In the wake of President Obama’s landmark visit to Havana, many Americans have turned their eyes toward Cuba's business and economic potential. The tech industry, in particular, has perked up as startup Cinderellas like Airbnb and Stripe have expanded operations and/or inroads to the country. One of the most interesting questions in Silicon Valley today is what will happen with ‘Silicon Island’ and its entrepreneurs: will American startups expand to the country? Will Cuban startups expand their creativity and hustle beyond their borders?
As many designers know, constraint breeds creativity. Cubans know this all too well. Having spent decades under embargoes and restrictions, both foreign and domestic, Cuban entrepreneurs have had to jerry-rig their way to success. Rest assured that as a result, the country is home to some of the most ingenious creators and entrepreneurs on the planet. In Cuba, lateral thinking is a way of life.
As American relations with Cuba continue to improve, Startup Angels sought to answer some of the questions that tech entrepreneurs and startup investors have about the country. In advance of our AngelSummit Americas, we sat down with Cuba Emprende Chairman John McIntire and Ramphis Castro, a VC at ScienceVest and co-organizer of Startup Weekend Cuba, plus several Cuban founders to uncover what we need to know.
1. Yes, there is a tech scene.
It is led by local grassroots organizers who are exceedingly tech savvy and committed to connecting with other communities. Havana held its first ever Startup Weekend this past November, and there’s much more momentum underway.
2. Comfortable desk chairs are really hard to find.
Yes, we’re serious. This is a top request from many Cuban developers...something that many of us take for granted. But if your career pays you to sit and be productive, you know how discomfort can break your flow.
3. Salaries and wages are exceedingly low.
The average Cuban earns $20-30 per month. Cuban developers earn much more (salaries can range) but are under $500 per month. One Cuban startup we spoke with employs 16 Cuban developers for a total company payroll of $5,000 USD per month.
4. Cuba is rife with design talent and creative ideas.
Traditionally, art has been Cuba’s best industry to earn a good income and travel abroad. Cuban artists, musicians and theater troupes have had easier paths to acquire travel visas and visit other countries. As a result, many have focused their time on creative efforts. That spills over into other parts of the Cuban economy and offers promise to its future role in technology innovation.
Related: Airbnb Lands in Cuba
5. Businesses, as we recognize them in the U.S., are not legal entities.
Cubans work around this regulatory restriction by working together as "contractors" on a startup idea. They can be located in the same workspace, work under a single brand and collaborate as if they were a company, but they do not have legal standing as a corporate entity.
6. ‘Cooperatives’ are the best bet for a quasi-corporate legal structure.
Cooperatives are worker-owned business structures that have legal standing in Cuba. They also offer significant tax incentives over being self-employed. They can range from farmers to beauty providers and auto repairs shops to business consultants. Traditionally an agriculture-only structure, cooperative regulations have been easing since 2011 to include more industries and gradually decentralize Cuba’s economy.
7. Cooperatives do NOT yet apply to programmers.
Despite being one of the most powerful skill sets for economic development across the world, a computer programming cooperative has not yet been approved in Cuba. There is ample hope that the cooperative regulatory framework will be broadened to encompass the tech sector and a number of other professional service industries, like lawyers and engineers.
8. A small investment can have a huge impact.
The combination of very low wages, a highly educated population and societal safety nets mean that even tiny "investments" (aka "personal loans") can have massive impact. Because of government policies around free education, free healthcare and more...any size of investment can power a startup to operate in an exceptionally capital efficient way. This is truer in Cuba than in any other place in Latin America or the Caribbean.
9. As a U.S. citizen, you can’t invest there. Yet.
The U.S. embargo on Cuba is still in effect, though restrictions may ease following President Obama’s visit to the country.
10. You will have to partner with the government.
Regardless of what country you are from, starting up a company in Cuba means collaborating with the Cuban government and restrictions on how you hire workers. The foreign investment law allows for 100 percent foreign-owned companies, but the tax treatment, approval process and other restrictions means that it’s not practical. Most companies with foreign capital are 49/51 percent joint ventures with the government having control.
11. Certain cooperatives can accept investment.
To date, this has occurred only with agricultural cooperatives. Non-agricultural cooperatives can, in theory, accept foreign capital but this has not been approved in a specific case.
12. Keep in mind sensitivities about income inequality.
You must be wary of "unjust enrichment." This means grants to Cuban entrepreneurs have to be handled discretely. The Cuban government is sensitive about income inequality, even though some of their policies (e.g., the dual currency system) are the source of much of the growing inequality.
13. You can invest in Cubans via an "American proxy."
U.S. software companies are starting to contract Cuban programmers, both for the low cost but also their skills. Some Cuban startups are considering registering their companies in the U.S. via the newly announced Stripe Atlas program.
14. The Mac vs PC debate is still alive and well.
Plenty of Cuban entrepreneurs prefer the PC (we’ve heard a number of requests for Dells from entrepreneurs), in large part because PCs are easier to afford, acquire and maintain in Cuba. That being said, many developers still choose Macs -- when they can -- because of their ease of engineering.
15. Internet access is, at best, intermittent.
For programmers and startups, this means you must write very clean code...many work offline most of the time, then sprint to upload it on a periodic basis. There are illegal-but-tolerated local area networks that allow for collaboration and social gaming.
16. Developer talent is abundant.
IT outsourcing is one of Cuba’s most promising short term industries. Despite poor Internet access, some are likening Cuba to the next India due to its strong, affordable developer talent. The country graduates over 4,000 IT engineers a year but there are too few state jobs to absorb this supply. As a result, many graduates enter IT consulting or start businesses. Cuba’s much more reasonable time zone (GMT -4) and its physical proximity to the U.S. are added bonuses for American outsourcers.
17. Cubans are well educated.
Cuba has a very well-educated population in general, with a 99 percent literacy rate and excellent engineers stemming from universities across the country. The best talent graduates from Cuba’s University of Information Sciences (UCI), which in Cuba is like Harvard, Stanford, and MIT combined.
Despite recent improvements, there are still many unknowns for scaling startups and technology businesses in Cuba. Legal uncertainty is your largest risk: It’s unclear how quickly Internet access will be expanded, what types of business models will be allowed or how big your business can get before other obstacles come into play. Yet whoever manages to successfully navigate Cuban laws and chart a course for the rest of us will undoubtedly earn some outsized returns.
If you’d like to learn more about Cuba and its entrepreneurial ecosystem, AngelSummit Americas is hosting a keynote session with Cuban-based entrepreneurs in Miami this April 14-15. The panel will explore the realities of building businesses in Cuba and the nuances that investors and founders must consider if they expand to the country.