This past spring, I used my study abroad semester as an opportunity to immerse myself in a developing startup ecosystem in Latin America. My goal was to learn about the entrepreneurial momentum in Latin America, and to see if I could be a part of it.
During my time abroad, I learned a lot about the factors that influence entrepreneurship and starting up something new.
Buenos Aires: a leading Latin American startup hub
Last year around this time, I researched where I wanted to spend my spring semester. It wasn’t long before Buenos Aires, Argentina, stood out in my search for the best place for me to call home from February to June 2017.
Buenos Aires seemed to have all the signs of a startup hub on the verge of exponential business growth. First, the Argentine capital hosted the highest concentration of “unicorns”–technology companies valued greater than a billion dollars–in the continent; 4 out of the 6 Latin American tech giants called Buenos Aires home (as of September 2016). Second, there had been a steady 15%-20% annual growth in offshoring software development to Argentina. Third, hoards of digital nomads, location-independent professionals, and international technology players including 500 Startups and Google have set up camp and boosted the country’s entrepreneurial ecosystem.
Perhaps overzealously, I believed the “Paris of Latin America” overflowed with startup opportunity.
Insights from an expert
Before I moved to Buenos Aires in February, I was fortunate enough to speak with Matt Wright, the Director of Community Development at AngelHack, the world’s largest developer community. Traveling the world to help communities embrace startup culture through more than 100 hackathons each year, Matt understands what makes and breaks startup hubs.
Matt had recently spent time in Buenos Aires and willingly shared a few insights with me. While he reaffirmed my hopes of a startup community developing in Buenos Aires, he also grounded me with a few of his observations of Argentine startups that struggled with bureaucracy, a lack of investors, a volatile economy, and a weak entrepreneurial culture.
Having witnessed entrepreneurial struggles in other parts of Latin America, I could imagine similar problems in Argentina. However, Matt’s comments seemed inconsequential for the burgeoning Argentine startup ecosystem I read about.
On the ground in Argentina
Not long after arriving in Buenos Aires and conversing with business owners, digital nomads, and entrepreneurs, I realized Matt’s comments were just the tip of the iceberg. Moreover, I grossly oversimplified the conditions that encourage launching startups.
Factors for starting up
Over the next four months, I realized six factors influence startup hubs: policy, culture, community, talent, quality of life, and capital.
I didn’t have to go farther than my local coffee shop to learn about the role policy plays in entrepreneurship.
One day, I mentioned my surprise to see the coffee shop’s owner using an electric Italian espresso machine, rather than the usual Argentine, gas-powered espresso machines. After my comment, we launched into a discussion about the legal difficulties of starting a business in Buenos Aires.
I learned about the ordeals of importing; to source the electric espresso machine, the two owners had to drive to Brazil because it wouldn’t easily pass through Argentine customs. I learned about the struggles of scaling a team; the two owners didn’t hire additional staff to avoid the risk of potentially paying a few thousand dollars in severance pay for a bad barista hire.
If you ran into these struggles starting a coffee shop, I can’t imagine the red tape other entrepreneurs would combat when growing high-growth technology companies.
However, there has been a recent shift in Latin America. Recently, the Argentine government passed the Entrepreneur’s Law (Ley de Entrepreneurs), making it easier to start a business, providing tax incentives for investors, and supporting local incubators. Additionally, Argentina’s neighbor, Chile, has grown its public accelerator program, Startup Chile, into a global top 10 accelerator to help foster an environment for global entrepreneurs.
Regardless of what you believe politically, it’s important to understand that government policy can hinder or empower entrepreneurship.
Matt Wright touched on entrepreneurial culture when we talked, and I witnessed its full importance for entrepreneurship after spending time in Argentina.
Argentine students’ attitude about their degrees is a telling anecdote of their entrepreneurial culture. When a student mentions their majors with the term carrera, meaning “career,” it’s not just a linguistic idiosyncrasy; they study a career, not a major. Unlike the United States, there’s little room for liberal arts majors to pursue seemingly unrelated careers in marketing, programming, or medicine, let alone for anyone, regardless of their studies, who wants to be an entrepreneur.
Henry Lanham, an Indianapolis native and Startup Chile alumnus, offered a possible explanation for Argentina’s entrepreneurial culture: Argentina’s fortunate economic history doesn’t breed the sort of “scrappiness” and entrepreneurial mindset that comes from places that necessitate it to live a decent life. For example, in Colombia, Henry believes the entrepreneurial attitude comes from just “wanting to make a quick buck.” Through my experiences in Cuba, I witnessed a similar entrepreneurial culture that stemmed from the necessity to provide for their families.
Anecdotes aside, people’s cultures profoundly affect how they view risk, and accordingly, how they treat entrepreneurship. Hence, building and maintaining a strong entrepreneurial culture is fundamental to any great startup hub.
The community of Buenos Aires seemed to be one of the city’s strongest selling points as a startup mecca.
Lisa Besserman, a New York native, receives due credit for starting Startup Buenos Aires (SUBA), a platform that connects talent, resources, startups, investors, events, and global sponsors. Since its inception in 2012, SUBA has grown to more than 10,000 global members and brought in millions of dollars to the local tech scene.
For years, bands of digital nomads have also intermingled among Buenos Aires’s startup community. Since Argentina’s economic crash in the early 2000s, these location-independent professionals have set up camp to enjoy the historically low cost of living as they live and work. Their inherent freelancer-entrepreneur characteristics undoubtedly contribute to the startup community.
