Current Affairs

The secret new startup hub

Santiago, Chile, has become an unlikely hub for global startups, under a government programme that aims to attract global talent into the country to diversify its economy

Anastasia Gutkevich, from Siberia, has sold “something like 10 million cups of ice cream” in Russia, but when she decided to expand her probiotic dairy business, she left her homeland and relocated to Santiago, Chile.

“I wanted to create my own company with this product,” Gutkevich says. “Everyone in Russia normally thinks about going to Europe, but we had challenges because of currency problems. Chile always struck me as a well-developed country with a dynamic economy. People care about healthy food and healthy lifestyles, so it’s good for it.”

Gutkevich’s business, Bifidice, is one of a large and growing number of international startups attracted to the Chilean capital, taking advantage of a government drive to reorient the Andean country’s economy away from commodities and heavy industry, and to attract both global and local talent into the knowledge economy. It has been a remarkable success, bringing in hundreds of companies and millions of dollars in investment – just don’t call it “Chilecon Valley.”

Sitting across a table in a civil service meeting room, Rocío Fonseca, the executive director of Start-Up Chile, groans and rolls her eyes to the ceiling and laughs. “Chilecon Valley, I don’t like that name. Every country, every city has its own reality – you have to adapt. Start-Up Chile is not about replicating Silicon Valley. I would hate to do that.”

Operating from Santiago’s fashionable Providencia neighbourhood, the government-funded Start-Up Chile is one of around 15 hubs – or ‘accelerators’, in Silicon Valley terminology – in the country. Since it was opened in 2010, more than 1,300 companies have passed through Start-Up Chile, receiving a total of almost $40 million (£32 million) in financing. Funding worth $30,000, which comes from the government-backed Corporación de Fomento de la Producción de Chile, is provided to each business to help them get off the ground while founders follow a rigorous syllabus of talks, seminars and networking opportunities.

The Chilean government does not take equity in these companies. Essentially this means that, for those startups deemed worthy enough, the $30,000 funding comes free. Every year up to 3,000 startups apply to enrol in Start-Up Chile’s accelerator programme – just 250 make the cut. Around three-
quarters of the accelerator’s portfolio is international, the remainder are Chilean.

“To start with we didn’t have any Chileans in the programme, but in recent generations about 35 per cent have been from Chile,” Fonseca says.

No copycats

When companies apply to the hub, they are assessed on whether they are technologically based or service based, whether they think ‘globally’ – “we don’t like copycats,” Fonseca says – and, importantly, on why they want to come to Chile in the first place.

“Why do you want to come to Chile – because the Chilean government is going to give you free money?” she says. “Because you are going to have your test lab here? Or your clients, or you are going to hire people? We are trying to attract the right startups, those who see Chile as an asset for their business.”

Among them is Australian Nick Saunders, whose business, Getlokal, joined the accelerator this year. The company helps small businesses to retain customers – think of the old paper card system where you went in, bought a coffee and got a stamp - we replaced that with an app, so it’s more flexible.”

Saunders has been globe-trotting and working for startups for years, and was attracted by Start-Up Chile’s reputation.

“There aren’t too many other programmes in Latin America that you hear about in the West,” he says. “They exist, but you don’t hear about them in Europe. Start-Up Chile has done a pretty good job of getting its name known. It’s kind of exotic, I guess. It’s not the US, it’s not Germany. It’s somewhere a little bit different.”

We are trying to attract the right startups, those who see Chile as an asset for their business

Others, such as Contrato Express, a startup that helps businesses produce legal documents in Brazil, see the hub as an entry point into the rest of Latin America. “This is one of the biggest accelerators in the world, and it’s the biggest in South America,” says co-founder Alexandre Correa. “It’s a very important one. Coming here is a great way to make connections and make a network. It gives great validation for when we are talking to our investors.”

Founded by Correa and his partner Alexandre Althoff, the team at Contrato Express expects that they will head back to Brazil once they graduate from the programme. They hope that, sometime in the next five years, they will change the way legal issues are resolved in Brazil.

“We are growing very fast now,” Correa explains. “Before we came to Start-Up Chile we were only making 20 contracts a month. In October we made more than 800. It makes us hopeful and gives us belief in our product.”

We are trying to attract the right startups, those who see Chile as an asset for their business

Diversification

A member of the OECD since 2010, Chile is one of the most advanced economies in Latin America. Unemployment has fallen steadily over the years, but much of the country’s economic output is concentrated in mining and heavy industry. State-owned firm Corporación Nacional del Cobre is the world’s largest producer of copper and employs more than 17,000 people in a country of 17 million; but copper prices have been on a wild ride since the financial crisis, and are some way off their 2011 peaks. The government wants entrepreneurs to help move the country away from this extractive, industry-focused economy, turning it towards innovation, technology and entrepreneurship.

“With Start-Up Chile the idea was to establish a culture of technological entrepreneurship in the country and change the Chilean mentality and create an efficient ecosystem for startups,” says a senior government source. “The government’s goal is to position Chile on the world map as a hub for entrepreneurship in Latin America. [We want] to promote technology and innovation in order to become a developed country.”

Part of that development will see a considered focus on getting young people into an entrepreneurial mindset. While Chile’s population of young people who are not in employment, education or training decreased from 23.6 per cent to 18.8 per cent between 2009 and 2013, it still remains higher than the OECD average of 15.7 per cent. Startups in the accelerator programme are being drafted in to help by visiting universities in Santiago and giving lectures on enterprise, as well as just providing inspiration for young Chileans who may not have previously considered setting up their own businesses.

“Our goal in the first five years of the programme was just to change the Chilean mindset,” Fonseca says. “We weren’t focusing on the economic impact. But last year we changed the focus. Our goal is to increase the economic impact of startups here in Chile. In the long run we want to create a new industry based on innovation and technology.”
It seems to be working. Of those businesses that have taken part in the programme, 51 per cent are still operating – a pretty good survival rate for start-ups. The Chilean government’s $40 million investment has created a portfolio valued at $1.35 billion, leading to questions about how wise the government is to decline equity.

“We intend to keep it like this,” Fonseca says. “We want to create social and economic impact in Chile. You know, companies paying taxes, generating jobs and hiring people — making the country more technological through innovation and entrepreneurship. It’s more about creating a public policy, rather than taking 7 per cent or 5 per cent from a company that maybe succeeds.”