Desti­na­tion Chile: start-ups head off­shore

It’s not all about San Fran­cisco – some young Aus­tralian en­trepreneurs are head­ing to Chile

The Australian - The Deal - - Front Page - Story by: ROBERT KIDD Pho­to­graph by: FER­NANDO RO­DRIGUEZ

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 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

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