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Silicon Valley 2.0

How to build an ecosystem for today's tech startups.
Typic founders (right to left) Margarita Acosta, Steve Urrego and Julián Urrego are based in Medellín. Photo: Illustration by Gluekit

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Entrepreneurs don't need to live in designated tech hubs to achieve global success.
Trying to replicate the Silicon Valley risks undermining the spirit of innovation.

Not too long ago, in a city known for its sunshine and surrounding mountains, a team of young developers submitted their newest creation to Apple’s app store.

It was called Typic. Beautiful in its simplicity, it offered a means of artistically embedding text in a photo, along with various filters and other options. After the app store launch, the team members returned to their day jobs in digital marketing—keeping an eye on the downloads, just in case. Having built other apps, they weren’t sure if the new one would take off.

Within days, Typic registered several hundred thousand downloads worldwide. Interest came from as far away as Japan. Pleasantly surprised, the team scrambled to incorporate the user feedback and blast off version 1.1. Several hundred thousand more downloads followed, and Typic soon became the top iOS photography app in a growing list of countries.

Then the developers wondered: what if people would pay for Typic? Soon afterward, they offered an update with important new features, including a $1.99 price tag (plus in-app purchases). Typic eventually went on to achieve over 3 million downloads worldwide, becoming the most-downloaded iOS photography app in 70 countries and generating a profit.

It’s not an unusual story in the age of cyber entrepreneurship. But this story didn’t begin in California’s Silicon Valley. The sunny city surrounded by mountains was Medellín, Colombia.

In Latin America, such startups are no longer news. Various governments have launched accelerators in recent years—such as Start Up Chile, Startup Rio, Startup Perú, and INCUBAR in Argentina—to attract entrepreneurs and establish their countries as startup hubs. So far, there has been considerable success in drawing entrepreneurs—but not necessarily in keeping them.

Developers anywhere in the world face complex challenges on the path from brainstorming an idea to marketing it. They need investors, mentors, networks—the ecosystem that turned the original Silicon Valley into a machine for creating such astonishing innovation and wealth.

And that ecosystem is slowly beginning to develop across Latin America.

It illustrates a key point: an entrepreneur no longer needs to live in a designated tech hub to achieve global success. The power of digital and mobile technology lies in its inherently cross-border nature. Anyone with an Internet connection can transact business, access education and sell globally. Trying to replicate California’s Silicon Valley elsewhere is like fighting the last war. It risks undermining the very spirit of innovation that the name stands for.

Let’s instead take Silicon Valley as a generic term—and consider how it might apply to Latin America.

Entrepreneurs without Borders

In Latin America today, the breakdown of traditiona  topographic and infrastructural barriers offers a historic opportunity to create an ecosystem that exploits the surge in low-cost development platforms, the increasingly powerful and user-friendly programming languages, and the many channels of social media that have reduced the cost of launching a digital business by orders of magnitude over the past decade.

As director of a venture capital fund called Socialatom Ventures, I’ve seen many startups like Typic realize their potential. And the lessons we’ve learned, hopefully, show that the ecosystem required for the successful marketing and distribution of technological innovation can be built anywhere in the region, given the proper approach.

We were not born as a venture fund; indeed, the venture aspect was the final logical step in a systematic effort by our founder, Andrés Barreto, to tackle Latin America’s various challenges to global entrepreneurship. Barreto became an entrepreneur at the age of 18 when he launched Grooveshark in 2007. Since then, he has founded Onswipe, a leading platform for Internet content on tablets, and a number of other companies. Under Barreto’s direction, Socialatom—which began as a media company—developed a digital platform called PulsoSocial, which helped startups promote their products by distributing news related to entrepreneurship and venture capitalism (VC) in the region.

Our next step was to explore how to create a critical mass of young people who wanted to found startups and teach them not only how to code, but how to build a project. That meant finding potential in places traditional recruiters overlook. In our region, some of the most promising seedbeds of entrepreneurship are in the poorest sectors of society. Accordingly, Barreto established the nonprofit Coderise to teach code to underprivileged youth, with each participant building his or her own product by the end of the multimonth program. To date, 57 students have completed the course, and approximately 60 percent of them have chosen to become entrepreneurs since.

