Want to attract a boatload of innovative entrepreneurs from all over the world? Give them free money.
As the Chilean government-backed Start-Up Chile can attest, offering up thousands in startup capital to intrepid young entrepreneurs is a quick way to gain some sizeable attention. The Santiago-based accelerator program is now gearing up for its seventh class of a 100 startups, and if it is anything like the prior classes, the majority of founders will be American.
So what gives? Why are young entrepreneurs from the states traveling thousands of miles away to participate in an accelerator program when they have a bevy available on their home turf? Incentives. Chile has strategically aligned the program to not only benefit startups across the planet but also help leverage global expertise to mentor its local entrepreneur market, making it a hot spot for entrepreneurs to work on their startup endeavors.
The biggest perk is the money. While typical U.S. incubators and accelerators offer cash-strapped startups funds in exchange for equity, Start-Up Chile is ponying up $40,000 equity-free to each startup. The no-strings attached, hands-off model has been a major enticement for American startups to flock to Chile. Of the total number of startups that have participated in the program, approximately 25 percent, or 170, have been from the states.
An added bonus: A melting pot of startups are participating in the program. By welcoming entrepreneurs from all over the world (28 countries are participating in this class) businesses looking to scale and break into specific markets are taking advantage of the diverse international demographic.
"The community is sometimes more important than the cash we provide," says Start-Up Chile's assistant director Sebastian Vidal. "If you are designing a product be global, it is great to have a community full of different countries test and give you feedback."
And the heated up Latin American market is adding to the lure, as businesses are looking to expand. Large companies like Twitter and Facebook have set-up shop here, a whole slew of startups are popping up and VCs and private equity firms invested $7.9 billion in companies located in Chile last year. That was a 21 percent increase from 2011, according to the Latin American Private Equity & Venture Capital Association.
Still, there's a catch. In return for offering $40,000 to startups, Start-Up Chile entrepreneurs are required to participate in a social-capital system, where they need to achieve 4,000 points throughout the program. Points can be achieved by getting involved with the local entrepreneurial community in activities like mentorship, lectures and networking events.
The pay-it-forward idea seems to be working so far, according to Start-Up Chile and the 40 other programs under the country's development agency Corfo. In recent years, the country has seen an influx of networking and hacking events like Hacks/Hackers, Women 2.0, Girls in Tech and Startup Weekend. There are also seminars on entrepreneurship and accelerators like Wayra.
The long coastal strip that hugs the South American continent is currently ranked No. 1 in Latin America for venture capital, according to the LAVCA. And Chile is looking to continue to push the movement with the recent passing of a law, allowing companies to incorporate in one day online for free.
Start-Up Chile does face headwinds, however. Even with the recent jump in capital, the success of the program and others that attract foreign entrepreneurs, is causing a shortage in funding.
"Some of the things that still need to be improved to make the Chilean entrepreneurial ecosystem stronger are the local VCs approach to startups and the fear of failure that's still common in our country," says Vidal.
Despite the challenge, he remains optimistic about turning Chile into a major hub.
"We want to have entrepreneurs here, as we want Chileans to be connected to innovation from around the world.
What incentives would you need to launch your startup in a different country? Let us know in the comments below.