Destination Chile: start-ups head offshore
It’s not all about San Francisco – some young Australian entrepreneurs are heading to Chile
WITH empty pockets and his start-up on life support, Mat Newton turned to an unlikely saviour: Chile. The Melbourne entrepreneur is one of 15,000 applicants from 100 countries who have been lured to the South American nation by the prospect of six months to develop an idea in a free co-working space, a one-year residency visa and, crucially, $US30,000 ($42,300) in equity-free seed capital.
The government’s drive to transform the capital, Santiago, into an innovation and entrepreneurship hub, inevitably nicknamed “Chilecon Valley”, began in 2010 when the statebacked Start-Up Chile program put the global call out for fledgling businesses. Fifteen Australian start-ups, focused on everything from mining technology to educational games, have completed or are currently part of Start-Up Chile.
Newton found himself with that perennial start-up problem – no funds – and had almost given up hope on his TourismTiger business when a friend who had completed the program suggested he apply. The 31-year-old says his business, which builds websites for tourism companies and tour operators, would be “long dead” had it not received the timely injection of cash from a country on the other side of the world.
“Basically we had completely run out of money and I had to apply,” says Newton, who completed Start-Up Chile’s flagship sixmonth Seed accelerator in September. “The main thing I learned was that it’s way tougher to get initial traction for a start-up than you’d expect. Their investment made a massive difference.”
Chile, which stretches out almost 4300km along South America’s Pacific Coast but averages just 177km east to west, is the economic poster child for Latin America. Emboldened by the global mining boom (Chile is the world’s largest producer of copper), the country shook off the global financial crisis and achieved economic growth of between 4 and 6 per cent each year from 2010 to 2013. But the falling price of copper has stunted growth and highlighted the country’s over-reliance on resources.
The government’s commitment to fund the ideas of more than 3000 entrepreneurs so far, costing roughly $US30 million, is not completely free of strings. Applicants must survive fierce competition to secure a place, have worked on an idea for under two years, and explain why Chile is the best place to develop it.
“It’s very important for us to find out why people have chosen Chile,” says the program’s executive director Rocio Fonseca. “Why is the market here interested? Do you want to hire a labour force here?”
One way the government has seen a return on its investment is jobs, with almost 1500 created within Chile, two-thirds of them for Chileans. More important than immediate economic gain, though, is a long-term desire to “change the Chilean mindset”. “It was more a social change,” Fonseca says. “In Latin America we have a very vertical culture. Everybody thinks that after you graduate from university you should work for a big company and that’s it. Nobody was thinking about becoming an entrepreneur.”
To help create a “dynamic ecosystem of entrepreneurship”, the program asks members to run workshops, mentoring and school and university visits. Fonseca says it is paying off, with 30 per cent of Start-Up Chile participants now Chilean.
For overseas entrepreneurs, funding is important. But they also point to the experience of a different business culture, the chance to test a product in an unfamiliar but vast market and opportunities to build global networks. Sydney investment banker turned tech entrepreneur Terence Bell started fishbole – which streamlines video creation and production for use in
presentations – in San Francisco, the promised land for start-ups. But he and his New Zealand co-founder moved to Santiago to escape the “Silicon Valley echo chamber”.
“The funding was only a small part of the consideration in our decision,” says 36-year-old Bell, who began the Seed program last month. “Being based in San Francisco allows you access to some brilliant people … but it’s also very competitive for mind space and talent. We thought Chile would allow us to tap into some local talent and also give us some breathing space to develop the platform.”
Web developer and designer Linda Wilson, who runs Travelist, a platform to connect travellers, with her English business partner, left Sydney to travel four years ago and in November enrolled in Start-Up Chile’s pre-accelerator for female-led enterprises, The S Factory.
“I believe anyone with an opportunity to experience new cultures and live in a foreign country should do so, at least for a little while. The benefits are endless,” she says. “Australia is also a very expensive country generally and the overheads in Chile, things such as rent, food and transport, are much less.”
