BUENOS AIRES – In a typical tech industry incubator space in the Palermo Soho district of Buenos Aires — laptops on communal tables, white dry erase boards, playfully bright paint — three Americans are building a sales site for Latin American travel deals.
Co-founders Scott Thompson and Scott Bird, as well as first employee Francesca Larson, don’t speak Spanish. Before arriving last year, only one of them had ever even visited South America. But in July of last year, they moved to Santiago, Chile to launch their business, Bungolow.com. Following an investment from an incubator in Buenos Aires, they moved to Argentina. They intend to stay until at least July, when the funding runs out.
These entrepreneurs are emblematic of a wave of foreigners who have chosen to build web businesses in South America instead of Silicon Valley. Some were attracted by the emergence of Brazil, some by the region’s laid-back lifestyle, and some by the growth in the Spanish language market. But an increasing number, like the Bungolow team, were attracted by Start-Up Chile, a Chilean government program that aims to turn Chile into the innovation hub of Latin America and, eventually, “to create a $1b company, and globalize the Chilean entrepreneurship culture.”
Start-Up Chile may someday do that, but right now it’s providing the region with another service: seeding all of South America with foreign entrepreneurs.
Launched in 2010, Start-Up Chile offers entrepreneurial teams $40,000, office space and work visas to entice them to spend six months building their companies in Santiago. Twenty-two teams from 14 countries participated in Start-Up Chile’s 2010 pilot program, and 330 applicants were winnowed to 87 participating overseas startups, including Bungolow, in 2011. The start-ups do not give up equity for the investment.
“We’d have never considered South America without this,” Bird said. “It’s so easy and straightforward in the U.S. Abroad, you’re talking about a whole new language and sets of rules.”
The program’s generosity not only attracted existing startups to move, but also enticed people to launch companies in order to take part. Thompson and Bird ginned up the idea for their company specifically for Start-Up Chile, when Bird’s brother emailed Bird an article about the program. “A lot of people ask, ‘What made you start your company?’ Start-Up Chile was the catalyst,” Thompson said.
The immediate benefits for Chile are clear. Eighty-seven start-ups moved to Santiago for six months. Each of them rented apartments, hired staff, and bought supplies. “Most of our money was spent in Chile,” Bird said. The government’s $40,000 investment also attracted tourists, including 17 people who visited the Bungolow founders. “My mom did all the Christmas shopping for ten relatives to take back to the U.S.,” Larson said.
In the long term, the start-ups are expected to inspire a local entrepreneurial culture. ”Chile has a lot of mining money,” Bird said. “There are some very rich people in Chile who don’t yet invest in start-ups. I think when they see successes it will encourage them to invest locally.”
Start-Up Chile executive director Horacio Melo says that the program has already had an effect. “We don’t have yet specific data regarding how many of our entrepreneurs decide to stay in Chile once their participation is the program is over, but we know that number is increasing,” he said. He points to American entrepreneur Nathan Lustig, founder of Entrustet, who participated in Start-Up Chile, sold his company, and returned to Chile to joint another start-up. “His example is motivating many others to do the same. This, for us, means that our work is impacting the country,” Melo said.
There are signs that this is true. In the Startup Genome, a recent entrepreneurship report that ranks the world’s top 25 startup hubs, Santiago appeared in twelfth place, the only South American city beside Sao Paulo (ranked eighth) on the list. And in the Latin American Venture Capital Association’s 2011 scorecard ranking countries for their venture capital environment, Chile and Brazil topped the list, almost reaching Spain and Israel. (You can download a .pdf version here.)
But while Start-Up Chile is building that country’s nascent entrepreneurial culture, Chile’s neighbors may be equally aided by its largesse. Of the 87 teams in the 2011 class, the Bungolow group says that about half stayed in South America. And perhaps 40 percent of those moved to Argentina and Brazil. Bungolow came to Argentina after seeing a presentation at Start-Up Chile from the Buenos Aires-based Nxtp.Labs incubator. Although they had to give up a small piece of equity for $25,000 from Nxtp, they received individualized mentoring — something Start-Up Chile didn’t yet have the “bandwidth” to offer, Thompson said — as well as introductions to possible clients. “As they have a stake in the company, they want to make money off their investment,” Bird said.
It also allowed them to remain in the growing South American market, one they never would have known without Start-Up Chile.
“After spending time in Chile, we realized that there were huge opportunities to market to Latin Americans,” Larson said. “Moving to Argentina, versus returning to the U.S., offered us a way to stay in our new target market in a city that we like, to stand out in a budding start-up scene, and to save on personal and business expenses.”
Of the 17 start-ups in their “class” at Nxtp, about a third participated in or are about to participate in Start-Up Chile, Thompson said.
Similarly, 34-year-old Taiwan-born Rich Yang had never been to South American and hadn’t considered basing StreetMosaic in Brazil until he participated in Start-Up Chile. Once in the program, Yang decided that his company, a thematic travel guide platform, would be better served by being in South America’s largest market than by returning it to the U.S., where he’d grown up. “I didn’t really have Brazil in mind until a month into the program. Now we are focusing on Brazil because of the Olympics and the World Cup,” he said.
That means that even though “Chile” is in the program’s name, “It’s Latin America as a whole that is the beneficiary of Start-Up Chile,” Yang said.
For Start-Up Chile’s executive director, that’s not a problem. “If the start-ups are successful in other South American countries, they still have Chile as their launching platform,” Melo said. ”And that’s great for us.”