When we talk about startup ecosystems, the places that most often feature in conversation are Silicon Valley and Tel Aviv. Of course, that makes sense given that they’re frequently ranked the top two startup ecosystems in the world, while the local startup scene obviously comes to mind for us Australians. However, with our focus on ourselves and the top ecosystems in the US and Israel, it’s fair to say that the smaller ones are mostly out of sight and out of mind.
However, out of the spotlight, these smaller startup ecosystems are implementing various initiatives in the hopes of spurring growth. An interesting example comes from Latin America: launched in 2010, Startup Chile is a six month-long government accelerator program created to help transform Chile – or Chilecon Valley, as it’s known to locals – into a tech and entrepreneurial hub. Since the program’s launch, the country has attracted 1000 early stage startups from over 75 countries. However, graduating startups still face difficulties when it comes to finding investment, leading Startup Chile to launch a new venture fund called Startup Chile SCALE to help startups graduating from its program get investment – and convince them to stay in the country.
Torsten Kolind, CEO of Startup Chile’s partner YouNoodle, believes the shortage of seed capital is due to the fact that Latin America still does not have a well-developed financial ecosystem.
“Much of Latin American seed and venture funds still come predominantly from wealthy individuals and families. This means that not only are resources limited, but they are typically not very market-based – i.e. bigger opportunity with more money flowing in. They are also not run by people with startup experience, as most Latin American family offices made money in traditional industries,” Kolind explains.
“When little seed or venture capital exists, not enough successful exits happen, which in turn doesn’t create wealthy business angels, and doesn’t return enough money to the already limited venture funds.”
Sebastian Vidal, director of Startup Chile, believes that the lack of success stories means investors are unlikely to take big risks, creating a frustrating cycle.
“The entrepreneurs also have some responsibility, because they need to focus on creating sustainable and profitable businesses, not only in winning awards. It will take time to change this culture, but we need to keep doing what we are doing to change it for good: fostering entrepreneurship, changing the entrepreneur’s mentality to one that is more global and more accountable as well, focusing on real problems,” Vidal says.
He believes governments in the region need to work side by side with funds to incentivise the investment in startups. Chile has stepped forward with the Startup Chile SCALE program.
The follow-on fund will offer 60 million Chilean pesos – about USD$100 000 – to companies that demonstrate significant traction and the potential to grow throughout Chile and Latin America. The money will be given as a co-financed grant, with the SCALE program providing 70 per cent of the funds and the recipients needing to raise the last 30 per cent themselves.
Up to ten eligible companies from each Startup Chile graduating cycle will be chosen to receive the grant. To be eligible, the companies must have a legal presence in Chile as an incorporated company or legal subsidiary, a clause established to encourage startups to stay in the country.
“We want them to grow from Chile to Latin American and to the world. With this, we will be able to generate a higher social and economic impact in Chile, with companies hiring Chileans and settling operations in the country. At the same time, having the companies in Chile will be an incentive to the local VCs funds, being an opportunity for the private sector to invest in national startups,” Vidal says.
The legal presence clause is an interesting one. Whether they are Latin American, European, or Australian, the ultimate goal for a lot of startup founders is making it big in Silicon Valley. However, successful startups leaving for California can mean that their original ecosystem loses out in a whole range of ways, including the loss of startup jobs, economic impact, and opportunities to share knowledge and experience with emerging startups.
Vidal believes the clause will serve both the Chilean and wider Latin American ecosystems well as investors see startups investing themselves in the region.
“We are seeing some results already, step by step we are seeing more companies receiving funding from Latin American VCs, so I think we are going in the right track.”