Welcome to the Chile tech startup guide.
You might find this guide useful if you’re moving to Chile as part of Start-Up Chile, or perhaps if you are a Santiago-based gringo looking to work at a startup, or simply interested in the tech startup scene in Chile.
In this post I’ll outline the current status of Chile as a tech startup hub, with a brutally honest look at exactly what the country does and does not offer a tech startup looking for extra runway, and the unexpected hidden costs that can catch startups by surprise.
I’ll also take a look at the ecosystem surrounding the startup bubble, along with opportunities for contractors and freelancers and how best to find work in the tech startup industry here.
Over the past few years, Chile’s major claim to international fame has been its flagship incubator program, Start-Up Chile. Through excellent marketing and a generous allocation of equity-free funding, this program has put Chile on the map and given it a reputation as a thriving technology hub.
The reality of the situation on the ground in Santiago however, is somewhat different from the marketing hype.
I arrived in Chile two years ago. I didn’t originally come as part of Start-Up Chile, but I have worked closely with four startups, one for over a year. I have also had a chance to talk to many, many startup founders and generally gain a good eagle-eye view of the scene here in Santiago.
Chile as a tech startup hub
Chile is one of the most economically developed and fastest growing countries in South America, and has a good claim to the top spot of the Spanish-speaking nations.
Traditionally economically stable and with a business-friendly government, Chile has attracted several large tech companies to invest here. The Chilean tech sector in particular is seeing an enthusiastic growth rate of 13%-15% per year.
Google recently chose Chile as the site for its first large datacentre in South America, and Cisco and Microsoft are both developing a presence here.
But startups tend operate in a different world from large, established giants like these. For startups, other factors such as presence of a local market, proximity to customers and the availability of willing angel investors or venture capital tend to be more important than low local labour costs or corporate tax rates. And this is where Chile may fail to deliver.
Is Chile a tax haven?
Chile is a great place to incorporate, but cannot be classed as a tax haven.
With that said, corporate tax rates are certainly lower than the United States. Currently it stands at a relatively low 20% although this is set to increase to 25% over the next four years.
Chile also stands out amongst its South American neighbours with solid property rights, low corruption and a stable government. Overall, you could definitely do worse than to base your business here.
The Start-Up Chile program: what it is and what it isn’t
The Start-Up Chile website states that the program offers:
US$40,000 of equity-free seed capital, and a temporary 1-year visa to develop their projects for six months, along with access to the most potent social and capital networks in the country.
The program also offers a co-working space called CMI (located on Providencia 299) which is free for all Start-Up Chile members and offers unlimited coffee and fast wifi access.
While this seed capital sounds great on paper, it doesn’t tell the whole story. There are tremendous hidden costs to moving your startup halfway across the world here to Santiago.
For many passionate young entrepreneurs, the juicy carrot of $40,000 of equity-free funding is too good to pass up, and this is borne out by the ballooning number of applicants that apply to each successive round. For example, the most recent round, generation 10, received applications from 1715 startups from 64 countries. With only about 100 startups accepted, competition is intense.
The good parts
The vast bulk of the benefit of the program lies with the US$40,000 of runway it gives you. Assuming a living cost of $1,500 per month in Santiago (a frugal but reasonable budget) this would allow two people to work full time on an idea for about a year.
Although the reimbursement process can be arduous, you will get your money eventually and have a lot of relative freedom in how you use it. This can be an incredible gift if you have an idea and just need time to focus 100% on developing it.
If you need to hire developers or any outside contractors however, you will burn through this money far more quickly then you expect. Development always takes longer than you think and hiring good people is expensive.
Start-Up Chile also claims to offer contacts in the government that can help certain businesses to develop. As you are reading this in English however, you are probably a gringo and this benefit almost certainly doesn’t apply to your business model.
Don’t expect anything more than funding
Right from the get-go, you should be keenly aware that your odds of making it big depend on your plan for continuing after the Start-Up Chile term is up.
Let’s be blunt for one second.
Q: Why do most people found startups?
A: To get rich (and there’s absolutely nothing wrong with that).
If you want to get rich, you are far more likely to succeed if you surround yourself with other people who also want to get rich. And don’t get me wrong, the Start-Up Chile team are a genuinely great bunch of guys – but nobody there is trying to get rich.
The Start-up Chile team is a very young non-technical, almost grassroots-approach-type group that really care about the social impact of the program (and they’re really super nice people that are truly happy about what they’re doing), but most of the entrepreneurs that go for it are really just moving over for the $40k zero equity seed capital and often get frustrated by the RVA (return value agenda) process.
~ A Start-Up Chile alumnus
The results of this process speak for themselves – despite all the hype around Start-Up Chile, how many successful exits have there been?
