President Lacalle Pou’s plan to grow the Uruguayan unicorn club

The Uruguayan government launched a program that it considers key for Uruguay to scale its technology companies and thus expand the club of unicorns led today by dLocal (DLO), PedidosYa, and Nowports.

The Executive Branch will promote through Uruguay Innovation Hub the association of public funds with venture capital investors to boost startups.

Also, President Luis Lacalle Pou said Thursday that he is seeking a rule to promote the arrival of digital nomads.

Under the umbrella of the Uruguay Innovation Hub program, the Executive Branch will seek to facilitate the link between local startups and international accelerators.

It will also promote equity investment through a US$15 million fund composed of public funds (30%) and venture capital (70%).

The third leg of this plan is the establishment of laboratories for large technology companies that can be used to develop smaller-scale local companies.

The Executive Branch has US$10 million per year to allocate to the three aspects, even though the authorities hope that private capital can multiply the funds since the proposal assumes that most of the money will be provided by investors.

But in addition, the government will seek to cover the lack of talent in Uruguay -and throughout the region- through facilities for the settlement of the so-called digital nomads.

“We are working to see if we generate a legal text that allows us to attract international talent to come and live in our country,” said Lacalle Pou this Thursday during the Test&Invest business forum in Punta del Este, organized by the government and the Inter-American Development Bank (IDB).

LACALLE POU’S MESSAGE TO ENTREPRENEURS

“Our country’s vocation is to become a Latin American (innovation and technology) hub, no longer of the Southern Cone,” said President Lacalle Pou this Thursday before businessmen in Punta del Este during the Test&Invest forum.

The head of state affirmed that, due to the globalization of services, “the pandemic has accelerated” the process for Uruguay to become “a leading country” in technology development.

In this sense, he considered the current situation a moment of “eruption” in which different factors accumulated over the years converge.

He also pointed out Uruguay as a place to invest with predictable rules beyond the changes of political signs in the government.

“In this fast-paced, ever-changing world, where from one election to another the rules or laws can change radically, national stability, the strength of institutions, the old but increasingly effective separation of powers, respect for contracts and long-term laws, make this a fertile ground for these global ventures,” he said.

Uruguay developed 30 years ago a Free Trade Zones Law with tax exemptions for the export of services. In 1998 it also passed an Investment Law granting other tax incentives to establish projects.

“During the pandemic, the big (audiovisual) companies came to film in Uruguay when it was impossible elsewhere.

“Uruguay also has some outstanding ventures, with its own unicorn, and so many others that have achieved international character. And that also distinguishes and marks us,” said the president.

But, he acknowledged there is a labor shortage in the technological area.

That is why, he said, the Presidency of the Republic, the Ministry of Economy and Finance, and the Uruguayan Chamber of Information Technologies are working to attract talent living abroad who want to come to Uruguay to work.

THE POTENTIAL OF TECHNOLOGY COMPANIES AND WHAT THEY ARE ASKING FOR

In 2021, exports from Uruguay of IT software and ITO services were US$1.1 billion. The record is five times higher than the US$213 million in 2016.

Meanwhile, in 2021 ICT exports were complemented by US$248 million for the telecommunications item.

In addition, since this year, the North American company Newlab has been installed in Montevideo at the impulse of the Argentine unicorns Mercado Libre (MELI) and Globant (GLOB), whose CEOs Marcos Galperin and Martín Migoya reside in Uruguay.

The Colombian founder of Nubank, David Vélez, also moved to Montevideo in 2021.

MercadoLibre employs some 1,500 people in Uruguay. Globant, meanwhile, employs approximately 1,000 people in the country.

Both the availability of funds to leverage technology companies in later stages of growth to seed capital and the need to facilitate the arrival of talent for the industry are two of the main demands of Uruguayan entrepreneurs in the sector.

The proposal that seeks to develop the arrival of investment funds aims to generate a US$15 million fund focused on developing companies in the advanced growth stage.

As for accelerators, the government is looking for a process that facilitates the nexus and already has in its sights, for example, the Brazilian Cubo of Banco Itaú and the Korean Born2Global.

GALPERIN, MIGOYA, VÉLEZ, AND FOGEL GIVE IMPETUS TO THE TECH ECOSYSTEM

The establishment in Uruguay of Galperin, Migoya, and Vélez, among other founders and senior executives, has led to Montevideo becoming a center to which major business decision-makers have moved.

Nicolás Szekasy and Hernán Kazah, founders of Kaszek, one of the leading venture capital (VC) funds in Latin America, also live in Uruguay.

In addition to the arrival of foreign entrepreneurs in the local ecosystem, there is the conviction of the impulse given by Uruguayan founders of technology companies such as Sergio Fogel of dLocal, Ariel Burschtin, Álvaro García, and Ruben Sosenke of PedidosYa, or Maximiliano Casal of Nowports.

In addition to mentoring other ventures, they are key players in bringing entrepreneurs closer to the big players in venture capital.

Fogel also co-founded a new open banking startup Datanomik, while Burschtin and García launched Orok Ventures, from where they promote different projects.

This year, in addition, the low-code platform GeneXus, led by Nicolás Jodal, was acquired by Globant.

Also, the president of Endeavor Uruguay, Eduardo Mangarelli, launched Urucap, the first Uruguayan private equity association, in May 2022.

Mangarelli is also a director of IC Ventures and heads the organization together with Sylvia Chebi of ThalesLab.

The government and the technology sector are betting on the influence that the arrival of several Argentine entrepreneurs who founded technology companies can have at a local level.

That, according to sources in the sector, helps to increase the contact with the founders in search of absorbing some management and process development lines for Uruguayan companies.

WHY THERE WILL BE MORE UNICORNS, ACCORDING TO FOUNDERS OF DLOCAL AND PEDIDOSYA

Fogel and Burschtin were also at the forum in Punta del Este on Thursday, where they shared a panel with the IDB representative in Uruguay, Matías Bendersky.

The entrepreneurs pointed out that focusing their businesses on the region is vital for a broad market.

“I have no doubt,” Fogel answered when Bendersky asked him if Uruguay would have more unicorns.

The dLocal founder referred to “a virtuous circle” given by the success stories observed by investors and by people coming out of unicorns and wanting to found their companies.

Burschtin shared the assertion.

“With the opportunities out there, the funds in the region, this whole ecosystem, and the people that are coming out of companies to help teams, without a doubt, it naturally has to happen in the next few years,” said the former PedidosYaCEO.

Fogel said Uruguay, as a regional business’s base of operations, offers “clear and consistent rules.”

“We are in a region where every day it appears on the news that a country changed the rules, added a tax, and made multiple exchange rates.

“Uruguay has its advantages and shortcomings, but if you look at the last 40 years, we have been following the same macroeconomic line.

“The benefits for the software industry have been maintained, and I don’t see that it is going to change,” he said.

He added that another advantage for fintechs, said Fogel, is that financial industry regulators are accessible, which makes it possible to get meetings with the Central Bank of Uruguay or the Ministry of Industry in short periods.

Burschtin maintained that Orok Ventures entered eight companies for the time being.

“We are very measured. Today we want to wait for the value we can give the startups and see how we continue to move in the entry of others,” he said.

With information from Bloomberg

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