The State Of Entrepreneurship In Latin America
Over the past 3 years, we at Seedstars World have been traveling around Latin America and the world, aiming at finding the best entrepreneurs, connect them to investors, partners and media and to study each local innovation and entrepreneurship ecosystem in emerging markets. We experienced at first hand one of the greatest things in Latin America — people’s attitudes towards life and others. They are always very welcoming and, willing to help even if there’s no payment on the horizon. Latin Americans make things out of nowhere, with lower resources, and put their heart and soul into it.
Latin Americans face business as a very personal experience — it is important to establish a good professional relationship with a personal touch, as when doing business in Latin America people expect you to be truly engaged to the project. There are a lot of high quality universities and, students are keen on understanding how to innovate and change the industries, but there’s also a lack of confidence in their own potential and their cool ideas. Universities can play a role on giving that extra-push in terms of motivation, and take young entrepreneurs to the next level, either through the creation of incubation programs or getting more inspiring role models and teachers. Governments are determined to help foster entrepreneurship, but most of the times don’t know exactly how — it is time and money consuming for startups to really understand what kind of support the government offers, as there is a lot of confusion and misunderstandings around the entire process. The fact that Latin American countries are so close to USA, know as a big innovation hub, also affects positively their economy. It also brings more investment to the table, which is crucial for the development of their ecosystems — there’s a lot of money in Latin America indeed, it just needs to become “smart money”.
While travelling across Latin America we collected valuable insights on each startup ecosystem, got to know what makes them unique, what are their strengths and what’s still interfering with their development. It led us to develop our own Seedstars Index (SSI):
The Seedstars Index Methodology
We developed the Seedstars Index (SSI) to measure the quality, maturity and future potential of the 54 ecosystems we interacted with in 2015 . The SSI is made up of three pillars:
- Culture: How prevalent is the entrepreneurial mindset in the country? How much is entrepreneurship and risk taking celebrated and promoted?
- Environment: How conducive is the legal, political and financial environment to build and grow companies in that country?
- Opportunity: How possible is it to grow and scale within local and foreign markets?
We believe these three pillars are fundamental in building a successful entrepreneurial ecosystem and, that success is both the desired output and catalyst.
[su_note note_color=”#eaeae9"]These three pillars have been measured across over 15 underlying factors, hundreds of on-the ground interviews as well as the qualitative research and quantitative research that our teams conducted while visiting every country. Each factor is benchmarked against the United States or Silicon Valley that receives 100 points. Scores range from 0–100 (0 worst, 100 best) and they can go above 100 implying a more favourable situation than USA/Silicon Valley. The index score is correlated with the GDP per capita of the country, to indicate how much the entrepreneurship ecosystem is over or underperforming compared to the general economy.[/su_note]
The Results in Latin America: Overview
Latin America is the frontrunner in our study, reaching a SSI regional average of 63.8 points. On the global ranking, Latin American winner Santiago (Chile) came in third, only surpassed by Kuala Lumpur (Malaysia) and Cape Town (South Africa).
Overall the continent faces three major drawbacks: quality of infrastructure, a low level of security and time consuming business administration procedures. However we have been seeing Latin America stand out especially in terms of culture and public initiatives: governmental willingness to create startup hubs and programs, as well as the positive attitude of people towards risk, are clear factors that will drive the LatAm startup ecosystems forward.
[su_note note_color=”#eaeae9"]Having a closer look at the numbers, we see that four Latin American ecosystems are outperformers, 4 are underperformers and 2 are in line with expectations compared to their GDP per capita. Half of the countries are also above the SSI regional average of 63.8 points and, the disparity between the top and worst performing ecosystems in Latam is clearly high — Chile has scored 72.5 and Bolivia is significantly behind with 46.1.[/su_note]
The Results in Latin America: Highlights per country
A few observations and anecdotes that stand out from these results:
Brazil: Thanks to a good Environment pillar, Brazil is the country with the strongest outperformance in Latin America. Startups in São Paulo have an easier access to funding opportunities, a bigger national market and the entrepreneurial culture is ranked the highest in Latam. Brazilian ecosystem already has an investment chain of private and public initiatives, like Startup Brazil (which invested $78 millions in local and foreign startups during its first year). The current economic and political turbulence in Brazil is not to be taken lightly, however these short term cycles do not impact the SSI.
