Talent and innovation have no nationality for Start-Up Chile
Nicknamed ‘Chilecon Valley’, Santiago has fast become Latin America’s hub for tech entrepreneurs globally. The 2015 Global Accelerator report placed Chile in 2nd place, behind the frontrunner US, for capital investment in start-ups, and 5th globally in terms of the number of start-ups accelerated.
How has a country best known as the world’s biggest producer of copper, risen up the ranks as a destination for tech start-ups across the globe?
A huge success factor has been Start-Up Chile (SUP), a seed accelerator created by the Chilean Government. Since 2010, SUP has been designing and delivering multiple programs and financial support to attract entrepreneurial talent from all over the world. To date, SUP has graduated more that 1,300 start-ups and around 3,000 entrepreneurs, from 77 countries.
“[inlinetweet prefix=”” tweeter=”@MaRSDD” suffix=”#Futureofenergy”]Talent has no nationality or specific place of birth[/inlinetweet]”, says Sofia del Sante, SUP’s Impact and Network Director. By inviting start-ups from across the world to avail of the support SUP offers, the programs endeavor to inspire more local, homegrown entrepreneurial activity.
Sofia describes the organization’s objectives as two-fold:
- Boosting the Chilean entrepreneurial ecosystem (check! – Chile has climbed to 16th place in the Global entrepreneurship index).
- Diversifying and growing its economic portfolio, as Chile – like other LATAM countries – continues to embark on a process of economic diversification and development.
Helping to tackle an innovation and impact deficit
“Chile is a long country with many ecosystems and different needs”, says Sofia. So, how is SUP ensuring the contribution of local and foreign entrepreneurs to its own economy? The trick is in the program selection criteria.
SUP recently invited applications to their Seed program, which focuses on accelerating and developing world-class start-ups in Chile. Selected companies have the opportunity to access USD$30,000 of equity-free funding, a one-year working visa and an acceleration support process.
SUP looks for scalable solutions and the ability to produce positive impact to the Chilean society and environment. In addition, the management team’s commitment and passion to make a change are also assessed.
Lastly, SUP attracts early-stage companies, whose products and services have been created within the past two years – a mid-term commitment to boost Chile’s R&D records perhaps.
Indeed, Chile ranks consistently low globally when it comes to R&D activities. According to the OECD, Chile’s business R&D performance suffers from a relative lack of competitive pressures to stimulate innovation. At present, the majority of innovation is done through the adaptation of imported technologies, which is not tracked in R&D indicators.
Despite work to foster innovation and entrepreneurship in the country through the SUP Seed Program, some have flagged the effectiveness of this type of model at retaining start-ups in the country. After the funding stipend has passed, many graduates have historically fled to new pastures or their home cities to continue growing their business. This has led to retention rates of around 32% for companies staying and doing business in Chile.
And yet, sales from this 32% reached USD$41.5 million as of last year, which is almost 3.5 times the money invested in this program. SUP is now looking towards increasing the number of companies growing their business in Chile, with the introduction of its ‘Scale’, in early 2015.
According to Sofia, “Our goal is to show start-ups that opportunities exist in Chile. We connect them with highly qualified talent, investors and corporate partners, so they can grow their companies and do business here. For those select companies who gain traction and look towards scaling their business, we offer a ‘Scale’ fund.” The Scale funding provides around USD$80,000 of equity free capital, to those top performing companies that are incorporated in the Chile, and have sales and investment in the country.
Opportunities for Canada in Chile’s alternative energy markets
Although they are being welcomed with open arms and the lure of USD$30,000, open markets, and growing economies, only 26 Canadian companies have availed of Seed Program funding to date. “About 40% of applications for the current (16th) generation come from Chile, the rest correspond to applications from USA, Argentina and even India” says Sofia.
Perceived cultural barriers and concern over ease of doing business in these markets, may be partially to blame for the lack of Canadian presence in these programs. Noting the diversity of countries involved in SUP’s programs, I asked Sofia about whether the participating entrepreneurs are also concerned about these barriers.
“Entrepreneurs choose to see this as an opportunity instead of a barrier” according to Sofia, “Chile is small market but it is open to foreign investment, offers macroeconomic stability and the lowest taxes in LATAM. Cultural barriers eventually lose precedence as companies benefit from SUP’s physical space, reliable network and the financial incentives offered by this program.”
But I also suspect that lack of knowledge and awareness have a huge part to play here. Not just of the SUP program opportunities, but of the wider opportunities available for exporting to Chile and other LATAM countries.
The Advanced Energy Centre at MaRS looks to breakdown export barriers for Canadian energy innovation, and has been working extensively in Latin American markets over the past year. In doing so, the AEC has developed deep market insights into the export potential of Chile’s alternative energy sector.
Chile is not without its market-entry barriers (like any international market), but significant opportunities do exist for Canadian clean energy ventures.
For example, Chile’s energy supply is insecure. Contributing factors include poor fossil fuel reserves, resulting in Chile’s reliance on imports to generate around 60% of its energy. Alongside dependence on imports for supply, demand in Chile is projected to increase 6-7% by 2020. These factors, along with recent energy crises, have strengthened Chile’s investment in energy security, with emphasis on renewables.
The country has a privatized electricity market, in which generation, transmission and distribution are all financed by private investment. We see large renewable generation projects injected into these energy markets, with strong regulatory and policy support. Chile is the only LATAM country requiring the fulfillment of renewable energy quotas by electricity companies.
As indicated by the OECD figure above, innovating through the adaptation of a predetermined type of technology is not enough. There are specific sector challenges that need to be addressed systematically and almost customized to the need of a particular region. There is still a need to prioritize, in parallel, favorable framework conditions and incentives for Small and Medium Enterprises: a main source of local job creation in this country. This can only be done with diversified solutions. This is what Start-Up Chile is working towards, by fostering an entrepreneurship ecosystem in the country.
Recognizing all this potential, the Advanced Energy Centre (AEC) at MaRS recently became partners with Start-Up Chile, with the focus to promote funding avenues like SUP’s Seed and Scale programs, to export-ready Canadian companies.
Start-Up Chile is a program created by the Chilean Government that seeks to attract early-stage, high-potential entrepreneurs to bootstrap their startups using Chile as a platform to go global. The end goal of this program is to position Chile as the innovation and entrepreneurship hub of Latin America. Start-Up Chile has a large portfolio, receiving in between 200 – 250 companies a year.
The Advanced Energy Centre is a public private partnership, founded in February 2014. The Advanced Energy Centre’s mission is to foster the adoption of innovative energy technologies in Ontario and Canada, and to leverage those successes and experiences into international markets.
The Advanced Energy Centre at MaRS Discovery District is a proud partner of Start Up Chile and will continue to promote upcoming opportunities to entrepreneurs in the alternative energy sector and beyond. If you are not yet a MaRS client, we invite you to become one here.