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AQ Feature

Innovation: The Case of Chile

How do you “start up” a start-up ecosystem? That was the question facing Chile in 2010, as the Corporación de Fomento de la Producción (Chilean Economic Development Agency—CORFO) and the Chilean Ministry of Economy looked for ways to encourage innovation and entrepreneurship.

Despite Chile’s strong economic performance, its business culture did not have a history of risk-taking. With this in mind, and with the help of international advisors from countries including the U.S. and Israel, Chile’s economic authorities launched an effort in January 2011 to create a tech entrepreneurial culture that would facilitate the growth of new and innovative companies. The heart of that culture was neither new infrastructure nor changes in corporate strategy: it revolved around entrepreneurs.

CORFO’s Start-Up Chile program provided six-month seed grants of $40,000 each to early-phase entrepreneurs from all over the world to attract the best ideas and, it was hoped, to generate the dynamic environment and cross-pollination characteristic of innovation hotspots like Silicon Valley.

Two years after its official launch, the program has made Chile a destination for entrepreneurs. As of December 2012, CORFO has invested $14 million in Start-Up Chile, with 888 entrepreneurs from 36 countries winning grants under the program, and more than 63,000 people participating in its workshops, conferences and meet-ups. It has also created a welcoming landscape for local start-ups, whether they participate directly in the program or not.

Entrepreneurship is now on the rise. The percentage of the population identifying as early-stage entrepreneurs grew by 7 percent from 2010 to 2011 (to 24 percent), according to a May 2012 Global Entrepreneurship Monitor report.

However, challenges remain as Chile seeks to implement the deep and lasting changes in the local economic environment and culture that innovative entrepreneurs need.

Start-Up Chile participants have raised more than $13 million since the program’s pilot run in September 2010. But with an underdeveloped venture capital industry, there’s still a shortage of money available for high-risk, high-potential start-ups.

CORFO has sought to address this by launching a variety of initiatives that encourage the formation of seed, venture capital and angel funds. Programs in these areas provide long-term loans and financing to investment funds that place their capital in innovative companies. The goal is to bridge the funding gap between start-ups’ riskiest initial phase and later stages, enabling promising entrepreneurs to access more traditional forms of financing such as private equity, bank loans or initial public offerings.

Another shortcoming is Chile’s low investment in research and development (R&D), which amounted to only 0.4 percent of GDP in 2010 according to the Ministry of Economy—far below the OECD average of 2.4 percent. CORFO is trying to plug the gap between science and industry with its International R&D Centers of Excellence program, which partners with successful R&D centers overseas.

Four such R&D centers, including Fraunhofer-Gesellschaft, Europe’s largest applied R&D organization, have already set up operations in Chile, and CORFO plans to attract up to 10 additional corporate and nonprofit R&D labs by 2014. The goal is for these centers to work with local universities and companies, implementing global best practices and stimulating
local innovations.

To further sweeten the pot, Chile instituted tax incentives in September aimed at encouraging greater corporate investment in R&D. The incentives, valid for both in-house and external R&D, offer a tax credit of 35 percent of the operating expenses and investments in fixed assets; the remaining 65 percent can be claimed as tax-deductible.

By improving conditions for entrepreneurship and innovation in Chile in a way that builds on the country’s strengths and promotes global collaboration, Chile hopes to improve its economic competitiveness.

The start-up ecosystem is clearly still in the early stages, but all the factors are in place for Chile to establish itself as an international hub of innovation and entrepreneurship in Latin America and the world over the next decade.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Entrepreneurship, Information Technology, Chile

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