7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 1/10

DEADLINES EXTENDED! To Apply to the Startup Battlefield

News TCTV Events

1kLike Tweet 287

Posted Jul 1, 2014 by Mark Lennon (@markdlennon), Christine Magee

Startups Surge In South America

Share 503

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 2/10

Editor’s Note: Christine Magee and Mark Lennon are analysts for CrunchBase.

Winter is coming in South America, but for investors and entrepreneurs things are

starting to heat up across the continent.

New tech communities are sprouting up in South America to serve the 200M+ population

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 3/10

that is increasingly reliant on internet and mobile technology.

In June the accelerator program Start-Up Chile announced Generation Ten, its latest

batch of nearly 100 startups set to arrive in Santiago this summer. Fully funded and

supported by the Chilean government, Start-Up Chile is the first of many state-

sponsored seed funds to emerge in South America over the last few years.

The success of the program has spawned complementary programs around the region –

Start-Up Peru in Lima, Startup BA and Incubar of Argentina, and Colombia’s iNNpulsa,

among many others. All are government-backed initiatives designed to catalyze the

creation of local startup communities.

By offering grant money with no strings attached, the Start-Up Chile program has been

successful in attracting entrepreneurs to the country – but less successful in keeping

them.

After completing the 6 month program, nearly 80 percent of entrepreneurs left Chile, 34

percent of them for the United States, according to a recent survey shared with us. Batch

Ten is the first group in which Chilean entrepreneurs are representing the plurality of

participants.

ShareDownload

South America Seed Investment Totals2009 - 2014 YTD

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 4/10

Despite Start-Up Chile’s success in importing talent, the Chilean ecosystem — and that of

South America as whole — lacks the resources to keep young companies alive.

The Series A Crunch

“Everyone uses incubators as ATMs,” says Chilean entrepreneur and investor Tadashi

Takaoka of Magical Startups. “It’s the place you get money, but the process isn’t that

strong and the results aren’t that good.”

Takaoka points out that the emphasis on education and mentorship in these incubator

programs is initially very helpful, but upon completion of the program, many

entrepreneurs are unable to scale their businesses.

“You have Start-Up Chile, then venture capital funds, and nothing in between,” says

Chilean investor Cristobal Silva of Fen Ventures. “We have a lot of companies in these

[incubator] programs, but the problem is that these programs are 6 months, 8 months,

a year, and then what?”

For Silva and many other Latin American investors, the problem lies in trying to bridge

the gap between seed-funded entrepreneurs and companies worth a Series A round.

Follow-on venture investments have been rare across South America thus far, with the

exception of Brazil.

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 5/10

As a result, early stage companies are calling institutional investors to finance their first

steps –an unlikely prospect in the traditionally risk-averse investment culture of Latin

America. “You have a company with $100k, a product and some traction, and they work

for one or two years. Then they have to survive until they get to a $10 million dollar

valuation– how do you do that?” asks Silva.

An obvious solution to this problem is to enlist high-net-worth individuals to invest in the

startup community. But generations of economic uncertainty have tempered the

appetite for risk.

“My reality is completely different from the older generations who have been working for

40 years at the same company,” says Silva. Many successful Chilean entrepreneurs from

previous generations built their businesses over multiple decades without the assistance

of venture capital, and are not accustomed to the fast-paced and capital-intensive

startup culture.

ShareDownload

Most Active Venture InvestorsTop Venture InvestorsVenture Investment in South America(excluding Brazil)

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 6/10

Adding to the reticence of most high net worth investors is the high percentage of failure

in the startup world. “There is a cultural thing with failure here,” Silva concedes.

Entrepreneurs that have made fortunes abroad are also reluctant to return. “Most of the

Chilean entrepreneurs I know are living in the States right now. I could probably find

more of those guys in San Francisco than in Santiago, to be honest.”

Filling the gap between seed funds and institutional money is not only a question of

more angel investors or more money. Large corporate investors like Intel Capital have

shown a willingness to invest capital in the region, but have done little to further develop

the investment pipeline because they don’t offer the guidance and services VCs provide

to young companies in Silicon Valley, according to investors and entrepreneurs in the

region.

