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Chile hits the start button on innovation

Simon Papineau says Startup Chile provided him with introductions and resources.

Peter Kewhook/StartUp Chile

Every three weeks Montreal-native Simon Papineau hops on an 11-hour flight to Santiago to nurture one of his two startup ventures. The constant travel is exhausting but necessary for the founder and president of crowdsourcing software testing businesses in Canada and Chile. "We are growing fast. But I want to grow faster than Facebook," the 30-year-old entrepreneur says.

Why Chile? Mr. Papineau is among a small group of Canadians who took a leap of faith and applied to Startup Chile, a government-funded program that has been wooing foreign entrepreneurs with $40,000 (U.S.) grants, a one-year residency visa and a network of alumni eager to help entrepreneurs launch their businesses.

Chile wants to become an international hub for entrepreneurship and innovation. The more connected the country's startup community becomes to foreign entrepreneurship, the government hopes, the more business ideas with a global vision will start popping up and, in the process, reduce what it calls an "entrepreneurship deficit."

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In a report released in 2012 by global database Startup Genome in partnership with Telefonica Digital, Santiago ranked among the top 20 "startup ecosystems" worldwide, with Silicon Valley in first place. The report noted that Santiago has benefited enormously from government initiatives such as Startup Chile, as a key driver of the country's environment for fostering entrepreneurship and innovation.

But the country faces challenges. Santiago was listed last in the report because of problems that include startups raising 96 per cent less funding than their Silicon Valley counterparts, and a low startup output, with the city producing 92 per cent fewer new businesses and 55 per cent fewer serial entrepreneurs than the California tech hub, for example. "The [Santiago] ecosystem generally does not have a healthy distribution of startups across the Startup Lifecycle, with few late stage startups," said the report.

Founded in 2010 and now renowned worldwide, Startup Chile aims to tackle those deficiencies. By attracting international talent, lowering the barriers for Chilean businesses to have a global vision and encouraging a cultural change, the Chilean economy wins, says Horacio Melo, Startup Chile's executive director.

The program costs $15-million (U.S.) a year, and attracts mainly e-commerce and IT & enterprise software ventures less than two years old. As of 2013, Chile has paid 1,567 entrepreneurs with 732 startups from 65 countries to set up shop, and about 15 of those were from Canada. By the end of the year, the program will have lured more than 1,000 foreign startups from countries as diverse as the United States, Ghana, India, Spain, and Ukraine.

Once chosen, startups focus solely on bringing their idea to fruition for six months. Staying in Chile is not mandatory when they finish.

"We don't differentiate between Chileans and foreigners, sectors or genre," Mr. Melo says. We only look at the quality of the idea and the team. But I can say that we have a very positive perception of Canadian applicants."

The program provided plenty of introductions and resources for Montreal's Mr. Papineau, but no "magic trick," he says, noting he was on his own when it came to industry-specific knowledge. The experience helped get him the attention of Compania Telefonica Nacional de Espana SA, the giant Spanish and Latin American telecom, and its startup accelerator program Wayra has taken an equity position in his company, QA on Request, which provides quality assurance testing services to Web development companies and startups.

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But it's not all one-sided. The program demands its participants give back to the Chilean startup community with counselling, workshops and networking events. This is where the Startup Chile "magic" really happens, according to Andrew Michael Todd, 28, another Canadian who joined the program to develop his web platform for professional photographers, Shutter. A former naval communicator, Mr. Todd was living in Guatemala when he learned about the program listening to radio show This Week in Startups.

"Its real strength is the alumni community and the networking it promotes. When I mentored for the first time … I spent 24 hours with groups of Chileans going from ideas to creation," says Mr. Todd.

There's evidence the program is encouraging some small-businesses to consider laying down their roots in Chile.

Last year, the Mexican and Canadian founders of social entrepreneurship consultancy service Sedge applied to launch their business from Chile. What initially started as a side project for college friends Danielle Carruthers, 27, Michelle Paez, 27, and P.J. Frayne, 32, matured into a service that targets social businesses struggling with budgets. Sedge is currently in beta stage, planning to launch from Chile but operate from anywhere the world.

But the program's overall impact is debatable. The poster-child of the departing government of centre-right President Sebastian Pinera, the initiative faces criticism that includes the small number of selected Chilean startups (20 per cent), language barriers – the entire process is in English – and its focus on technological innovation.

Yet it's the lack of concrete results that concerns the Chilean startup ecosystem more, says consultant and entrepreneur Nicolas Monge, co-founder of social startup, which has applied and failed to get into the program.

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"There is no question as to what it aims at: Turning Chile into an innovation hub. It has improved the country's image, yes, but there is no official data on the revenues generated by the companies, or if they've had had any impact at all in our ecosystem," Mr. Monge says.

Startup Chile's Mr. Melo says he's aware of criticism concerning a lack of concrete data surrounding the program's success. "We are working on it," he says. "Right now we can say that 16 per cent of our total projects have raised a total of $50-million (U.S.) in investment since finishing Startup Chile; eight of our projects have been acquired by larger companies, and the program is a case study at Harvard. Chile is on the global startup radar."

Success stories will be required as the incoming left-wing government of Michelle Bachelet reviews the program as part of her assessment of current public spending in pro-investment policies. Although she has not officially referred to the program, talk in the startup community says it could undergo changes, says Mr. Monge.

Editor's Note: Canadian entrepreneur Andrew Michael Todd is 28, not 25, as an earlier version of this article stated. Also, he is a former naval communicator, not a former naval officer.

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