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If You Build It, Will They Come?

Chile’s innovation experiment shows the challenges of trying to recreate Silicon Valley locally.

 

Four years ago, Chile launched an innovation experiment: If they convinced entrepreneurs to set up shop in Chile, would a successful innovation ecosystem follow? They’re not alone. As investors look beyond Silicon Valley, governments around the world are asking themselves the same question.

Through Start-Up Chile, the government offered entrepreneurs a one-year visa and $40,000 of equity-free capital in exchange for their spending a portion of their time interacting with Chilean entrepreneurs. The objective was to promote an entrepreneurial culture in Chilean society.

The initiative is starting to bear fruit. More than 1,000 start-ups from more than 70 countries have participated and the percentage of Chilean companies has increased from 10 percent in 2010 to 30 percent in 2014. A recent study by researchers at the Stanford Technology Ventures Program also suggests that domestic participants in the programme emerge with stronger entrepreneurial skills than non-participating Chilean entrepreneurs.

Challenges remain, however, as only 20 percent of foreign companies participating remain active in Chile after the programme. One of the reasons is the difficulty in attracting financing: The average amount raised by companies based in Chile was one-third of their international counterparts. Ease of doing in business also matters.

Chile has taken important positive steps. Since 2013, for example, procedures for creating a LLC have been simplified, shortened and digitalised. An average of 5.5 days are now needed to register a company in Chile vs the 9.2 OECD average.

Other burgeoning innovation hubs are working in similar directions. In Dubai, the government made a “hassle-free” trade license available for four months so entrepreneurs could immediately start their business. Similarly, Portugal increased the number of start-ups by 17 percent by reducing the time and cost of firm registration.

Addressing the question of access to capital will be more challenging. Interesting examples in this area come from Israel, which has used the combination of capital influx, government support and talent development to create of the world’s most vibrant venture capital (VC) market.

The national VC industry started in 1993, with the government-led programme Yozma. The idea was simple: Encourage skilled foreign venture capitalists to created VC funds in Israel by offering up to $8m per fund if they brought in $12m of foreign investment and took an Israeli as partner in the newly created fund. Today, this approach has been picked up by the private sector, with super-angels creating an investment fund and training Israelis to look for companies to invest in on their behalf.

Perhaps, therefore, the biggest lesson for aspirational innovation hubs is to leverage their talent and build on what makes them unique.

As Sebastian Vidal, executive director of Start-Up Chile, summarises: “It’s good to attract talent and innovation from around the world, but at some point we need to create entrepreneurship and innovation from our own.”

(Top image: Courtesy of Thinkstock)

This piece first appeared in GE Look ahead.

 

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