It’s hard to imagine a more unambiguously sweet deal for entrepreneurs than Startup Chile. They get $40,000 of basically free money. They get to live in beautiful, modern, safe, and prosperous Santiago, Chile, for up to a year. And they get a community of like-minded international entrepreneurial types to talk with while they build their companies. Aside from the hassle of moving to Chile (which is a really long way from just about anywhere), there’s no apparent down side.
Startup Chile, therefore, has attracted quite a bit of attention since its start in 2010. Applicants for the most recent class came from more than 60 countries and the program received 14 applications for every available spot. And those accepted to the program represent a fairly wide swath of industries, albeit with a heavy emphasis on Silicon Valley-esque business models.
Chile is one of the few governments in the region that could reasonably be expected to sponsor such a program. The country has little to no debt, and the lowest unemployment rate in 40 years. Chile can (for now, anyway) afford to take the long view, which is in line with the stated goal of the program: to instill entrepreneurial spirit in Chileans.
The key problem is that it’s simply not possible to create “the next Silicon Valley” using legislative fiat and gobs of cash. That’s a truism, but politicians worldwide never seem to learn. If you don’t believe me, look at this ridiculous list of place names intended to evoke Silicon Valley
(click it). Then name one world-class company that came out of any of them.
While most participants agree that the administrators of Startup Chile are a group of well-intentioned people, they are not entrepreneurs. They are government employees. Past participants have complained of bureaucracy and delays related to reimbursement of expenses (the $40K is not an up-front grant — expenses must be approved (click it)). And while mentorship and networking opportunities have reportedly expanded since its inception, most of those associated with the Startup Chile network are from the government or academia, not the ranks of successful entrepreneurs.
Moreover, Chile is a small market, and there is very little in the way of venture capital to be had. Few Startup Chile participants have received VC funding. One company, Entrustet, was acquired. Graduates of Startup Chile have mostly, as far as I have heard, left Chile and moved back to their home countries, though it must be noted that the majority of them maintain some business connection with Chile. But in general, Chilean taxpayers haven’t gotten much in the way of entrepreneurial zing for their pesos.
It may be too early to judge Startup Chile. After all, it was only started in 2010, and the program is only on its sixth class (click it). Ironically, the program might actually improve if it started asking for equity in exchange for investment. That equity could help stimulate the embryonic venture capital industry in Chile. It would place greater value on the good work being done by the entrepreneurs that build the businesses, and it would ensure that participants have skin in the game. It might even result in a positive financial outcome for the program.
Fundamentally, anything that encourages entrepreneurship can’t be bad. For that I applaud the founders of Startup Chile. Their country (indeed, the entire region) needs them. But there is a better way. Startup Chile needs to find it.
M. Christopher Johnson is co-founder of Startupbuzz.la, which is focused on tech entrepreneurship in Latin America. He has also written for the Wall Street Journal’s All Things D, Venture Beat, and Thomson Reuters’ PE Hub. He is based in Mexico City.