Over the last few years, Chile has demonstrated a stable and robust economy that has supported an innovative startup ecosystem and a few flourishing fintech startups . The country has made significant progress in financial inclusion. An 2019 Ernst and Young report says that 42 percent of Chile’s fintech companies are ready to compete in foreign markets and 44 percent intend to do so in the next one year.
In 2015, Forbes recognised Chile as The best country for business in Latin America. The country has become a breeding ground for fintechs because it posseses a pool of highly qualified labour force coupled with a tax friendly regulation, backed by free trade agreements with more than 30 countries.
The Chilean Government is spurring innovation through investments in startups and larger establishments that are seeking a market presence in Latin America. The report pointed out that 89 percent of startup founders in the country already have entrepreneurial experience — with 8 percent of startups being women founded. Most founders were aged between 26 to 30 when they first started their companies.
Startup Chile — an initiative by the Chilean Government through CORFO, Chiles’s economic development agency, is a government supported startup accelerator and Chile’s signature entrepreneurship programme. It is arguably the most significant reason why the country is positioned as the entrepreneurial hub of Latin America. Startup Chile was founded in 2010 with a vision to transform the country’s entrepreneurial culture and to put Chile on the global map as the hub of innovation in Latin America.
The Wall Street Journal reported that three out of four startups fail despite raising capital. So, ultimately the value they bring up is not only the jobs they create, but also the skills that the entrepreneurs acquire in tackling the global market. The accelerator has time and again emphasised that its goal is to help startups to absorb higher benefits from the programme than just monetary assistance. Startups get $40,000 equity free in StartupChile’s seed program. Since its founding, it has accelerated more than 1,500 startups. These startups are exposed to mentorship and entrepreneurship training, in addition to opportunities in building a global network.
Cabify, Vaijala, The Intern Group, CargoX, Keyword Tool, Doist, Data Campfire and Slidebean are some examples of how startups in Latin America have flourished on a global scale with the entrepreneurial guidance of Startup Chile. Many of these startups still continue to operate in Chile.
As of 2016, Startup Chile’s cohort had collectively raised $30.5 million in Chile and more than $420 million abroad. These startups have been responsible for creating 5,162 jobs in the country and across the world as of that period. More than one-third of startups that go through Startup Chile establish an office in the country that ranks seventh on the global index for entrepreneurial activity.
Startup Chile Executive Director Sebastián Díaz Mesa in an interview with International Finance explains the significance of the accelerator programme and how it has helped startups in the country progress in the last decade. Diaz Mesa is a former strategic communications practitioner, founder of startups, and an academic as well.
International Finance: How is Startup Chile fuelling Chile’s entrepreneurial ecosystem?
Sebastián Díaz Mesa : Startup Chile was born to solve a myriad of problems related to entrepreneurial skills that still persists in Chile. The country has invested the largest amount of money in entrepreneurship and innovation in the entire Latin American region. However, the new companies, SMEs, and startups were focusing on the Chilean market only.
So every time we have an economic crisis, for instance, it impacted these SMEs and startups — and all the money and effort put in was pretty much wasted in the event of a crisis. In order to avoid those circumstances we are trying to help entrepreneurs access other markets. This way, they can avoid the impact of those economic crises and establish sustainable companies in the country.
Because Chile is so far away from everything there is a huge cultural impact on our entrepreneurs — and it reflects while they are trying to approach new markets like Europe or America. Eventually they start to believe that they are not capable of competing with foreigners.
Keeping that in mind, Startup Chile was established to prove to the Chilean ecosystem that it is possible to set up local businesses from Chile and to position the country as a startup hub for the entire region. As far as the policy goes we are planning to attract new entrepreneurs organically because at some point Startup Chile is bound to disappear.
Back in 2016, we served several Chilean and global companies which shows in our numbers. At the beginning of Startup Chile there were no Chileans because they were unable to compete with foreigners — but that situation has now changed. Organically around 40 percent of Chileans in each generation are now prepared to compete with foreigners. So, in terms of entrepreneurial skills, Chileans are getting better with time.
What kind of startups are Startup Chile targeting? Why?
There are three main requirements for startups to become an eligible prospect for Startup Chile. First of all, the startups have to be technology-based, because technology is the only component that will help them to swiftly expand into other markets. The scope for scalability is quite high.
That said, industrial 4.0 revolution is a continual challenge in Chile. So the development of technology-based startups will help address this challenge while creating new technology-based industries in the country.
Secondly, startups should target a global market or problem because they require to access new markets and grow on a global scale.
Lastly, they need to understand how they will be using Chile as a platform to grow. We know that Chile is located far away on the global map and hence our market is quite small. We are not asking the potential startups to establish their headquarters in the country but to somehow use Chile to scale globally.
For example, they can set up their call centers or pay salaries in the country. The idea is up to them but they should have a strong reasoning for using Chile as their base. All in all, we require to capture value for the reasons we are accelerating.
How progressive is Chile’s fintech support ecosystem from regulatory, investment, and talent standpoint?
I would say that in terms of talent Chile is becoming a fintech hub in the region. A study conducted by Ernst and Young mapped all the fintechs in the country. It seems that we have more than 130 fintechs in Chile right now, marking Chile as a global hub for fintechs in Latin America.
However, there is a regulation gap for fintechs not only in the country but in the region as a whole that needs to be addressed.
What is the value proposition that Startup Chile offers for fintechs looking to launch in Chile?
Sebastián: We don’t have a specific focus on any industry and we can have as many fintechs as we can get. We are putting more effort in business development and not any technology in particular. So basically our aim is to help startups build connections with local market, global networks, and investors. Startup Chile has a huge corporate network.
All the major corporations in the region come from Chile. So it’s a great opportunity for startups to connect and strike a deal with them. That’s the value proposition of Startup Chile across all industries.
How is the government helping build Chile as an innovation hub that can support global businesses and global operations for fintechs? How far has Chile progressed on that front?
The Chilean Government’s involvement is huge. The state will step in when the private sector in Chile is unable to take care of a gap in the economic activity. The Chilean Government has identified that innovation is a key factor relevant to the country. It has created a large number of programs to fill in the gap. With that, the number of venture firms, corporate venture firms, and startups are growing organically. So the role of the Chilean Government is to close gaps when required in strategic markets.
What is the future of payment startups in Chile and Latin America?
Sebastián: We don’t have many regulations. These are super easy markets to test on a pile of new products. It seems more companies are looking to bring innovative solutions to payments. The thing that we need to speed up is regulations because they are mostly framed for big banks and corporations compared to startups and entrepreneurship. On one hand, Latin America is focused on bringing fintechs and startups from all over the world but at the same time there is a struggle with regulations.
What are Startup Chile’s plans to promote startup growth in the country, especially fintechs, in the next five years?
Sebastián: We strongly believe that every single industry, especially with what we have here in Chile they need to work on the products — and this is not just for the financial industry.