28. January 2013–
The startup scene in South America remains unknown for a great deal of Europeans and Americans. But with booming economies and rapidly developing nations, today it is a continent that offers exciting and promising growth opportunities for new companies.
VentureVillage caught up with Luis Daniel Alegría, the founder of Berlin-based event finding app Vamos, to find out more about the workings of the tech and entrepreneurial ecosystem in South America. His Chilean heritage, long stints spent travelling the continent meeting the who's-who of the startup scene, plus the fact that Vamos was recently the third most downloaded app in Chile makes him well suited to give an insight into how the startup scene across the Atlantic is developing...
Hi Luis. What makes you so interested in exploring the South American market?
A lot of it has to do with my heritage. I had a mixture of Chilean and Swedish culture growing up as my parents are from South America; they came to Sweden in the 70s to flee from the Pinochet dictatorship. Sweden had really good immigration policies; it was the perfect option for them, although it was the furthest away from Chile and the coldest!
Now I am really interested in connecting with my roots. I wanted to explore the South American continent, so a year and a half ago I went on a backpacking trip to explore the startup scene too. When I arrived in Chile, I didn’t know anyone except my host family, but I started mingling and networking and encountered an incubation program called Startup Chile. It's government funded, they provide startups with $40,000 to found their company.
I always had entrepreneurial dreams and saw South America as a great opportunity; as a fast-growing emerging market in the world with high growth potential.
Can you tell us more about the Chilean startup scene?
Chile has amazing ambition from a governmental point of view; they want to nurture entrepreneurs. But there are also challenges because of the education – it doesn't give the ecosystem ambition and inspiration. A lot of Chileans think very locally, just Chile or countries around Chile, not globally. I think this could be due to a lack of inspiration, there aren’t many success stories coming out of the country. My feeling is universities don’t push students to see from a global perspective; they focus on the local as well.
A lot of Europeans and Americans wanting to expand see South America as an opportunity because they have a lot of courage, which companies from the region might not have. They have the ambition of wanting more, and wanting to expand. I was that kind of person when I was travelling, and that's why a lot of people wanted to work with me, because they saw that drive. That’s a flavour they need more.
How is the startup ecosystem developing in South America?
Because of the lack of infrastructure and internet, and due to the education system, it means there is also a lot of opportunity to innovate in sectors that haven’t really caught up with current technology. For me, coming from a European perspective, in Sweden, Germany, the UK, there are so many things we take for granted, like being able to pay with credit card. That isn’t a standard over there. Because of this, there are a lot of opportunities to jump a few steps. Entrepreneurs can jump a generation of innovation.
That’s why people like Rocket [Internet] are expanding in South America and exploding because they are bringing something that is just so much better than anything that ever existed. So there is great growth potential. eCommerce startups were the first to receive funding; a lot of American capital is being injected into the country – there are a lot of VCs that want to get into South America. Incubators are setting up branches there too. They are trying to build a bridge between what is happening there and the US.
Brazil is obviously the economic powerhouse of South America. Does that make it the most attractive country for the startup scene?
I think Brazil having a really strong economy and a big GDP, that’s really attractive for investors. Brazil has the economic power to really drive a new economy. That’s why eCommerce is so important – there will be lots of competition in that market. Because if you can make it in Brazil, you’re already a huge success. That’s why a lot of countries around Brazil think "if we can make it in our country, next we have to make it in Brazil". Whereas we think “if we make it in Europe, next we have to go to the US”. There are extreme growth opportunities in several sectors in Brazil – not just tech and startups, also banking, agriculture etc.
Other than eCommerce startups, what other segments do you predict will take off in Brazil?
In Brazil, they are huge on social networks. The average Brazilian Facebook user has 430 friends. Here in Europe, we have an average of 120. So that shows their way of communicating online is really different and they’re really engaged and active. This will be an exploding market; it’s already started.
At the moment, smartphone penetration in Brazil is still quite low; it's only four to five per cent of the market. So there is a huge opportunity for mobile startups when the rest of the market catches up.
Brazil is a very promising market but as of yet there haven't been that many European startups that have expanded to the country. Why do you think that is?
I have heard it is very difficult to enter Brazil because of all the bureaucracy and taxes. Foreign companies have a hard time establishing themselves in Brazil, usually what you need is someone from Brazil located there to manage your startup. You need the infrastructure and contacts to launch your business there.
What about Argentina?
Argentina reminds me of the best of Europe and best of Latin America. They have lots of talent in terms of programmers; Google and Facebook recruit a lot of their software engineers from Argentina.
What are some of the challenges of the South American startup scene?
It is very difficult to build a startup in South America outside of an incubator because you don’t have the contacts and it is very expensive to travel to meet people there. In Europe, we have the privilege of taking Ryanair for €50 but if you want to do the same in South America and fly from Brazil to Argentina it costs €300 or €400, and the salaries are lower, so it becomes that much harder to make the trip.
Lots of people who live in Chile, for example, haven’t even been to different countries. That's why they don't have global thinking; it just isn't part of their experience. They haven’t been exposed to as much. I have explored many cities, which is normal for Europeans – that adds a lot of flavour to European thinking. There is also a reluctance to take risks in South America, because the culture hasn’t really embraced risk-taking yet, which also affects the confidence of entrepreneurs.
But there is also an upside of this. The ones that go the extra mile, who are part of Startup Chile, or other incubators, who speak perfect English, they are very, very ambitious. They are super energetic and have the passion for building a business.
Can you list a few startups from South America that you think have promising futures?
I think Descuento City is definitely promising. They aggregate deals from several sources, such as Groupon and provide them on one platform.
Brazilian startup Kekantos is also doing well, they also expanded to Argentina. It is a community of people who like exploring cities, sharing opinions and meeting new people.
Babelverse, from Startup Chile [but now working mostly from London – check out VentureVillage's profile piece here], is a great service, they are taking off. It is a translation service; intrepeters do real-time translations.
Why choose to focus on a South American expansion for Vamos, rather than taking the traditional route and going to the US?
It’s important to put your bets on the right horse. America is an interesting market, with lots of options to explore. But it is extremely competitive, whereas South America isn't as much. But the opportunities there are equally huge. If you can make it in South America, you can also make it in the US, that's my point of view.
I also have an intrinsic motive. I want to be one of those local heroes that these communities are lacking, to inspire the next generation. It is a personal driver. From a business driver, I think it makes a lot of sense to explore different markets. It’s just a matter of time before companies start recognising the opportunities and setting up in South America. Right now, it’s the early ones that can really set the agenda and that’s what attracted me. It means I can be part of driving the development forward.
What we managed to do in a short time has been remarkable. For example, every major newspaper in Chile, Columbia and Mexico has written about us. We were on the CNN of Chile. It's because they are really curious and open-minded about foreign companies coming into the market and trying to do something great. I think it also has something to do with the product you have. Vamos is very social – to do with events and activities, which resonates with the culture. Of course, I don’t think it would work that well with every company.