Having a large community of founders, investors, potential clients, and business resources is imperative for growing early-stage startups, and correspondingly, a startup hub.
4) Quality of life
As I mentioned, Argentina’s low cost of living and relatively high quality of life in the 2000’s attracted hoards of expats and digital nomads talent.
Recently, however, the cost of living has surged due to high inflation rates, and it has weakened the incentives to settle in Argentina and start new businesses. Consequently, the same talent that came to Buenos Aires is now fleeing.
Luke Tierney, a digital nomad and founder of Nomad Playground, a review website for nomad work platforms, mentioned how he has seen the soaring cost of living change the Buenos Aires talent landscape. As we talked at one of the many digital nomad events in Buenos Aires, he said the current digital nomad community paled in comparison to the community from just a few years ago. In fact, Luke himself said he was looking at moving to Spain as a cheaper alternative.
To create a great startup community, you have to make more than a great work environment. People have to want to live there and be able to do so. That said, a great startup hub should have a relatively high quality of life and low cost of living.
5) Capital and repeat entrepreneurs
Throughout Latin America, the lack of consistent billion-dollar exits and massive capital influxes like in the United States has slowed startup momentum.
The good news? Investment firms like Nxtp Labs are helping change the venture capital landscape and create repeat entrepreneurs. They’ve also attracted big names such as Google and Microsoft to invest and host accelerators throughout Latin America.
Venture capital and repeat entrepreneurs sustain startup ecosystems. Venture capital provides the gas to fuel high-growth fires, and repeat entrepreneurs lend their expertise to future generations of entrepreneurs.
Affordable direct flights make it a lot easier for prospective clients, investors, or executives to get where they need to go, to sign deals, and get work done. While connections exist to larger markets and startup hubs, unfortunately, the international airfare to Argentina is ridiculously expensive. Flights from the United States to Argentina are often double what it cost to go to Europe.
While maybe not having perfect transportation connectedness, Argentina benefits from being connected to western culture and its time zone; it can be much easier to outsource work to talent in Argentina who understand your communication style and work in the same time zone compared to outsourcing work to southeast Asia or India.
Connectivity — in the form of flights, infrastructure, or just general communication — is crucial for a startup hub to benefit from the global economy and complimentary startup ecosystems.
Starting up in the Midwest
Throughout my experiences in Latin America, I learned that the Midwest, especially my hometown of Indianapolis, should be incredibly fortunate for its startup ecosystem.
When it comes to policy, Indiana continues to shine as one of the best states to do business. Last year, Indiana committed to investing $1 billion in entrepreneurship and innovation over the next ten years, and more recently, the Next Level Indiana Fund promised to bolster Indiana’s previously week venture capital stance.
As I consider Indianapolis’s entrepreneurial community, I think about Powderkeg (formerly known as Verge), a community of over 10,000 entrepreneurs that will soon expand via an online platform. Techpoint, the Speakeasy, and Launch Fishers have also stood out among the nonprofits and coworking spaces that play a crucial role in building central Indiana’s startup community through events, connections, and business resources.
When discussing Indiana’s startup culture and available investment capital, most people would mention Salesforce’s acquisition of ExactTarget (known as ET in the Indy tech community) for $2.5 billion as the impetus of the Indy tech scene. Since the acquisition, a generation of “ex-ETers” continue to pay it forward as do-it-again entrepreneurs, investors, and startup mentors.
On Indiana’s quality of life, Forbes ranked Indianapolis as one of the top 20 best places for young professionals citing the city’s job growth and cost of living. In fact, as far as the cost of living goes, Indianapolis is among the nation’s largest cities for someone with a modest income to own a home.
Indianapolis also has a rich talent base due to its proximity to world-class universities like Indiana University, Purdue University, and the Rose-Hulman Institute of Technology. Additionally, talent programs like TechpointX make it easier for startups to build robust talent pipelines.
When it comes to Indianapolis’ connectedness, the city is seemingly closer than ever to other startup hubs and investors through its growing list of direct flights to places like San Francisco, Los Angeles, Seattle, and Austin.
Indianapolis and Latin America
My realizations about Latin America’s startup struggles and Indianapolis’s startup momentum don’t mean I encourage people to neglect developing startup markets like Latin America. On the contrary, everyone benefits when we connect our startup hubs, grow a “bigger startup pie,” and don’t treat the building of startup hubs as a zero-sum game.
In fact, I’ve already seen a few connections between Indianapolis and Latin America’s startup communities. At one of the digital nomad events I attended in Buenos Aires, I met members of Remote Year, a portfolio company of Midwest-based Hyde Park Venture Partners. I heard Chris Palmer, an Indianapolis native, pitch the Indianapolis startup community on BoxFox, his company that won first place out of a hundred participating businesses in Startup Chile. Hoosier Peter SerVaas also participated in Startup Chile with DoubleMap, one of Indianapolis’s fastest growing private companies.
On starting up
While I learned a lot about the important factors for startup hubs, juxtaposing Latin America and Indianapolis taught me something else important about “starting up.”
As we choose where and how to start our careers, new businesses, or new stages in our lives, we should avoid polarizing our options. Often, there are ways to connect and “build bridges” between different issues, places, and passions.
As for me, I’ve learned there’s a huge potential market in Latin America to solve life-changing problems, and that there’s an incredible opportunity to start businesses in Indianapolis. I plan to build bridges between the two places for years to come.
Did I miss anything? What other factors influence startup hubs? Where are you building bridges?