Why Silicon Valley Should Write Chile a Much Deserved Thank You Note

Specifically with respect to innovation, Chile has abandoned its old spot in the innovation wasteland and is now known as a growing global hub for entrepreneurship.
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Three years ago, I sat on an entrepreneurship panel at Chile Day, an investment conference promoting Chile to international investors in New York. The questions from the audience, compromised largely of Chilean nationals or expatriates living in the United States, eventually settled on a nagging question: why did Chile, a stable country with a growing economy, trail other Latin American nations with respect to entrepreneurship? How could a country known for exporting everything from copper to fruit, foster innovation despite being tucked away on the western slopes of the Andes?

Now, just three years later, Chile is known the world over for its groundbreaking "Start-Up Chile" program, a globally recognized acceleration program created and sponsored by the Chilean government. The conceit of Start-Up Chile is simple. The program invites entrepreneurs from all over the world to apply to its 6-month acceleration program. The entrepreneurs who are selected -- to date hundreds have entered the program -- receive up to US$40,000 in grant funding as well as a one year visa to stay in Chile.

I recently returned from a week in Santiago, Chile, where I was invited by Start-Up Chile to serve as a judge at the latest DemoDay -- essentially a pitch competition to choose the strongest of the start-ups. After a week working with entrepreneurs and companies in the program, I was impressed to learn that Start-Up Chile is attracting some interesting companies. As with any acceleration program, not every company or idea is a winner, and many companies will simply fail. That's the nature of startups and the nature of entrepreneurship. Yet based on the DemoDay, there are some good ideas coming out of Chile.

Interestingly, while teams hail from the world over, the Top 4 companies in the DemoDay were teams with ties to the United States. DemoDay winner, Material Mix of St. Louis, is an exchange for reusable industrial byproducts. Second place went to Totus Power of San Francisco, a company that uses electric vehicle technology to produce a low-cost battery-based power pack for use by rural schools in India. Third place finisher Click Medix is a global mobile diagnostics social enterprise aimed at the bottom of the pyramid. The company was founded by faculty and students from MIT, Harvard and Carnegie Mellon. Finally, BoxFox, founded in Indianapolis, is a marketplace that allows retailers to appraise and sell excess merchandise to authorized resellers.

So what brings a US-based entrepreneur down to Santiago, Chile? Sure, Latin America is a growing market for start-ups, but the Southern Cone is still a long flight from Silicon Valley. The answer depends on the stage of the company and the vision of the entrepreneur. For businesses with global ambitions, Chile serves as a low-costs laboratory where a team can test and refine its value proposition. If a company has ambitions in Latin America, Chile also represents a solid entry point to the rest of the region. For everyone else, the Start-Up Chile program provides financing and a venue in which to innovate without distraction from the demands of everyday life back home. Plus, entrepreneurs get to live in a country boasting a relatively low cost of living and abundant physical beauty. Also, there's the possibility to pick up a little Spanish in the process.

Even as it provides clear benefits to entrepreneurs, Chile itself is a major beneficiary of the initiative. In the space of just three years, the country has completely rebranded itself in the eyes of the rest of the world (some thanks also goes to those 33 intrepid miners who were rescued after the 2010 Copiapo mining accident). Specifically with respect to innovation, Chile has abandoned its old spot in the innovation wasteland and is now known as a growing global hub for entrepreneurship. Even as the Start-Up Chile story has gotten ample global press, other Latin American nations such as Peru and Brazil have clambered to launch similar initiatives. To me, that is an astounding result for a program that some worried would risk giving foreigners a year-long paid vacation in Chile. After all, Start-Up Chile takes no equity stakes in the companies that graduate from its program. Making money off the start-ups wasn't the point of the program at its creation. The point was to import entrepreneurs and use them as a base to build a homegrown ecosystem. And while only a few of the top companies at the DemoDay I judged were Chilean, last year's winner, Patricio del Sol of AdMetricks, won for the home team.

Perhaps the most surprising winner in this story, however, is Silicon Valley and the rest of the venture capital industry in the United States. The story of Start-Up Chile should not be alien to Silicon Valley. After all, the US venture capital industry was actively supported in its infancy by forward thinking government policy. Why then, shouldn't Chile follow suit with a program that is tailored to the 21st Century? Venture capital investors in the United States are notoriously provincial, but they'd be wise to get on a plane and see what's happening in Santiago. To find the next generation of exciting start-ups, they may need to look beyond Silicon Valley and Silicon Alley and check out what's happening in Santiago's Chilecon Valley.

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