Uruguay’s “Innovation Hub”: Government to partner with VCs to scale startups

The Uruguayan government will promote the association of public resources with accelerators and venture capital funds to scale the potential of local startups, said on Thursday, November 3, the Minister of Industry, Omar Paganini, during a business forum held in Punta del Este.

The government is framing its proposal within a program called Uruguay Innovation Hub, which will have three components to be developed, sources from the Ministry of Industry explained to Bloomberg Line.

The objectives will be to contribute to the nexus with international accelerators, to attract equity investment through a fund where the government will provide a minority of the capital, and the private sector will complement it, and to establish open laboratories.

The objective is for the program to be up and running by January 2023.

In this way, the authorities seek to foster an environment conducive to the growth of the Uruguayan unicorn club, which is spearheaded by the fintech dLocal (DLO), the delivery platform PedidosYa, and the logistics solutions platform Nowports.

The government has a US$10 million annual allocation for this program, which will develop investment in the three areas.

In any case, the cabinet of Luis Lacalle Pou expects that the capital derived from the growth of the startups can be multiplied since the proposal assumes that most of the money will be provided by the private sector, according to sources with knowledge of the matter.

Paganini said during the Test&Invest forum organized by the government and the Inter-American Development Bank (IDB) that the objective is to “leap” in positioning Uruguay as an innovation hub for Latin America.

“We are at a stage to add components to public policies,” he said.

President Luis Lacalle Pou affirmed that globalization is “the most important trigger for Uruguay to become a leading country” and “the pandemic has accelerated” this process.

Uruguay Innovation Hub will operate under the National Agency for Research and Innovation (ANII) umbrella but will have its own executive management.

The main difference with what has been available so far is that the State is focused on seed capital of up to US$70,000 through ANII.

However, government support for the development of later stages of higher growth was one of the demands of the technology industry.

How will each of the components of the Uruguay Innovation Hub work?

#1 ACCELERATORS

The government will develop a strategy to facilitate international accelerators to work with Uruguayan startups.

The purpose will be to seek, in less than six months, with an initial capital contribution to reach the international market.

The Executive Branch will contribute with a part of this first contribution, although there must also be private capital.

In this case, the modality will be convertible debt, where the companies will be left owing the capital they put in. A government source said that the amounts have not yet been defined, but it is estimated that the public sector could invest at least US$100,000 each in several initiatives.

Some of the accelerators in the government’s sights are Brazil’s Cubo of Banco Itaú and Korea’s Born2Global.

#2 INVESTMENT FUNDS

The Executive Branch will promote the creation of a fund where public funds will converge with venture capital investors.

The minimum aspiration is to raise some US$15 million to be distributed among different technology companies seeking to grow.

Of the total, the public sector would contribute around 30%, and the remaining 70% would come from private investors interested in entering the business, the sources said.

In this case, the investments will be in shares of the selected companies. Meanwhile, public funds may be reinvested through a trust.

The objective will be to select projects in an accelerated stage to scale them even further. Within the fund, there will be different aspects depending on the specific area of development of the startups.

The government aims for the selected companies to have a solid international profile to not depend on a small market such as Uruguay.

They will be mainly focused on product solutions.

#3 LABS

On the one hand, the funds available will seek to support the establishment in Uruguay of open laboratories, which may be in artificial intelligence, augmented reality, robotics, or biotechnology.

The government has already sealed an agreement with Microsoft for an artificial intelligence and internet of things laboratory that is expected to be operational before the end of the year. It is also in talks with Meta for a similar agreement.

The government’s proposal is for these to be open labs so that they can be used by local entrepreneurs, who in turn get technical support from large companies.

With information from Bloomberg