RIO DE JANEIRO, BRAZIL – The image of the handshake between the President of Colombia, Iván Duque, and the founder of the Chilean startup Betterfly, Eduardo della Maggiora, at the beginning of April 2021, gave a clear signal. Not only concerning the common ground between the president and the CEO of the Chilean unicorn (companies valued at more than US$1 billion) but in terms of the close union between the startup and venture capital ecosystems of both countries.
Colombia is one of the first destinations for Chilean startups in internationalization. There are several reasons, but they are generally related to a larger market than Chile’s and more stable than others in South America. In addition to a series of factors such as commercial exchange, treaties, and alliances. A clear example is that StarCo 2022, the most important event for startups and venture capitalists in the coffee-growing country, which took place at the end of April in Medellín, had Chile as its “guest of honor”. ProChile was in charge of selecting 20 companies to participate in this relationship between entrepreneurs, business people, and venture capital in a meeting in which more than 10,400 people participated. In addition, the Chilean companies Poliglota and RedCapital moved on to the final round of an auction where a dozen venture capitalists pulled out their wallets to invest.
“I think Chile has one of the most relevant success stories in the region: Start-Up Chile, which allowed an acceleration of thousands of companies, a model that we are just starting to develop,” says Tomás Ríos, CEO and co-founder of Starter Company, the organizers of StarCo 2022, and adds: “We Colombians tend to be ‘more friends with…’ and I think Chile has been very close to our country, especially after the Pacific Alliance. It is not only a matter of money but of impact on entrepreneurship”.
In 2009, the FTA between Chile and Colombia came into force, and in 2012, 100% of the tariff universe between both countries was reduced. In 2021, exports from Chile to Colombia reached a total amount of US$799 million, which meant a growth of 21.4% compared to 2020. In the case of the services subsector, the exports that grew the most were consulting services, which increased by 131%, followed by ICT services (information and communication technologies), with a growth of 29%.
According to ProChile data, the main services exported from Chile to Colombia in 2021 were: aircraft repair and maintenance services (US$27 million), marketing consultancy (US$25 million), technical support in computing and information technology (US$22 million), application design and development (US$9 million) and information technology consultancy (US$2 million). And it is in this whole world where startups mainly move.
“In the last five years, Colombia has been increasingly relevant for Chile in technology services. But at a macro level, there must be some 300 Chilean companies here, mainly in the retail, energy, forestry, and now lastly, very strong with avocado production. That is why Chile is very present in the mentality of Colombians, especially in retail”, explains Marcela Aravena, commercial director of ProChile in Colombia.
This country, located in northwest South America, is the second export destination in Latin America for Chilean services after Peru and the one with the highest growth in exports, with an increase of 46% in 2021. Concerning Chilean investments, Colombia is the third destination, with a stock of US$18.5 billion, almost 15% of the amount invested in the world (December 2019). Even according to figures from ProColombia (ProChile’s equivalent in that nation), Chile is the leading Latin American investor in Colombia.
All this has been the perfect “breeding ground” for Chilean startups to move into a market of more than 50 million inhabitants, eager for more technological development and a lot of informality. That is where the fintech sector has been one of the most visionary, especially considering that only 65% of the Colombian population is banked.
“With the pandemic, banking in this country had a great challenge. Most of the government’s financial support was delivered online, but many people did not have a way to receive it, as happened in Chile with the RUT Account,” complements the ProChile representative in Colombia. In addition, she continues, “Colombia has a very interesting startup ecosystem. I don’t know if it is more mature than the Chilean one, but it is more active because it has more data. And although they have only one unicorn (Rappi), they have a banking and family office sector that is very interested in injecting venture capital, which is not so visible in Chile”.
ATTRACTED NOT ONLY BY COFFEE
NotCo, Cornershop, Buk, RedCapital, Instance Latam, RePhone, Instacrops, Fracttal, Houm, Gauss Control, Justo, Global66, CobranzaOnline.com, Laboratoria, and ZeroQ are just some of the Chilean startups that have operations in the coffee-growing nation. However, many more also do business with clients in that country, but remotely. And there is another, no lesser group that plans to reach Colombian soil soon.
According to Gustavo Ananía, CEO of RedCapital, it is a very attractive market for several reasons, mainly because of its size, which is larger than that of Chile. “We have seen in several trips that Colombia is a country that venture capital and other industry players look at a lot. In addition, it currently has a Fintech Law that gives it a very interesting framework for action. And there is the language issue”. The company’s founder also explains that digital factoring has just started in that country, so there is a high potential.
For his part, Carlos Aravena, CEO of Poliglota, a Chilean language learning startup that is preparing its landing in Colombia, comments: “For us, it is a tremendous opportunity. Colombia is one of the countries with the lowest rates of bilingualism in Latin America and one of the most active in migration by opportunity. Therefore, it is a promising scenario to be able to teach English in a market of no less than 51 million Colombians, where for every 20, there is one in the United States. It is a strategic market for Poliglota.
Along the same lines, Marcela Aravena confirms that “when it comes to internationalization, the most daring startups go directly to Mexico or the United States, but there are two very interesting intermediate markets, Peru and Colombia, where the latter has better results due to its size and a business community very similar to the Chilean one”.
COUNTRY OF CITIES
One factor that makes Colombia even more particular is its strong regional identity. While Bogota concentrates a larger population (10.3 million at the metropolitan level) and is the capital of the country, the city of Medellin has a more active entrepreneurship ecosystem, supported by several instances, such as Ruta N, a program of the local municipality oriented to a strong development of the digital industry, unique in Latin America. “In Medellin, you will see a lot of technological knowledge and a more aggressive business community when it comes to investing, unlike in Bogota, which is more cautious,” says the commercial director of ProChile in Colombia.
Another city that is giving a lot to talk about is Barranquilla, in the Caribbean zone, whose local authorities have developed a very strong modernization process in recent years, attracting capital, fairs, and, clearly, startups. On the other hand, Cali is also highly sought after for having great technological talent but cheaper than other areas of Colombia.
According to specialists, fintechs are the startups that are leading the Colombian entrepreneurship ecosystem, followed by edutech (oriented to the world of school education), agritech (digital solutions for the agricultural sector), and healthtech (health industry). The latter is motivated by the changes of a world in pandemic and less physical contact.
There is another not minor factor. Less than two years ago, Colombia enacted its first Entrepreneurship Law to accelerate the startup ecosystem, mainly in the early stages. That is another element that increases the interest of Chilean companies to have operations in that country and look for investors.
“Ten years ago, there was a lack of initiatives to assist and accompany these entrepreneurs. That was when we started operating the first programs and creating the language around what entrepreneurship means,” says Francisco Noguera, president of INNpulsa, the Colombian government’s innovation and entrepreneurship promotion agency and an analogous entity to Chile’s Corfo.
Noguera continues: “Colombia is a country of cities. Only 12 million inhabitants live in the two main cities (Bogota and Medellin), so we have many intermediate cities where things happen, and we want to build and connect these ecosystems”.
With information from La Tercera