Ecosystem Deep Dives #12: Chile - A regional singularity

How LATAM's most liberal economy relied on public initiatives to kickstart its start-up ecosystem.

Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!

---

Santiago, Chile’s capital city and its start-up ecosystem’s focal point (source)

---

A regional rarity

Chile stands out in the LATAM region. Not only because of the country’s unusual shape, but also by the fact the country has experienced a radically different economic path than its neighbors. While many countries in the region are and have been held by left-wing populists, Chile went through the polar opposite. Following an American-organized coup against left-wing president Salvadore Allende in 1973, Augusto Pinochet led a right-wing dictatorship during 17 years. During his tenure, his cabinet was filled with “Chicago Boys”, American trained neo-liberal economists who undertook radically different economic policies than their Venezuelan or Cuban counter-parts. Much has been debated about the legacy of Chile’s neo-liberal history, with the country living a constant paradox between above average economic/human development scores while suffering from blatant inequality in parallel. The recent election of Gabriel Boric, a left-winger, and the ongoing rewriting of the Chilean Constitution all prove the country is hungry for something else.

Other people are way more qualified to talk about Chilean politics and economics. As for me, I will dive into the Chilean start-up ecosystem, sometimes referred to as “Chilecon Valley” which, ironically for a neo-liberal country, has strongly benefitted from government intervention.

---

---

Start-Up Chile

One cannot talk about Chile’s start-up ecosystem without mentioning Start-Up Chile, the country’s flagship start-up program. Led by CORFO, Chile’s economic development agency, the program has incubated thousands of start-ups from more than 80 countries, and its portfolio start-ups are valued at more than $1.5 billion combined. After more than a decade of existence, SUP is a globally recognized program, and its network of alumni constitutes one of its biggest strength. For example, Nathan Lustig, an American founder that went through the program, later came back to Chile after exiting his company to co-found Magma Ventures, a VC fund. The success of SUP has inspired other countries to develop public start-up accelerators such as Start-Up Peru or Ruta-N in Colombia.

“[Start-Up Chile] includes a Seed program based in Santiago offering companies from around the world up to US$80,000 equity-free as well as a working visa, office space, trainings, and access to the SUP community. Additionally, Start-Up Chile runs a pre-acceleration program targeting female entrepreneurs, The S Factory, offering up to US$20,000 equity free. Finally, top-performing companies can apply for follow-on funds provided by CORFO.” - Forbes.

The reasons Start-Up Chile encountered a broad success are multiple, but they boil down to three main reasons described in this great Forbes article.

• Timing: SUP launched in 2010 with the premise of hosting entrepreneurs from around the world. Following a devastating 2008 crisis, an economy opening its arms to innovators was a boon for a lot of talented founders from around the world. The program also operates entirely in English, increasing its international appeal.

• Long-term approach: From the start, SUP’s team focused on building a valuable community of start-ups rather than try and rush a couple quick wins. This is paying off almost a decade later.

• Mentality switch: Due to its emphasis on building for the long term, SUP definitely shifted the Chilean public’s opinion on entrepreneurship, leading to more universities such as Universidad Católica and Adolfo Ibáñez offering entrepreneurship/innovation programs.

While some criticize the heavy top-down approach Chile took to building its ecosystem, other similar examples such as Dubai and Singapore indicate that government involvement at the early stages of ecosystem growth can reap incredible benefits, if done right. However, as the ecosystem matures, SUP is slowly redefining its role, with a shift to more educational content with the launch of their series “Start-Up Whattt"“, which aims to educate the general public about the terms and concept surrounding the start-up world.

---

Start-Up Chile former Executive Director Rocio Fonseca speaking at an event (source)

---

Local champions

Due the quality of SUP start-ups and the work of other Chilean incubators such as Magical and Platanus Ventures, the Chilean deal-flow is gaining interest from big names abroad. With the 2010’s being the set-up decade, I believe the 2020’s will be Chile’s exit decade.

And it’s already the case: a non-exhaustive list of some of Chile’s most notable champions include:

• NotCo: They use AI to make plant-based meat and dairy replacements. Just raised $265M Series D with $1.5B valuation.