To give budding entrepreneurs a safe, stimulating (and caffeine-loaded) place from which to wreak havoc on the established world order, we set up what we called the “Atomhouses,” with chapters in Bogotá and Medellín, as collegial working spaces for meetings, presentations and brainstorming. Finally, to add that final detail of capital and to expand Barreto’s own angel investing activity, Socialatom Ventures was born. To date, about $500,000 has been invested in 30 startups across the Americas.

But Socialatom Ventures was never meant solely as a source of capital. Barreto developed Socialatom based on his own experiences and discussions with several entrepreneurs. The firm is now structured similarly to Google Ventures and Andreessen Horowitz, with an internal staff (there are now 12 employees) that is capable of working on all key aspects of scaling a new venture, from finance to engineering—and, especially for creating long-term value, recruiting. For a startup, building the right team is everything.

While the United States often offers the largest markets, scaling a high-level developer team is becoming prohibitively expensive in many of its major cities. But in Latin America, a startup can hire a VP of engineering in a matter of weeks rather than months, and at a far more affordable rate for early-stage ventures. It is a question of speed and retention far more than of cost; executing faster than the competition can mean the difference between winner-take-all success and failure.

Developing the Talent

We saw ourselves primarily as talent developers. Entrepreneurship is fundamentally a learning process, and whether you’re a brilliant young programmer or a senior project manager in a software company, you can benefit from the mentorship of those who have been there before. Socialatom is a private investment fund, but its greatest incentive for maximizing return is to nurture, recruit and retain young talent from Latin America.

Learning to code is only one aspect of this talent development, and arguably not even the most challenging. Just as one can now drive a car without needing to know the intricacies of how it functions, powerful new languages now allow for rapid product building without concerning oneself with the ones and zeros of binary coding.

The development of our particular ecosystem, therefore, depended on targeting three key groups. Each formed the basis for a separate initiative:

Genesis (Beginner): We offer universities, developer groups and early-stage tech centers a simple bargain: in return for working directly with the faculty to design curricula for digital innovation, we would be listed as a resource for students wanting to turn their innovative ideas into business models.

Prometheus (Advanced): We developed a targeted fellowship program for people with experience in managing developer teams within more established companies, to persuade and train them to either establish a startup or to join one as a VP of engineering, or even chief technology officer.

Investors: We work directly with key individuals and institutions interested in becoming involved in venture finance. These new operations are not viewed as threats. If ever there was a non-zero-sum game, it is entrepreneurship in emerging markets. Entrepreneurship is fundamentally about creating new markets and expanding current ones, so new players can join existing ones and everyone can benefit.

There’s nothing to prevent this approach from being replicated in other nascent entrepreneurship hubs across the region. But an important lesson here is that public-private partnerships are essential. Ruta N—the entity building Medellín’s ecosystem and a close financing partner of Socialatom—is an important example of what makes this sort of institution most effective. They and other partners provide capital to help finance operations, as well as advise on market strategies and suggest contacts for startups focused on Latin American markets.

Elsewhere, similar opportunities abound at both the federal and municipal levels. For example: the Instituto Nacional del Emprendedor (National Institute of the Entrepreneur—INADEM) in Mexico, iNNpulsa in Colombia and the Corporación de Fomento de la Producción (Production Development Corporation—Corfo) in Chile. Each of these institutions obviously faces different circumstances and stakeholders. But there are important lessons that we can draw from our work with Ruta N.

Develop private and long-term management: Continuity is crucial in something as long term as promoting entrepreneurship and is often a leading concern for investors. Established with a long-term mission and long-term funding, Ruta N simultaneously has the incentive to be publicly accountable and the ability to act as the anchor amid short-term changes.

Find international and private-sector allies: When undergoing new initiatives, Ruta N states the objectives but then invites potential private-sector partners to propose the most effective means to achieve them.

Be flexible: Ruta N has modified its own strategies to reflect initial lessons on what proves most effective. Likewise, Socialatom’s own joint initiative with Ruta N has evolved substantially based on feedback from the most important stakeholders—the entrepreneurs receiving investment and support.

At Socialatom, we have made our share of mistakes. Here are some of the things we did wrong.