Chile has worked hard to nurture a business-friendly image and shake the perception that Latin America is dangerous, politically unstable and set to “mañana time”. The World Bank’s 2016 ease of doing business report ranked Chile 48 in the world, above Thailand (49), Israel (53), China (84) and Indonesia (109). And the latest Corruption Perception Index put Chile joint 23rd with France, 10 places below Australia.
The streets of strait-laced Santiago, where about 40 per cent of the country’s 17.6 million people live, have the feel of any economically developed capital. It is modern and safe and it runs on time. It is also quite easy to reach from Australia. Qantas flies direct from Sydney and the journey is a shade quicker than to LA.
The Australia-Latin America Business Council believes that while Australia is right to be focused on the “Asian Century”, ignoring Latin America is a “critical oversight”.
“Australia should be investing in Latin America to profit from its growth, to access its 600 million consumers and to diversify our own risk,” chamber chair Jose Blanco says.
How much stock the Australian government places in Santiago as a business gateway to the region is unclear. The start-up friendly policies announced in its innovation statement included five landing pads designed to assist Australian start-ups around the world, but only three have been revealed: Silicon Valley, Shanghai and Tel Aviv.
Entrepreneurs The Deal spoke to largely withheld judgment of the Australian government’s plans to boost start-ups, including tax incentives for early stage investors and $8m to develop new incubators and accelerators. But the question of whether they will stop emerging Australian businesses venturing overseas is missing the point, according to David Truong, a 2012 Start-Up Chile graduate. Truong, whose company Redu.us makes educational interactive games, is involved in the Santiago and Silicon Valley start-up communities and helped establish “Startup Weekend” in his native Adelaide.
“I don’t see it as leaving Australia,” he says. “My business and I are still intimately tied to Australia. However, if given the opportunity to travel and experience the rest of the world, why wouldn’t you take it? Going overseas doesn’t mean there is something missing or wrong with Australia. Start-ups should be able to take advantage of as many resources as they can to help them succeed, no matter where the help is coming from.”
If Chile is receiving a brain gain of overseas talent, it is only temporary. A Start-Up Chile survey found of all global alumni, 30 per cent have raised capital worth a combined $US135m. But, while roughly a third of all graduates stay in Chile, only one in 10 foreign start-ups is retained. Fonseca admits the next step is creating a venture capital ecosystem. Start-Up Chile last year launched Scale, a 12-month follow-on fund for top-performing companies offering up to $US100,000 if the company puts up another 30 per cent and is incorporated in Chile.
Nathan Lustig, a US citizen who did Start-Up Chile’s pilot program and now runs Santiago-based investment fund and accelerator Magma Partners, says language, culture and local market forces can deter firms from staying in Chile. “If you’re not attacking the Latin American market, or using the talentcost arbitrage opportunities that are here to sell into the US or Europe, it doesn’t make much sense for you to be here forever.”
Steve Sherlock, who runs travel and car rental insurer Pablow with brother Desmond, says they considered staying after taking part in Start-Up Chile in 2013, but decided customers would be best reached from a base outside Latin America. “In the end we felt the Latin American micro-travel insurance market wasn’t developed enough as far as consumer uptake goes,” Sherlock says. “We will eventually develop the Latin and Asian markets but only after traction in the US and Europe.”
But some entrepreneurs want to repay the country that took a chance on them. Now enrolled in Scale, Newton from TourismTiger sees a long-term future in Chile. “We’d absolutely consider staying here, the cost-to-value ratio of Chile is incredible. There are many more affordable countries out there but none of them offer Chile’s level of stability and infrastructure,” he says.
“I also think a fundamental value of an entrepreneur is to honour people who’ve invested in you and given you the best chance. Chile has invested in us. They could be putting this money into building a hospital but they chose to give it to me, so I really want to honour that by giving Chile the best chance.”
Mat Newton, in Santiago, says his business would be ‘long dead’ without the seed capital from Chile’s start-up accelerator program