Entrepreneurship in Chile has been a product of concerted government policy for many years. Specifically, the country’s Corporación de Fomento de la Producción de Chile (Corfo), an agency tasked with boosting economic growth, has been pivotal to the emergence of the start-up ecosystem in the capital, Santiago. 

In 2010, Corfo launched the seed accelerator Start-up Chile. The programme, which has weathered its fair share of criticism — particularly regarding the longevity of some of its start-ups — is nevertheless frequently cited as a contributing factor to Santiago’s successful start-up sector. Its portfolio is currently valued at $2.1bn. 

“This programme was a key player in creating the entrepreneurial hub that exists today. [It was vital] in terms of attracting foreign talent, which served as role models to local founders who, 10 years ago, didn’t necessarily have a global mindset. It also created start-up deal flow, which, in turn, boosted the venture capital industry,” says Paula Enei, a partner at Platanus Ventures and a former director at Start-up Chile. 

However, the success of Santiago’s ecosystem cannot be attributed to the government alone. A month before Corfo rolled out Start-up Chile, Groupon acquired ClanDescuento, a Chilean company offering discount codes to consumers. This was Chile’s first major exit.

Since then, other Chilean businesses have followed suit. Portalinmobiliario, purchased by MercadoLibre in 2014; Mapcity Geo, acquired by Equifax in 2017; and Cornershop, bought by Uber in 2019, have gone on to cement Santiago de Chile’s position on the global start-up map — even if the city lags behind others in the region.

Centralised start-ups

For years, Santiago’s start-ups were held back by the lack of venture capital (VC) funds. Today, the scenario is radically different. Chile’s capital city is now home to more than 20 VC funds, and a host of family offices and corporates — all of which play a vital role in supporting entrepreneurship in the country. 

Perhaps unsurprisingly, Santiago is the dominant player in terms of VC funding in Chile. According to PitchBook, investment peaked in 2020 when start-ups raised $125.5m — a significant leap from the levels seen during the previous decade. From 2010 to 2020, VC volume in Santiago stood well below the $50m mark. As of mid-May, companies have raised $38.9m in 2021. The total amount of funding raised by start-ups across Chile in 2020 stands at $143.2m.

In general terms, Chile is one step behind Brazil – which moves practically half of the VC in the region – Mexico and Argentina, says Claudio Barahona, a managing partner at Alaya Capital Partners. “So Chile is maybe at the same level as Colombia, and one step ahead of Peru, Uruguay, or other countries in Latin America,” he adds. 

Chilean entrepreneur Veronica Celis, the founder of EnlightAid, believes the country’s small market poses the biggest challenge for entrepreneurs: “You can start in Chile, but at some point you’ll have to leave the country to grow.”

Technological talent is also scarce, despite the government making it easier for foreigners to participate in the ecosystem through the introduction of a fast track visa scheme in 2017. “The need for developers and chief technology officers is growing even faster than the ecosystem, but unfortunately the offer does not meet the demand,” Ms Enei adds.

Maturing ecosystem 

The good news is that entrepreneurship is enjoying newfound prestige. “Today, founding a start-up is well perceived and many are enthusiastic about creating a global company. Ten years ago, when you said you were an entrepreneur, they [other people] thought you were doing it because you were unemployed,” Mr Barahona notes.

According to a 2019 report by Global Entrepreneurship Monitor (GEM), a growing number of non-entrepreneurs in Chile are considering founding their own start-up in the near future. Additionally, despite Chile having one of the smallest populations in the region, the International Development Bank says it has the highest start-up penetration per capita.

“Over the past five years, there have been signs that the Chilean start-up ecosystem is gaining maturity. Four years ago, there were zero Chilean start-ups supported by world-renowned accelerator Y Combinator. Fintual was the first to be selected in 2018 and today there are about nine Chilean start-ups in Y Combinator’s portfolio,” Ms Enei says.

Unexplored opportunities 

Santiago’s start-up fabric is made up of three key verticals: fintech, proptech and retail, says Mr Barahona. However, the potential for disruption transcends these.

Chile is the world’s number one producer of copper and the second largest producer of lithium. The contribution to gross domestic product (GDP) of the mining sector — one of Chile’s economic pillars — is about 10% (in 2019, the country's GDP was $283bn), and represents more than half of total exports. However, this is an opportunity largely ignored by founders. 

“I always looked at the mining industry with surprise,” says Mr Barahona. “Chile is the world leader in copper extraction but there is a lack of Chilean tech entrepreneurs innovating in it [mining].” 

Ms Celis believes Chile — which, as of 2018, had the second largest electric bus fleet in the world — is also in a prime position to lead the way in green technologies. “Chile’s geography and lack of a strong industry have been a downfall as countries industrialised. However, thanks to technology we now get to leapfrog. Think about solar energy: Chile is leading the way,” she says. “Before, many small cities in the north of Chile did not have electricity, which was mainly produced by hydropower. Now these regions have solar panels even in the most humble locations.”

More early-stage money and liquidity 

For the ecosystem to thrive, funding must be readily available. Though the data shows that VC is largely on the rise, Ms Enei says early-stage founders need greater support. “There seems to be plenty of pre-seed and early seed funding and enough tickets for over $1m, but not enough VCs going for tickets around $500,000.” 

The VC mindset also needs to change as it lingers on the traditional way of investment in companies, which is disassociated from the fast-paced nature of start-ups,  Ms Enei says. “Angel investment is also at a very early stage. All of these factors might have to do with the fact that the government has been behind the creation of the VC industry, and now there needs to be ‘naturally’ born investors that will understand the start-up journey and needs.”

Entrepreneurs may bear most of the burden, but VCs are also facing challenges. “Although there are already cases of M&A, no Chilean company has [floated] on the Nasdaq and in general it is difficult to obtain the returns [on investment], even if the companies are obtaining good financial results,” Mr Barahona says.

Overall, there is no denying Chile is an important player in the global start-up arena, but it also exemplifies the double-edged sword of government intervention when it comes to innovation. It is possible that Santiago’s start-up ecosystem might not have taken off without such a concerted effort from government — but, with a strong foundation now in place, its future success hinges on the collaboration between the private and public spheres.

This article first appeared in the June/July print edition of fDi Intelligence.