But some savvy ex-entrepreneurs like Nicolas Szekasy see opportunity where others see

constraints, returning home after successful exits to become investors. After taking

MercadoLibre public in 1997, CFO Szekasy co-founded one of Latin America’s largest

venture capital firms, Kaszek Ventures, along with MercadoLibre co-founder Hernan

Kazah. “We bring significant operational experience. We think this is extremely helpful

for us as investors”, says Szekasy. “It provides credibility to entrepreneurs- we’ve been

there, where they are.”

In Uruguay, Pablo Brenner of Prosperitas Capital has followed suit. After taking his

company Alvarion public in 2000, Brenner returned to Montevideo to start the country’s

first VC fund. “You have to understand how an entrepreneur thinks, and understand that

things are not always great at the beginning,” says Brenner. “You see entrepreneurs

trying to restart the industry in their countries who are having more success than the

financial guys. It’s not a business for finance guys here.”

Rise Of The Copycats

The risk-averse culture could be one way to explain the large portion of funded Latin

American companies that appear to be regional clones of successful U.S. business

models.

The success of these and other so-called “copycats” have led Latin American investors to

assume that investments in clone companies are less risky. “I find investing in copycats

kind of boring,” says Brenner, “but it is a successful venture capital model– you see that

you have OpenTable successful in the U.S., so then you start Restorando in Latin

America.”

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 7/10

But Restorando investor and board member Szekasy disagrees. “[Copycat] is a word that

comes across a lot, but I’m not sure that’s the word I would use– I don’t think these

models, even in the U.S., were huge innovations. They were just adaptations using the

technology.” Szekasy argues that even if these “copycat” companies are similar to their

U.S. counterparts initially, they have to adapt and adjust along the way to serve the local

market and ultimately end up with very different business models.

Copycat or not, the lack of angel investors and early stage capital is causing

entrepreneurs to leave these developing Latin American startup hubs once they’ve

established a business model. According to CrunchBase data, Brazil is the dominant

regional leader in number of rounds and investment totals, and appears to be drawing a

lot of founders from neighboring countries with less-developed ecosystems.

Szekasy has noticed this as well. “Even if founding teams are based elsewhere, very early

on they go to Brazil and continue expanding from there with the objective of becoming a

regional leader,” he says. The instability and size of many national economies in South

America has forced many startups to relocate in order to scale their businesses.

Why Brazil? Because “you can build a billion dollar business in Brazil,” whereas “in any

other country in Latin America that is not really possible,” says Szekasy.

ShareDownload

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 8/10

UP NEXT

Vine Update Introduces Loop Counts So You Know How Great You ArePosted Jul 1, 2014

+

+

+

But this could be changing. “I think Latin America could make good sense,” says Silva.

While the costs of living and running a business are rising in the U.S. and Europe, labor

and working space are still relatively cheap in up-and-coming South American startup

hubs. And state governments in Chile, Colombia, Peru, and Argentina are forming new

trade agreements that eliminate taxes and restrictions across borders to facilitate

international business. “I think in a couple of years it’s going to be an interesting market,”

Silva concludes, “it will just take some time for us to get there.”

Recommended For You

1. Clever Oculus Project Lets You Live Your Life In

Third Person 2 days ago techcrunch.com techcrunch.com AOL Apps Greg Kumparak GregKumparak gadgets

2. Stop The JerkTech 6 hours ago techcrunch.comtechcrunch.com Conduit.com Josh Constine Josh Constine jerktech

3. A New App Called “Moment” Shows You How

CrunchBase

TechCrunch Daily

Related Videos

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 9/10

+CrunchBoard

News

TCTV

Events

CrunchBase

About

Staff

Contact Us

Advertise With Us

Send Us A Tip

International

China

Europe

Japan

Follow TechCrunch

7/4/2014 Startups Surge In South America | TechCrunch

http://techcrunch.com/2014/07/01/startups-surge-in-south-america/ 10/10

TechCrunch Apps

TechCrunch Daily

Latest headlines delivered to you daily

© 2013-2014 AOL Inc. All rights reserved.

Aol Tech Privacy Policy About Our Ads Anti Harassment Policy Terms of Service

Powered by WordPress.com VIP

Fonts by

Enter Email Address SUBSCRIBE