In a previous blog post, I talked about the twitter revolution making waves in the South American continent. Such a revolution wouldn’t have been possible in the absence of a conducive environment, meant to foster a culture of cutting edge innovation – for Brazil to have the largest number of twitter users outside the U.S., the young population must have access to affordable technology. This is just one half of the story, as the Continent is on the verge of becoming a byword for digital dynamism.
In the face of dwindling European budgets for R&D, a slew of blue chip companies have set up shop in Latin America – especially in Brazil, Chile and Colombia. Moving away from its legacy of poverty, social injustice and violence, these countries have devised different strategies to capture the attention of entrepreneurs interested in relocating their thought power to business environments that offer more growth opportunities and flexible regulatory systems. But what are the best countries in Latin America for would-be entrepreneurs?
Brazil took off – and then stalled.
Brazil has traditionally been the go-to place for any investors willing to expand south of the American border. Thanks to its massive market size and fast economic growth, the country quickly developed its IT sector in the early 2000s. Concentrated around the metropolis of Rio de Janeiro and Sao Paolo but also in the Campinas industrial park, Brazil’s Silicon Valley has attracted some of the best-known tech companies in the world. One investor even argued that now “you can build a billion dollar business in Brazil”.
But, having once reached the top, the land of football and the carnival has stalled while its neighbors have started reducing the gap. With chronic infrastructure, rampant crime and stifling bureaucracy, Rio could soon be replaced by a sleuth of Latin American countries hopping on the bandwagon of the 2.0 economy.
Nicholas Shea’s brainchild, the ‘Start-up Chile‘ funding scheme, was dubbed by the Economist as the ‘Chilecon Valley’ for its potential to attract entrepreneurs from all around the world. Started in 2010, the government-backed program awards the equivalent of $40,000 in grants to foreign start-ups, along with fast-tracking bureaucratic procedures for opening bank accounts and setting up a company in the country.
The selected few also receive a 1-year working visa, no equity stake claimed by Shea and free office space – all this in exchange for their commitment to spend at least 6 months in Chile. The company received thousands of proposals, but has accepted only 810 from 65 countries, many of which expect to make it big. The idea proved so enticing that Brazil even started its own copycat program in 2013.
Unfortunately, this type of scheme comes with a moral hazard, as the majority (60%) of young minds attracted have stayed in Chile only for the mandatory six months. Even during their stay, reports of drinking binges from the lucky foreigners who got in the program abound. Another big problem with the program comes from the lack of access to venture capital (or any other type of angel investor) to finance a company once the initial grant runs dry; one investor blamed Chile’s mentality gap for this.
Colombia’s Ruta N
Unlike Chile, Colombia has invested more in venture capital – providing capital for startups to develop. As a result, the country has now overtaken Chile as a top location for international investors.
This approach is best seen in Colombia’s second largest city, Medellin. Thanks to its strategic location, falling in the same time zone as New York and only a mere 3h away from Miami, Medellin is Columbia’s best bet to becoming a regional tech hub. The pioneering building complex called Ruta N, which opened in 2011, is dedicated to stimulating local and foreign investments that decide to settle in the city. It is meant to be a full service center – offering both an incubator program, a seed capital fund for startups as well as education programs for entrepreneurs.
This is all part of a larger $389 million program to turn Medellin into ‘Latin America’s capital in science, technology and innovation’ by 2021. The first buds have started to show, as the city was named this year the most ‘Innovative City of the Year’, beating out New York and Tel Aviv in the final round.
Even if it’s the standard against which all other such programs are compared to, California’s Sillicon Valley will be increasingly challenged by the dynamic new economies of Latin America. Brazil has the market size, Chile has the ideas, but only Colombia can blend the two successfully. Unlike Brazil’s cumbersome regulatory environment and Chile’s “mentality gap”, Colombia has placed itself at the forefront of Latin American innovation. And Medellin, thanks to its well thought out mix of both venture capital and support, stands to become, even in the face of stiff regional competition, Latin America’s next Silicon Valley.