Building a Startup Ecosystem: One Entrepreneur’s Playbook
The founder of Start-Up Chile explains what countries can do to build a Silicon Valley on their home turf.
Start-Up Chile has drawn 1,200 companies to the South American country.
Nicolás Shea has an interesting proposition: Your startup can have $40,000 in equity-free seed funding, one-year visas, and free office space. The sole condition: You must move the company to Chile for at least six months.
The architect of Start-Up Chile has found some success with the model. To date, more than 1,200 startups from 72 countries have taken part in the program, which launched in 2010 and is managed by the Chilean Economic Development Agency. Shea says startups coming out of the program have raised over $100 million and created more than 1,500 jobs. The region is gaining attention: Not only has the program attracted 18,000 applicants, but also in 2012 The Economist dubbed the area “Chilecon Valley,” and earlier this year Inc. named Santiago one of the world’s leading innovation hubs.
Now Shea is betting Chile’s success can be replicated in other parts of the world. The MSx 2009 graduate, in collaboration with Stanford’s Center for Entrepreneurial Studies, is developing a manual titled Start-Up Chile: The Story of Chile’s Entrepreneurial Revolution. In it, Shea hopes to provide a road map for other countries looking to kick-start their entrepreneurial ecosystems.
I recently spoke with Shea about the challenges and rewards of growing an entrepreneurial culture from the ground up.
Where did the idea for Start-Up Chile come from?
I’m Chilean, but I was born in New York and have an American passport, so after I graduated from Stanford, I stayed in the U.S. But many of my international friends couldn’t. They would have loved to stay, and they were super-talented and very well-connected — people you would love to have in your country. But instead, this country was basically selecting, training, and then kicking people out after graduation. That made no sense, and I remember thinking very vividly, “If I had the power, I would have these guys come to Chile. I would bribe them. I would find the bait.”
Then, after graduating, I was invited by [Chile’s] Minister of Economy to join his staff as the innovation and entrepreneurial adviser. Three days later, Chile had the earthquake, and my wife and I said, “We’re going home.” The tsunami really gave a sense of urgency and purpose to so many people. We had to rebuild the country. We started thinking wild ideas and wanted to get things going quickly. I put together this plan to basically hijack people from the main innovation hubs in the world.
Why would an entrepreneur choose to come to Chile instead of working on the idea at home?
Say you’ve got this idea, and you’re coding and eating pizza in your friend’s basement. You’re just out of school, you’re fully leveraged, and your negotiation power is minimal. You’ll take whatever offer you can get. My value proposition is: Wait, don’t rush. Why sign a term sheet now? Put it on hold. In that early period, it’s like a fetus, right? Every week it doubles itself. That’s the same thing here. Any good entrepreneur will know that the farther down the road you sign, the better, because that’s where the real value is being generated.
Just come to Chile for six months and do whatever you were doing. I’ll give you an office space. I’ll give you money so you can live and work. The $40,000 is enough to live and have some working capital.
Six months down the road, if it’s a disaster, you’re going to thank God that you didn’t sign the term sheet because now you don’t have to look anyone in the eye, you know? You eat it up and ciao. The second alternative is you’re a smashing success. If someone was willing to give you money before, they should be willing to give you money now because you’ve proven that you have a prototype and customers, that you haven’t killed your co-founder, that you’re still breathing in a country that isn’t your own. I’m not [an investor], but if I were, that would tell me a lot.
The other interesting thing about the Start-Up Chile grant is the no-strings-attached effect. There’s no equity, no debt. With that, we’re telling the entrepreneur, “We trust you. Whatever is good for you is going to be good for me.”
On the other side, what does Chile get out of this?
It’s 2015, and still Chile’s population must be one of the most hegemonic in the world. Start-Up Chile is about really accelerating our culture toward a more interconnected one and connecting Chile to the world. We’re a small country, and those connections bring so many things, among which are more commerce, more sales, more revenue, bigger markets, etc. And now Chile is building a diaspora of non-Chileans living all around the world.
But the biggest return is the social and cultural change. We have two requirements for entrepreneurs. One is to be physically in Chile most of the time. You can go out and acquire financing, but we really want you to make Chile your residence. And the other thing we ask is that you interact as much as possible with Chileans. We want you to be out there going to parties, mentoring, and giving talks. We want entrepreneurs to become rock stars. We don’t want financial equity — we want you to build social equity. The result is that over 200,000 Chileans have interacted personally with a Start-Up Chile entrepreneur. And that creates a ripple effect.
I really believe in an open, interconnected society. It’s so much more than just a thousand startups. It’s friendships. It’s bonding. It’s families. My favorite stat, actually, is 12 babies have been born in these past five years between Chileans and foreigners from the program.
Has Chile’s relationship with entrepreneurship changed as a result of all this interaction?
One of the main problems that small economies have is that everyone teaches entrepreneurship classes with Steve Jobs and Bill Gates as role models. When the hell is a Chilean going to relate to Steve Jobs? They’ll say, “Oh, that was cool. I’ll just get a job.”
But when you bring in real entrepreneurs, you can show that they’re not Steve Jobs; they’re just like you. You can touch and smell them, talk to them, and you realize that you’re as good as they are. That’s subtle, but it’s huge. What’s happening now is that the best students want to be entrepreneurs. I actually get blamed that it’s now too hard to hire people. Everyone wants to start a company.
Last month, 200 entrepreneurs came to say goodbye to me, and one of them apologized for taking two Chilean engineers with her back to Berlin. I was like, “You’re kidding me! That’s exactly what we want!” Hopefully we’ve got all of our engineers going out.
Do you get much pushback on this idea that it’s good for Chile to export talent?
Conventional wisdom says you need to concentrate all the talent here. Well, that’s not how the world works. I was having an argument with an Argentine minister who said, “I can’t understand why you’re not forcing entrepreneurs to stay in Chile.” And I said, “What’s better for Argentina: to have Lionel Messi play in Barcelona or in Boca Juniors?” The message is to get your locals to play in the premiere leagues wherever they are, and to get foreigners to come and play in yours.
What was the biggest challenge in developing Start-Up Chile?
When you start a program like Start-Up Chile, you can’t expect it to solve the unemployment issue or the economic growth of the country. Many times, though, people criticized us because we weren’t addressing those issues. But it also wasn’t worth that much. We had an innovation budget, which was $1 billion. This took something like $5 million a year, and it’s not like we’re burning that money. They will be in Chile and spend that money here and interact. We all know there’s value in that, but it’s hard to translate it directly.
Other countries are setting up similar programs. Have you been involved in those?
We’ve met with all of them, and they unanimously have the same issue: How do we convince my government to give money away? Brazil did it, but restricted 95% of the funds for locals and funneled all the funds through incubators and accelerators. Peru is doing it, but it’s a very modest amount. And there’s even StartUp America. It’s funny — one entrepreneur said it’s just like Start-Up Chile, but with no money and no visa.
They are all attracting entrepreneurs and concentrating them. But the beauty that I see in Start-Up Chile, and what I think entrepreneurs appreciate the most, is that this is so simple. You just come to Chile, you get a one-year working visa, you get $40,000 and this amazing office. So just start inviting entrepreneurs. Make it straightforward and do it. I promise you they will come.
What has been the most rewarding part of all this for you?
I think we’ve influenced the government approach toward entrepreneurship policies in other emerging markets, and we’ve proved that entrepreneurship works in Latin America on a large scale. The average Chilean or Latin American would say those things can only happen in the U.S. Here, they say, there’s no talent; you can’t compete; entrepreneurship doesn’t work. We’ve proved that wrong.
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