Buenos Aires Times

economy ECONOMY AND TECHNOLOGY

Government moves to smooth path for start-ups in Argentina

The government is seeking to remove many of the existing regulatory barriers, while at the same time creating programmes that match outside funding, and providing seed capital to entrepreneurs just starting out.

Saturday 23 December, 2017
The founders of Despegar celebrate their IPO on the New York Stock Exchange earlier this year.
The founders of Despegar celebrate their IPO on the New York Stock Exchange earlier this year. Foto:COURTESY DESPEGAR.

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Argentina has long had a reputation for being one of the most vibrant communities for Internet start-up firms in Latin America. Of the seven so-called ‘unicorns’ (an industry term referring to tech start-up firms that reach US$1 billion in market valuation) in Latin America, four of them come from Argentina. This success, however, has come despite the significant obstacles and barriers that face start-up firms in Argentina – the country’s macroeconomic instability, capital controls and lack of foreign investment for much of the past decades, for example.

But two years into President Mauricio Macri’s businessfriendly administration, there are signs that things are starting to change.

A series of legislative steps by both national and local governments are now looking to smooth the path to profit for new firms. This new investment- looking environment, which comes after Argentina returned to capital markets, has encouraged investors such as billionaire George Soros, venture capitalist Tim Draper and reportedly even U2 singer Bono to start investing in the local Internet startup community.

The government is seeking to remove many of the existing regulatory barriers, while at the same time creating programmes that match outside funding, and providing seed capital to entrepreneurs just starting out.

One of the most important changes has been the Entrepreneur’s Law, which now allows businesses to be registered online in just 24 hours. In a country renowned for its Kafkaesque bureaucratic processes, where one can spend months or even years trying to gather the necessary paperwork or documents to get a certification, this is a tremendous step forward.

Another key policy has come from the Buenos Aires City government, its seed fund Incu- Bate programme. Start-ups selected under the scheme will receive from US$10,000 to 30,000 dollars in funding, free office space and enter a mentoring programme for a year.

The Mauricio Macri administration is also beginning to match funds from outside investors geared toward the start-up community. For example, a fund set up by Draper and local partner Cygnus, called Draper Cygnus (DC), is set to receive US$12 million from the government to invest in local start-ups that will focus on fintech, agrotechnology, renewable energy, and biotechnology. Two other groups were also chosen to receive funds, NXTP Labs, and Jaguar Ventures, for the same amount.

‘MONEY WHERE THEIR MOUTH IS’

“Through these programmes, the government is putting their money where their mouth is, and they are investing in resources, time and finances which will allow the community to grow, giving entrepreneurs the support they always needed,” Lisa Besserman, a leading expert in Argentina’s Internet start-up community and the founder of StartUp BA, told the Times in an interview.

Besserman cited the example Bluesmart, an Argentine company that created the world’s first smart, connected carry-on luggage, as an example of the changing tide in this country.

Despite the founders coming from Argentina, they had started offices in San Francisco, New York, Hong Kong and China, yet none in their home country. They only had decided to open one in Argentina after the conditions on the ground changed with the new government.

When they opened their new offices in the country in 2016, Bluesmart founder Tomás Pierucci highlighted how the government’s new approach and policies had made it possible for them to return. “We now have added Argentina, which we want to be the place where we develop software, but before it was impossible with the former government, as there wasn’t the right environment,” Pierucci told the La Nación daily.

REGIONAL GROWTH

The start-up community is not only growing in Buenos Aires City either. Other parts of the country, such as the cities of Córdoba, Rosario, and Mendoza are also registering successes and creating favourable conditions for growth.

Córdoba, for example, has a university centre where many students from the interior of the country are going to study, with the city now turning into something of a hub.

The city’s universities have begun to sponsor several incubators and schemes dedicated to helping entrepreneurs. Some of those are the National Technological University (UTN), the Blas Pascal University, the National University of Córdoba. It is also home to Incutex, an accelerator started by local technology and finance executives that will invest in up to three start-ups per year in Argentina, providing up to US$100,000 in capital.

SCEPTICISM

Most of the experts consulted by the Times agree that here have been many improvements in terms of removing obstacles and barriers. Yet some analysts believed that there haven’t been any real, revolutionary changes to the start-up environment.

“The main investors are still more or less the same. The idea that there are tons of more entrepreneurs entering the startup ecosystem hasn’t occurred, at least not yet,” said Leandro Schweitzer, a Masters student at the Erasmus University Rotterdam, who is currently finishing his thesis which compares the start-up ecosystems in Argentina and neighbouring Chile, in conversation with the Times.

Schweitzer pointed out that the average amount of seed capital that accelerators provide to Internet start-ups is between US$40,000-50,000, a figure that pales in comparison to seed average capital levels in London or Frankfurt, which do not often drop below 250,000 euros. “In Argentina, there isn’t yet a culture of investing in start-ups, it’s originating from those successful start-ups that made it big in the country,” he explained.

FOUR UNICORNS

The four unicorns from Argentina loom large. E-commerce- site Mercado Libre, online airline ticket company Despegar, the Globlant software company and online classified ads company OLX have an overarching influence on the country’s start-up community.

According to Endeavour, an NGO dedicated to entrepreneurship, unicorns like Mercado Libre have had a direct or indirect effect on at least 60 percent of businesses in the Internet tech sector by providing investment, mentorship, and education. One example of this is Kaszek ventures – the largest venture capitalist fund in Argentina – which Mercado Libre founder, Hernan Kazah, started.

Most experts believe it’s too early to tell whether the start-up community is on the verge of a dramatic expansion, but most agree that the government is on the right track. The Macri’s administration’s return to financial markets is at least getting investors to start looking at Argentina for the first time in a long while and government policies aimed at cutting red tape are making it easier easier for future entrepreneurs to set up their dream firms from scratch.

At the same time national and local governments are promoting initiatives to promote more seed funding and investment from venture capitalists.

Amazon founder Jeff Bezos once said: “We are stubborn on vision, but flexible on details.” Hopefully, the government’s vision for Argentina’s start-up community will let the details fall into place.


FIVE STEPS TO SET UP A START-UP

by Lisa Besserman

1. THE IDEA

First, you have to come up with an idea that solves a problem in such way that it fills a void. It’s like first seeing a hole and then believing you could fill it, and whatever you are doing is filling that void. Whether it is a service, product, technology or whatever. I think the most important thing is to recognise the idea.

2. MARKET RESEARCH

It’s not only having the idea – you have to see that it works. Do development testing, research the market and build it.

3. FORM A TEAM

Organise your team. At first, it could be just yourself or a team with your co-founder. But it’s essential to create a group so they can execute whatever you are building.

4. ALIGNMENT

Make sure everything is aligned with your vision and the team. That everything that is being done is very clear. One of my favourite quotes is from my friend Chris Dessi, who said, “Always be rigid in your vision and flexible in your execution.” It’s very important that the vision is aligned.

5. EXECUTION

Last, of course ,is the execution. Anyone can think of the next Facebook or Instagram, but one needs to build and execute it. The people that compose the team are key to the execution and ensuring that there is a support system to provide help. Remember, you are getting involved in a community.


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