Chile is used to being the underdog. On a global scale, we don’t come first in most categories, except maybe in seismic activity. We were never among the favorites of the Spanish colonies.
Yet within the past decade, Chile has become the strongest economy in Latin America, boasting the region’s highest GDP per capita. We’ve also become a regional hub for innovation, attracting tech entrepreneurs from across the world to participate in the government’s flagship program, Start-Up Chile.
Last week, El Mercurio excitedly published a study by the Global Entrepreneurship Monitor (GEM) that places Chile as having the third most entrepreneurial activity in the world. Considering the goals of Start-Up Chile – to foment an entrepreneurial culture in Chile – many people were undoubtedly thrilled to hear the news. As a country that ranks 65th in population size, third in the world for entrepreneurial activity should be an honor, and the media portrayed it as such.
Reading between the lines of the GEM study, which measures early-stage entrepreneurship (first 42 months), it is unclear whether this metric is one we should be proud of. Chile, considered a high-income country for the purpose of the study, ranks below Guatemala and Angola, considered middle- and low-income countries, respectively. Maribel Guerrero, head of GEM Chile, claims 18.6% of Chilean entrepreneurs decide to start a business out of opportunity, while just 5.9% do so out of necessity. Yet with so much access to state capital through Corfo, any small business could be taken as an opportunistic venture, rather than a means of making a living.
While small businesses are an essential part of the dynamism of our economy, these SMEs are not what people imagine when reading a headline about Chile being the third most entrepreneurial country in the world. An article from El Mercurio this Monday revealed a sad truth to complement our bronze medal status. Chile may have the third most entrepreneurs per capita in the world, but Bloomberg ranks us 58th for innovation.
This disparity means that most of the activity captured by GEM prioritizes quantity over quality. However, one great entrepreneur with a new idea can hire hundreds, or thousands, of people. While hard to quantify, the impact of a few innovative businesses likely goes far beyond that of thousands of solopreneurs.
There is nothing wrong with getting excited about Chile emerging as a regional leader in entrepreneurship. We have made huge strides in the past ten years and can see the result of this effort in the hundreds of early-stage entrepreneurs entering the ecosystem each year. However, we shouldn’t get ahead of ourselves. We shouldn’t shout victory before the battle is won. We’ve had one or two success stories (read: Cornershop) but we’re still far from our first big tech IPO.
Chile has done an outstanding job building the infrastructure that young startups need to grow. Now we need to take the next step. Our local economy needs more than early-stage entrepreneurs to sustain its strong growth. Chile needs to groom the best of the pack, provide them with the capital and legal structures they need, and then make sure they stay.
The current size of the local market and its infrastructure mean most successful startups eventually outgrow Chile and leave for Mexico, Colombia, or the US. The government should create structures to support larger companies that can raise Series A + rounds and use Chile as a hub while doing business around the region. Investors should follow-on with their most successful startups and bring in family offices for extra support. These older startups (42+ months) are more likely to bring stability, jobs, and technological innovation to the local ecosystem. They are also more likely to get acquired, bringing capital back into the ecosystem.
We’ve done an incredible job spurring entrepreneurship and changing the local culture to promote startups and tech innovation. However, we may be falling short in nurturing those companies to reach later stages and and expand within the Chilean market. It’s exciting to see that Chile is a country where people want to build their own companies. Now we need to investment and government support to turn Chile into one of the most innovative countries in the world, too.