• Cornershop: Grocery delivery start-up acquired by Uber for $1.4B in 2021.

• Fintual: An automated passive investment platform that allows the average person in Chile or Mexico to invest in mutual funds. The first Chilean start-up to get into YC. As a matter of fact, they actually went through the program twice.

• Betterfly: Purpose-driven benefits platform that rewards companies’ teams healthy habits with charitable donations and no-cost life insurance coverage that grows every day. Raised a $60M Series B, with the participation of Softbank.

• Houm: An end-to-end solution that helps property owners to rent and sell their residential properties up to 10x faster. They graduated from Y-Combinator, and raised a $35m Series A.

• Buk: A boostrapped HR start-up that recently raised a mega $50M Series A

A more in-depth list of the most successful and promising Chilean start-ups can be found here. Special shout-out to Instacrops, a a virtual advisor that gives actionable insights for farmers to increase their crop yields, whose founder was nice enough to read over this article!

Ecosystem Specificities

Chile boasts a couple demographic and economic advantages that makes it a good start market for its founders. Chile is one of the most prosperous countries in the region, and is the only Latin American OECD member, the OECD being an organization made up of the richest countries on earth. The country’s tradition of “laissez-faire” economics also provides start-ups with favorable tax advantages and expedited business registration procedures. Entrepreneurship is well seen in Chilean society, with 72% of people considering it to be a viable career option. With a local population of 18 million, Chile provides a very valid market for Chilean founders to test their MVP.

Chile’s lucrative local market has actually also been considered a potential disadvantage, as some founders end up not focusing enough on internationalization of their product. To remediate to this, CORFO ran a program called “GoGlobal”, to incentivize Chilean start-ups to expand abroad, a quasi-obligation if founders want to achieve big exits.

The ecosystem is, unsurprisingly, greatly clustered in the capital city of Santiago. The three main sectors start-ups innovate in in Santiago are fintech, proptech and retail.

---

Source: Finnovista

---

Fundraising space

The Chilean fundraising scene has long been dominated by public funds, considering the preponderant space Start-Up Chile’s standard $80,000 grant has played in a large number of successful Chilean start-ups. However, the national fundraising ecosystem has started diversifying away from public funds, for the better, with the entrance of more and more international investors as well as family offices starting to get involved in the VC asset class. For example, renown VC Sequoia Capital recently led Fintual’s $39M round, a testament to the trust they put in the founders and the ecosystem as a whole. Following traditional investor logic, more and more foreign VC’s will start to get interested in Chile’s ecosystem following Sequoia’s landmark move.

On the local side, Kayyak Ventures ,was created in 2020 by the children of Felipe Ibanez, who along with his brother Nicolas sold supermarket chain Distribucion & Servicios to Walmart Inc in 2008 for almost $3 billion. - Bloomberg

However, the rise in the number of local VC’s isn’t a panacea. A lot of local Chilean VC’s have been criticized for being quite frisky with risks, especially at the early stages. For example, no Chilean VC invested in NotCo, one of the country’s unicorn, who had to raise their initial rounds from Brazil and the USA.

Other active investors include Chile Ventures, Manutara Ventures, Kaszek, Dadneo Monashees and Magma Partners.

The future

I predict that the number of impressive Chilean exits and acquisitions will duplicate in the decade to come, as well as the total funding amount. Not only will Chile ride the incredible fundraising wave spreading all over LATAM at the moment, but a whole cohort of Chilean start-ups that took their baby-steps during Start-Up Chile’s early-days are maturing and ready for expansion. While SUP will remain a fundamental cornerstone of the ecosystem for years to come, the development of more private initiatives whether it be incubators or VC funds will be crucial for the ecosystem to withstand the test of time and grow organically. While Chile does generally perform slightly better than other ecosystems on founder gender parity, more efforts have to be made on that front.

Additionally, the Chilean ecosystem will strongly benefit from the mega-success of its national champions, as founders of those start-ups pour back experience and funds into the next generation of Chilean start-ups.

Question of the week (give me your thoughts in the comments):

Is there any such thing as “too much” government involvement in a country’s start-up ecosystem? If so, what is the red line governments shouldn’t cross?

---

Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!