Thinking top-down rather than bottom-up: When it comes to building a company, especially in a nascent ecosystem, the devil is really in the details. In any given country, before we think about the grander aspects of promoting innovation, we need to simply ask ourselves, “What does it mean to formally establish an entity, to open a bank account, to receive a company credit card, to hire somebody and entrust them with knowledge of your intellectual property, and all the other day-to-day aspects that we often take for granted in the U.S.?”

Thinking in terms of means rather than ends: One of the biggest mistakes a startup can make is to build a technology rather than a product, and likewise this is one of the biggest mistakes those seeking to promote startups can make. Instead of trying to design the perfect acceleration programs in terms of mentorship structures, demo days and various “lean strategy” activities, we should follow the same advice we give start-ups: set a very clear metric and then do whatever it takes, week by week, to make that metric grow.

Thinking that capital comes first and/or that local funds don’t have to worry about global competition: Venture capital is the final verification of an ecosystem, not the means to build one. Venture capital is a global competition: the best funds can invest wherever they please, and the best entrepreneurs can get on a plane from anywhere and raise funds (or simply do so through online platforms such as AngelList without even needing to travel). Establishing VC funds is therefore not the first step to take by any stretch of the imagination; that will follow naturally once there are clear opportunities for investment.

And there’s a more fundamental mistake: thinking too much in terms of the larger and sexier things before the foundation is truly ready. Entrepreneurship is something to be admired but never romanticized—entrepreneurs have some of the most difficult lives imaginable and every day is a battle for survival. We need to have the humility to realize that there is no magic formula, and that the only thing we can do is follow the journeys of the entrepreneurs themselves very closely and see what challenges they encounter along the way.

What’s important to keep in mind is the approach. There is no reason why Latin America couldn’t lead the digital revolution. Our region has the conditions and the potential to create the next generation of Silicon Valleys—if we can learn from the lessons of the original one. Here are some of them.

Messaging: Ensure that young entrepreneurs understand how open the world truly is to them, and that an idea, dedication and a decent Internet connection are sufficient to achieve great things.

Talent: Educate the next generation not only on the technical aspects of building products but the means of using them creatively. An ecosystem is, above all, reliant on a critical mass of high-quality engineering talent that can also manage teams and connect the technical aspects of building a product with the other aspects of actually building a company. Everything else follows from this. The most valuable activity we’ve seen by far is engaging directly with the developer communities through events ranging from workshops on why stock options are so valuable to hackathons for building viable products.

The engineering talent itself exists, but it is critical to then assist these people in the transition from managing a project team within a large company to taking ownership of a new product. Strengthening the developer communities—both in terms of partnering with universities to prepare the next generation of young coders and fellowship-style programs for high-level engineers interested in making the switch to entrepreneurship is where the most bang for the buck occurs.

Diversification: A major problem that often occurs with first-time angel investors is the tendency to invest in only a few startups out of caution; but any given startup is likely to fail. A diversified portfolio is therefore paramount, but most angel groups in emerging markets consider deals on a case-by-case basis and end up with suboptimal portfolios.

We are seeing important initial success through offering angel investors a means of pooling their capital in a common vehicle to invest as a group across a larger selection of startups. This is a way of unlocking the capital that many individuals in emerging markets may have ready to invest in innovative young companies, but who need to join forces in order to more effectively do so.

Typic exemplifies a key lesson for young entrepreneurs in Latin America: they can achieve great initial success before seeking outside help or investment.

The vast majority of venture capital investors and self-appointed startup experts in Latin America come from private equity and traditional industry backgrounds; so young would-be entrepreneurs are given the message that if you want to begin a startup, the first things you need to do are seek investment, learn to build a financial model, enter an accelerator, and so on. This is the antithesis of the spirit of entrepreneurship.

This does not mean that investors and mentors are not important. The Typic team, made up of Steve and Julián Urrego and Margarita Acosta, is now facing even greater challenges as it tackles this next stage of scaling. Scaling is the toughest thing by far, and that is when it’s time to seek outside help.

But the message needs to be made much clearer to young people in the region: like Typic, they can get very far on their own.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: startup, Silicon Valley

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