I’ve co-founded many startups, most of them based out of Bogota, Colombia. In 2003, we were the first and only startup in Bogota. Today there are hundreds; many becoming very successful. I hear from lots of founders who read TechCrunch and other U.S. based startup blogs, focus on raising capital right away, and try to copy the Silicon Valley startup attitude. However, the startups in Bogota that are becoming successful, including us, didn’t get there from copying the Silicon Valley model. Here is why:
The startup ecosystem in Bogota started with the birth of BogoTech in 2008. Inspired by the NYTech Meetup, BogoTech was the first community of Internet technologists in Colombia. Its first meeting had four attendees. Today, the community has almost 2,000 members. Colombia has come a long way. The current administration has invested heavily in promoting tech entrepreneurship. Efforts like Innpulsa, Apps.co, and Ruta Nare subsidizing many coworking spaces, accelerators, angel networks, and related programs. A recent study by Endeavor Colombia found that there are hundreds of entrepreneurs and angel investors and dozens of tech VCs. In a short period of time, Colombia has been able to copy most of the Silicon Valley model. In fact, it has been nicknamed by some as “Arepa Valley”.
There is a problem though, a big one. There are no exits. But why? We have not been able to copy one of the most important factors that makes Silicon Valley what it is: having an ecosystem of companies that acquire other companies (more on this by Mark Cuban). Unfortunately, large Latin American and Colombian companies don’t usually buy other companies. It is not in their DNA. This has major negative consequences: VCs don’t invest, afraid that they will never be able to exit (most Colombian tech VCs have never done an investment).
Accelerators force first-time entrepreneurs to think global, even though most entrepreneurs have never stepped outside of Colombia. In the end, entrepreneurs get frustrated because they are constantly told that their idea is too small or too local. They end up investing more time learning how to pitch to an investor than learning how to sell their product.
Some may argue, “Don’t large multinationals buy local players as they expand?” Sure, but there is a catch. Most companies in Silicon Valley get acquired because of their technology and user base. In contrast, when a large multinational buys a local player, they are buying it only because of their user base, not because of their technology. After the acquisition, the technology of the local player gets replaced by the technology of the multinational. This dynamic puts downward pressure on the value that local business can get when selling. In most cases though, multinationals don’t even buy local players. For example, look at the growth strategy of Amazon and Uber.
There is light at the end of the tunnel, though. We realized we must stop trying to copy the Silicon Valley model. We are still trying to figure out what our model should be, but we have made some progress. The word “bootstrapping” is now part of our dictionary; the government is now helping entrepreneurs with capital so that they don’t have to depend on angels or VCs, several mentoring networks are being created (I co-founded one of them with the help of Innpulsa: The Torrenegra School of Entrepreneurship), and we are now experimenting with the concept of “convertible royalties.”
For many years, the only successful startups in Colombia had a global focus. There were few of them: Authy, Senseta, and Bunny Inc (of which I am CEO). Today, thanks to the fact that we stopped trying to copy Silicon Valley, there are many more successful startups: and most, if not all of them, have a local focus: Tappsi, Mensajeros Urbanos,Optten, Oja.la. Colombia still has a long way to go, but maybe one day other emerging economies may also stop trying to copy Silicon Valley and will start copying the “Arepa Valley” model.
P.S. I don’t like the “Arepa Valley” nickname.
This article was originally posted in the Wall Street Journal.