Aid for startups, way down south

Thu, 09-01-2011
By: Judith Messina

 High school buddies Scott Thompson and Scott Bird had long talked about starting a company. But life and careers got in the way as Mr. Thompson worked his way up in marketing in a big New York financial firm and Mr. Bird became CFO for a liquor distributor. They were making good money but didn't have the cash to start a company on their own.

Then, last winter, Mr. Bird received an email from his brother telling him about a new accelerator program, and the two old friends got serious. They applied, were accepted, and last month launched their travel Internet company, not amid New York's bustling tech scene, but thousands of miles away—in Chile.

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They are participating in Startup Chile, an accelerator funded by the Chilean government in an effort to build an entrepreneurial culture. The government streamlines the visa process, provides office space and helps entrepreneurs from Europe, Asia, Latin America and the United States find apartments. It introduces them to venture capitalists and local businesspeople and puts them in touch with mentors who can help guide their development.

Most important, it reimburses $40,000 of their business-building expenses and unlike TechStars, Y Combinator and other accelerators in the States, it takes no equity stake. The only requirement is the firm must stay in Chile for 24 weeks.

“We figured, ‘Hey, $40,000 equity free,' ” said Mr. Bird. “That's the biggest push to doing it.”

The Startup Chile program is one of nine accelerators operating in Latin America. Others are located in Brazil, Argentina, Columbia, Venezuela, Peru, Ecuador and Mexico. Chile's program is the largest and the only government-sponsored program. This year, 110 companies from 42 countries are taking part, including four from New York.

The New Yorkers say the program offers a way to carve out time to refine their products and business strategies. That's worth the hassle of eventually relocating their businesses back to the States, where they can tap more developed networks for money, advice and partnerships.

Of 22 companies that participated last year, the first year of the program, only nine have stayed in Chile.

“It's not for everybody,” said Dan Green, a lawyer with Goodwin Procter who works with entrepreneurs in Latin America. “If you really need to be networked, you may miss out on business development, partnership and other opportunities. You also have to come with a dose of patience; things move a little slower.”

For Mr. Bird and Mr. Thompson, the lower cost of labor—programmers make $40,000 annually, versus $120,000 or more in the States—and the help from the Chilean government, which flies in such tech bigwigs as the former CEO of Intel, make the sojourn in Chile worthwhile. They've refined their business concept into a member-only flash sales site, Bungolow.com, for leftover hotel rooms in Chile, with plans to expand to the rest of South America.

“The government is connected with everyone,” said Mr. Bird. “It's an incredible resource to have at our fingertips that we wouldn't have had in the U.S.”

New Yorker Rich Yang, who is also taking part in the program, said the lower costs of operation in Chile are key. His company, Street Mosaic, creates personalized travel guides. His business partner is still based in Memphis, but Mr. Yang recently hired a local Chilean designer.

“The program definitely has benefits, helping you identify talent at lower cost than in the U.S.,” said Mr. Yang, adding that participating in Startup Chile is like being a celebrity. “It's almost like saying I went to this school or that school.”

However, some former participants said it was more important to be close to their customers as their companies grew.

“The moment you have your product out, you need to be close to your market,” said Shahar Nechmad, who was among the first generation of Startup Chile entrepreneurs in 2010. “If you're targeting the U.S. market, you need to live in the U.S.”

Mr. Nechmad formed his first company in San Francisco, sold it to New York's LivePerson and, after participating in the Chilean program, moved to New York to continue developing his next company, Death Star Labs, a platform for mobile media. He continues to employ one full-timer and one part-timer in Chile.

Alexander Boland and Nicholas LaRacuente, whose company, Fear of Software, allows social media users to specify the kinds of content they want to receive rather than being bombarded with every new tweet or Facebook update, said their experience in Chile has been “game changing.” Although the venture capital community is small and still young, they've been able to get meetings with VCs much earlier in their development than would have been possible in the U.S.

As of now, they're only two months into their six-month stay and said it's too soon to make a decision about when or whether they might come back to the States. They might stay in Chile if they are able to get funding. Still, said Mr. Boland, “New York is where the opportunity is. We need fuel to keep a startup running. Chances are Startup Chile is a one-time thing.”