cannot have arisen from merger, spin-off, or transformation operations of companies that don’t qualify as emerging companies. It also cannot have distributed dividends. And it must demonstrate the innovative and scalable nature of the business model, which ENISA evaluates through an analysis of the project, the founding team, and the financial projections. The certification opens access to the reduced 15% Corporate Tax rate for four fiscal years, to the specific stock options regime, and to other benefits. The application is processed online through ENISA’s Prometeo portal with the corporate documentation and the project report prepared.
When should a stock options plan for the startup’s key team be formalized?
The stock options plan should be formalized in the scaling phase, before the first relevant round, for two main reasons. The first is remuneration: scaling requires bringing in managerial and technical profiles whose compensation can’t compete with the market through salary alone, and stock options are the standard tool for aligning remuneration with medium-term value creation. The second is tax: Startups Law 28/2022 has substantially improved the tax regime for stock options, raising the exemption on employment income derived from the delivery of shares or share options of emerging companies up to 50,000 euros per year per employee, compared to the 12,000 euros of the general regime. To activate this tax benefit, the plan must be correctly designed from the corporate point of view (with vesting, cliff, exit conditions, and exercise regime well defined), must fit the requirements of the Startups Law, and must be coordinated with the shareholders’ agreement to avoid uncontrolled dilution of the founders. Implementing the plan in an improvised way or without coordination with the corporate structure can invalidate the tax benefit and generate labor contingencies due to the remuneration classification of the scheme.
What key documentation should a startup have prepared before starting an investment round?
The due diligence that any professional investor conducts before closing a round examines several documentary blocks the startup should have prepared in advance. In the corporate block: incorporation deed and subsequent modifications, current bylaws, legalized books, Commercial Registry certificates, updated shareholders’ agreement, share register, minute book. In the tax block: returns from the last three fiscal years, certificate of being up to date with the Tax Agency and Social Security, eventual emerging company certification before ENISA. In the labor block: contracts of all employees, equality plan where applicable, pay register, harassment protocols, whistleblowing channel if Law 2/2023 applies, evidence of the time-tracking register. In the intellectual property block: ownership of registered trademarks (OEPM and EUIPO), ownership of the software and the key developments with formalized rights assignments, contracts with freelancers and external suppliers, registrations in the Intellectual Property Registry if any. In the commercial block: framework contracts with the most relevant clients, validated business metrics (MRR, ARR, churn, CAC, LTV), three- and five-year financial projections with traceable assumptions. The quality and order of this documentation is one of the factors that most influences the round’s closing schedule and, in many cases, the final valuation.