Very few. In fact, you could probably count the number of Start-Ups with successful exits (over $1,000,000 valuation) on one hand. Try googling for ‘start-up chile success story’ and see for yourself.
This is not entirely the fault of the program. Chilean investors are traditionally conservative, and there are few VCs or angel investors in Santiago. Despite what the marketing says, Chile is not Silicon Valley – capital is hard to find and the little investment capital that does exist is generally closed to foreigners.
Make no mistake, there is basically no angel or VC presence in Chile, especially for gringos, and Start-Up Chile will not help you here in any meaningful way.
$40,000 may be enough money to get an MVP (minimum viable product) out the door, but very few startups can show profitability after six months. And once the runway is over, startups run into the dirt. Simply put, Start-Up Chile does not give you enough time or resources to develop the majority of ideas into a saleable product, and the lack of access to investment capital will kill your startup early unless you have another plan.
Start-Up Chile is not Y-Combinator. Not even close.
Some strings attached
Nothing in life comes without cost and Start-Up Chile funding is no exception.
While much less hassle then some other programs (SEED Brazil I’m looking at you) you should still expect to allocate between 30-100 tedious hours for paperwork and bureaucracy when claiming your reimbursement. Also, make sure you arrive with a good cash buffer (say, at least $5,000) because delays in payment are the norm rather than the exception. Expect to wait 1-3 months before you actually get to spend any of the money.
In addition, you will be expected to spend a significant amount of time taking parts in various Start-Up Chile events such as demo days, monthly meetings, compulsory mentorship hours etc.
Moving halfway around the world has a cost in itself. Most people hugely underestimate the time needed to learn a new city and new culture, and during this adaptation period of several months, your precious time and attention will not be fully focused on your startup.
Startups require 100% dedication and focus to succeed and relocation is a dangerous distraction from what you should be spending your time on (i.e., building a product your customers will want).
One key to building a successful project is proximity to your customers. You have to understand your customers and their needs incredibly well to have a shot at building a product or service that will resonate with them otherwise you will fail.
If you are looking to develop a product for the US market, you must realise that while you are in Chile, you are located far away from your customers. Unavoidably this leads to alienation and a poorer understanding of your target market. This is a large hidden cost that must not be overlooked.
If you are a native (or near native) Spanish speaker, and developing a product for the Latin American market, Start-Up Chile may have something to offer in addition to financing in terms of connections to local organisations and meetings with investors.
If you are developing a product for any market outside of Latin America, you would do best to view Start-Up Chile funding as nothing more than a regular job that requires a certain number of hours (bureaucratic/reimbursement time) and requires you to relocate (a major time-sink in itself) for at least six months. It’s up to you whether you consider the eventual benefit to your business worth the cost of your time and relocation.
Developing businesses local to Chile is very difficult for gringos. Chileans tend to be conservative in regards to new ideas and companies, and the hard truth is that Chile is geared towards established large businesses. Angel and VC capital is hard to come by especially for non-locals.
I would recommend applying to Start-Up Chile if:
- You have a nebulous idea and nothing to lose by testing it out on someone else’s dime for six months
- Your idea is not location-dependent
- You want the experience of living and working in a foreign country
If the above doesn’t apply to you, and you have a decent earning ability in your home country, I would recommend saving up your own financial buffer and developing your idea there. Or you could apply to an accelerator local to you that might be more likely to offer useful assistance for a second round of funding.
With that said, Start-Up Chile can be an excellent program for very young startups looking for some runway, and you will find plenty of positive reviews from previous alumni.
If you have any doubt about the decision, let the golden rule of startups be your guide (courtesy of Paul Graham):
Be relentlessly resourceful and make something that people want.
Do whatever you have to do to accomplish the above.
Working with Start-Up Chile
Pro-tips for founders
My number one tip to founders is:
Get accommodation sorted before you arrive!
I have seen founders who arrived without accommodation and are forced to either sleep on couches for months or waste a big chunk of their grant on expensive Airbnb apartments. Don’t be one of those guys.
Line up some accommodation at least a month before you arrive in Santiago. Good places to look are compartodepto.cl, the findinchile or Start-Up Chile facebook groups or the Start-Up Chile mailing list.
The best option is to grab the apartment of a previous Start-Up Chile alumnus who is leaving, this way the landlord already has experience with how to get paid and you will have the minimum of paperwork hassle to move in. You can also grill the previous occupant and check if the apartment is reasonably priced and with a good location.
Pro-tips for freelancers
Unless you already have an existing internet business catering to an outside market that you can continue to work on in Chile, there are relatively few well-paying employment options for foreigners here in Chile.
