….following on from Part 1… Internationally, Chile’s tech scene is thought to mainly consist of Startup Chile. However, I discovered there is more to Chilecon Valley than meets the eye. Arriving in Chile, I was bewildered at the multitude of incubators, accelerators, co-works and tech events that this relatively small country has to offer. Almost every university now has an incubator or accelerator. Co-works are sprouting across Santiago. There are several tech events every week in Chile. 5 years ago tech Chile virtually did not exist. The high growth rate in the ecosystem can be seen and felt even over the short time I lived in Santiago. The environment has been expanding massively.
The ecosystem is not without its problems though. There is a lack of angel and VC money to followup the incubator seed cash. Thus startups usually use capital to flock to the US and establish and fundraise there. Failure often means they join the so-called Latin American Zombies.
Angel funding in Chile is scarce but not absent. There are two prominent angel groups Southern Angels and Chile Global Angels. Their members are moderately active. Chile Global Angels, with 27 members, has screened 400+ startups, funded 13 startups and allocated $1.8m over 4 years. By Silicon Valley standards this is miniscule. What the ecosystem needs is more entrepreneur turned investors that have successful exists behind them. This requires time but Chile is heading in the right direction and must, as prominent startup guru Brad Feld preaches, take a 20-year view from today.
Venture Capital is its infancy and heavily reliant on Corfo support. There are roughly 4 active VCs. One of the most active VC, Aurus, has made roughly 10 deals and the fund size is 30m. The reasons for this is probably the lack of institutional investment into this asset class. This is hard to change in the short run as capital is controlled by a wealthy subset of Chileans and they are conservative since their wealth derives from traditional assets such as commodities and real estate. On this front one can observe moderate change as the younger generation from these families is drawn by the trendiness of the startup world and even the Old Guard is showing interest.
Probably the greatest allure of Chile is its stable and strong economy that is growing in a steady and organized manner. Corruption levels are amongst the lowest in LatAm and the government and lobbies such as ASECH, are improving the business and legal environment removing the layers of bureaucracy that typically make starting up a painful process in LatAm. Recent victories include free incorporation and ability to incorporate your business in 1 day.
Whilst Chile is no cheap place to live it is significantly cheaper than US or European tech hubs and tech labor costs are significantly lower. Engineering talent can cost as little as $1,500 per month. In San Francisco, it can cost a minimum of $6,000 per month to hire an engineer if you can even find one at all. However, the downside is that Chileans are less likely to know what a startup is and are usually highly risk averse. Thus it will take a lot more effort to recruit a quality team.
So is it all hunky dory? Looking closer at the fundamentals that this young and vibrant ecosystem is built on, one soon discovers that there is a single prominent fertilizer nurturing this rainforest. Corfo – the government body, which is mandated with promoting entrepreneurship and innovation in Chile. Corfo for the time being is the life support that all noteworthy incubators, accelerates, VC and events rely on. At present, absent this, the ecosystem would likely fall to pieces like a deck of cards. The upcoming election in Chile is causing some unease regarding the continuity of the program which was implemented by the current ruling party.
Another issue is the lack of smart money. Whilst Corfo cash is fantastic it is not yet accompanied by professional mentoring. Incubators and accelerators manage the funds on behalf of Corfo. However some say that they do little but select and allocate third party capital. This is falsely creating influential ‘investors personalities’ in the community that lack a significant investor or entrepreneurial track record. The lack of sufficient skin in the game is not sustainable and Corfo is aiming to change that over the next few years.
Chile is doing a great job at attracting fresh talent into the country and laying the foundations for what could be a flourishing and sustainable global tech hub. My advice: one should consider Chile as a place to start-up.