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Upon arrival in Santiago, I understood better what the Colombians meant when they said “Chile is not so Latin.” It felt more like I had arrived in my hometown of Denver, Colorado than any Latin American city I’ve ever been to. As I experienced more of Santiago, I came to understand that Chile in fact has a lot in common with the United States — more so than any of the other countries I would visit in my ten-day blitz of South America. Broad city streets, a walking-friendly city center filled with steel-and-glass mid-rise office buildings, and a population of many mixed races; a stable two-chamber congressional government, steady legal and regulatory frameworks, and reasonable enforcement; trade and travel agreements with nations around the world.
The economy in Chile is enviably strong, thanks in part to a financial system that has been stable since the last Chilean banking crisis of the mid-1980s. The economy of Chile is roughly similar in size with that of Peru (sharing the #5 or #6 spot for Latam), and has the highest per capita GDP of the major South American economies. Comparing per capita GDPs on a purchasing power parity basis, Chile’s $25,000 compares well to Brazil’s $15,000, the UK’s $45,000 and the USA’s $62,000.
Isolation marks their history, but not their future
Take a look at the geography of Chile, and a quick review of the political history of the country, and it is easy to see why the country has been defined by its isolation. It is also easy to argue that this is why the country has such a long history of creating strong trading relationships across borders. Today, a Chilean can enter Russia, China and the United States without a travel visa, and can do business using trade agreements covering 64 markets representing 86% of the world’s GDP. Chile’s network of trade agreements opens a ready export trade. In 2017, Chile sent 28% of its exports to China, 14% to the U.S., and 13% to the EU, according to export.gov. The hard work of its government to establish productive trade routes has allowed Chile’s economy to grow despite its geographic isolation. Now, with the advent of world-flattening technologies like Slack, Asana and Google Meet, tech-philic Chileans can easily access markets up-and-down the Western Hemisphere as its time zone is comparable to New York’s.
We hosted well more than a dozen Chilean fintech leaders in Santiago.What defines success?
Without a doubt one of the most inspiring concepts that we came across in our short trip to Santiago was the work of Startup Chile, a government organization whose sole purpose appears to be to attract high-caliber entrepreneurs to spend a sabbatical in Chile building early-stage ventures and, in so doing, contributing to the entrepreneurial fabric of Chile. What’s on offer is a host of benefits provided to business builders unlike any other I’ve come across: startup capital, a one-year work visa, office space in an accelerator, mentorship… all on an equity-free basis, with no strings attached.
If you squint at it, Santiago bears a striking resemblance to Denver.Why is this program so important? Because it infuses the Chilean economy with a continuously churning mashup of startup talent from over 100 different countries. Perhaps it is quite Chilean to engineer a startup community to overcome its inherently conservative and risk-averse cultural leanings. At any rate, I applaud the Chileans for such a tremendous effort. Were I 25 years younger — and/or five children lighter — I would jump at the chance to participate in such a program. With a government making such forward-thinking decisions like this, what could stand in the way of fintech success?
A fearful regulator
I was surprised to find the Chileans bemoaning “fearful regulators” who are slow to construct innovative regulatory frameworks and financial sandboxes to play in, despite the obvious successes of the past in this realm. Chile, a shining example of financial stability and progess in Latam, sould know that regulation can allow it to maintain its reputation and advantages — and a lack of creativity in this arena will indeed cause it to fall behind. My hope is that this is just a momentary lapse, and the lawmakers of Chile are indeed heeding the call to create regulations hospitable to fintech innovation.
It’s easier said than done, but Chile has done so much right in the past decades, it seems they can certainly continue in this vein and extend their advantages yet further. In the video posted above, I mention Marius Jurgilas, the intrepid regulatory innovator from the Bank of Lithuania, which serves as Lithuania’s SEC and central bank, all wrapped in one. See this post about my visit to Vilnius in June to understand why I think Lithuania’s innovations are important for regulators around the world to study.
The ever-present Capital Gap
Just about everywhere we go outside Silicon Valley, New York and London, we find a capital gap, and the countries of Latam are no exception. Here in Santiago there is bountiful capital for early stage startups through the efforts of CORFO and programs under its umbrella, like StartupChile. Beyond that, it gets thin. Particularly thin in Santiago is the growth capital — anything beyond $5MM USD is virtually impossible to source inside the country, according to the entrepreneurs with whom we spoke.
This is why the private capital markets in Mexico City and Sao Paulo are so important to the region. If not there, Latam startups need to travel as far afield as New York, Silicon Valley, London or beyond just to fund their growth. One of the most important things we can do as a fintech community is to implant seasoned investors in vivo throughout Latam. Chile is taking strong steps toward that end with its emphasis on importing entrepreneurs; it won’t be long before investors follow.