I’m working on an upcoming article that will more comprehensively cover employment options for gringos in Chile, but for now I’ll just briefly outline how to get started freelancing for Start-Up Chile projects.
If you are an unskilled but motivated English-speaker you can probably find work as a marketing/business development junior quite easily. Don’t expect to be overwhelmed by the pay rate though, and you will be required to work hard at it.
Startups are not like big companies – they don’t really care what is on your resume. Startups care far more about what you can do for them.
If you have a strong core skill in something a startup needs, they will pay you for it, and you can probably negotiate a good equity deal if that is something that interests you. Core technical skills especially are highly sought after and valuable.
You will have far more freedom about how and when you work than in any large company, and more control over project direction. If you’re good at what you do, it’s also quite likely that you will be offered attractive equity options. The downside is that your salary at a startup will never match what you could earn at an established company.
For gringos in Chile, finding work at an established Chilean company is much more difficult than finding work at a startup, and the pay will be at best about 60% of the equivalent in Australia, the U.K. or the U.S.A. What’s more, Chilean corporate culture is old-fashioned and paternal – you will be expected to work long hours and have little freedom, and will almost certainly be expected to speak Spanish at work.
For young people I strongly advise against seeking work at a large, established Chilean corporation.
If you are looking for freelance work, I might be able to help. Send me an email at email@example.com and let me know what you are looking for.
Another great way to find jobs/meet startup teams is outlined in the essential networking resources section at the bottom of this post.
Other incubators/accelerators in South America
Geek camp is an intensive week-long camp that selects a small number of startups each year to go to Silicon Valley and pitch to investors there. It is run as a subsidiary of IncubaUC, a Chilean incubator. It seems to be exclusively pitched at Spanish-speaking applicants/startups.
I don’t have any personal experience with BoosterUp, but like Geek Camp it seems to be exclusively aimed at Spanish-speakers so probably not applicable to most UGTC readers unless they are bilingual and developing an idea for the LatAm market.
Translated from the official literature:
BoosterUp is a competition run by Universidad Tecnica Federico Santa Maria in partnership with a select group of corporations. The program selects 60 start-ups to participate at Booster-Camp.
During the three days of the program, startups interact with the corporations as they develop an MVP. At the end of the event, each corporation chooses the two best startups they want to work with and the BoosterUp Program, with the backing of the Chilean Economic Development Agency, CORFO, provides up to 120 thousand dollars matching grant for each project, distributed into a first grant, (to be used during three month), for a stage of sales and/or capital raising and a second grant for the business acceleration stage.
Brazil – Startup Brazil and SEED Brazil
I was previously part of a startup that was accepted successfully into both of these programs, although I chose to stay in Chile rather than move with them to Brazil. Here is a brief summary of the two major seed programs:
SEED is based in Belo Horizonte and like Start-Up Chile requires startups to relocate there for six months. However, the program offers less money (only $30,000) and is less mature than Start-Up Chile. During my research about this program I heard very mixed reviews, with startups frequently complaining about onerous paperwork requirements for actually spending the funds, and horribly strict attendance requirements (founders have to physically be at the location at least three times a week, verified by fingerprint). From what I heard, I don’t think it would be worth it unless you are very unsure of your idea and just want time to play around with an MVP, or your time is not worth much and you have nothing to lose by moving to Brazil for six months.
Startup Brazil has a more complicated application process involving multiple different accelerators and accepts startups that already have a developed MVP. It offers about $80,000 in exchange for a fixed percentage of the company, negotiable between about 10-20% either Brazilian or worldwide depending on the accelerator chosen. It too requires physical relocation to Brazil but seems both more relaxed and more ‘grown-up’ than SEED.
Essential networking resources
If you want to plug into the startup scene in Santiago, there are a few hubs you should cosy up to.
1) The Start-Up Chile mailing list is as close as you will get to the pulse of the startup industry here. Job offers, contractors seeking hire, apartments to let, general tips and inside information about doing business in Chile – you’ll find it all here. Access is invitation only so you must be a founder or working for a startup to use this mailing list.
2) Like the mailing list, the Start-Up Chile facebook group is also a great resource – and also invite only.
3) Centro Movistar Innova on Providencia 299 is the shared office space for Start-Up Chile members and alumni. While officially you have to be involved with a Start-Up to work there, if you are resourceful enough you can easily find a way to get inside (I managed it when I landed my first Start-Up job). If you’re looking for work, this is a great place to come and meet founders.
4) Although not specifically startup-related, the FindInChile facebook group is always worth a mention as a quality networking resource for gringos in Santiago.
Recommended additional reading for startup founders