Bolivia: Bolivia’s main challenges are the lowest GDP per capita and the lowest ecosystem score. The lag in core areas like technological readiness, access to funding and innovation have to be improved to provide a better launchpad for startup activities on the ground. Nevertheless, the government is now working on a plan to boost the technology integration in the country, so we are curious to see what the next years are going to bring. Bolivia is making an effort to improve education and to turn the economy more oriented to technology and innovation. The new free trade agreement celebrated with Chile is an example of how the country is opening its doors again, and that will change the way Bolivia is doing business.
Chile: The government did remarkably well with creating Startup Chile five years ago. Overall, the governments have the necessary financial resources and are eager to invest, but they are missing the know-how, which didn’t happen with Chile, where the involvement with the startup movement led to the creation of a proper supporting model. However the program also faced some obstacles: the global media coverage attracted lots of young talent to the country, but only temporarily; the rules are now different, and entrepreneurs need to establish their businesses in Chile, in an atempt to retain the talent. While Startup Chile community significantly contributed to changing the cultural mindset, there is still room for improvement, especially within the wider population.
Uruguay: What really differentiates Uruguay from its neighbors is it’s incredibly stable economy and political situation, as well as its notable middle class. Uruguay has created an environment welcoming to foreign investment: the legal framework is stable and dependable and in terms of policy, its infrastructure is highly developed and acknowledged to be one of the top countries for software. Uruguay is also well known to be progressive in several fields, such as gay rights and marijuana consumption, which has helped Uruguayan entrepreneurs create products adapted to emerging markets and developed markets.
Mexico: The mexican ecosystem is now full of entrepreneurial events and creative initiatives such as Fuckup Nights, a global movement born in Mexico to share business failure stories and increase the failure acceptance. Mexico spawned an impressive amount of coworking spaces answering to different niches and most of all they’ve massively boosted investment with more than 20 VC funds now active in the country. The fast growth is partially due to the proximity to the USA, and the mexican government aims at becoming the fintech hub of Latin America. There’s now a need to grow in a more organized way, and to focus more on innovation, instead of instant profit. There’s also work to do to spread the entrepreneurial mindset among different social classes.
Panama: The opening of the newly expanded Panama Canal in the end of the month, as well as some other large-scale projects is expected to boost immensely Panama’s economic growth. With a low unemployment rate and, a dynamic market full of big corporates, panamanians are not as motivated to start their own business as other latin americans. Panama is also considered a small market, where many people are high qualified talent imported to work in the business for a short period of time.
Argentina: Entrepreneurship comes quite naturally to Argentinians and, the situation of the country in the past years has pushed them to be inventive in terms of careers. Some of the biggest success stories in Latin America are from there such as Mercadolibre, Duolingo, Globant, Eventioz but Argentinians don’t necessarily know that these startups are Argentinian. The high quality education system in Argentina, as well as the confident mindset of Argentinian entrepreneurs is contributing to the success of startups. There are tax incentives for specific industries such as mining, software and renewable energy but until recently it was complicated for foreign investors to take money out of the country. Most Argentinian entrepreneurs open businesses outside and just keep their operational base in Argentina, avoiding bringing in the revenues into the country.
Colombia: In Colombia there are many policies that support entrepreneurs at each stage of the entrepreneurial pipeline such as Innpulsa, created to support and promote entrepreneurial innovation with a particular focus on high-growth firms and Fondo Emprender, which enables the transfer of knowledge and provides access to seed capital, facilitating the implementation of new production units. While the government helps with pre-seed and some early-stage investments, there is a limited history of angel or venture activity in Colombia that makes it difficult for startups to fundraise going forward.
Costa Rica: The Costa Rican government set a goal in 2009 for the country to become carbon neutral by 2021. This motivates entrepreneurs to develop eco friendly projects due to government incentives and eco businesses are becoming a trend in the country. Overall just a few programs from the government are taking part on the entrepreneurship scene and people pursue stable options as life is expensive and they don’t want to face the extreme poverty happening in the country.
Peru: Peruvians are proud to be a nation of entrepreneurs. Since 2013, the government is also supporting entrepreneurship and innovation with programs like Startup Peru and their fund Innovate Peru. Some of the biggest challenges Peru encounters are how to increase the quality of the educational system, and how to develop the startup ecosystem and make startups reach more mature stages. Lima is an interesting city in terms of location and being part of the Alianza de Pacifico makes it easier to expand businesses to other neighboring markets.
