"Crisis is produced when the old does not finish dying, and when the new does not finish being born". The Chilean entrepreneur (but of clear Anglo-Saxon origins) Nicolàs Shea uses the words of Bertolt Brecht to define the need for innovation in the contemporary economy: "Innovation is changing mentality, it is making new laws, favoring competition and SMEs, exchanging money in more convenient way through crowdfunding, overcoming the rigid scheme of the banking system". Shea is the pioneer of startups in Chile: CEO of Cumplo, a company that launched the peer-to-peer financing model, he is also the founder of Startup Chile, a sort of Silicon Valley of Santiago that is a candidate as a hub for America Latin. Chile, however, an emerging country, still has a long way to go.
FIRSTONLINE – Chile grew by 5,6% in 2012 but slowed its growth in 2013 and 2014. The country does not convince the financial community: it is considered expensive, risky and the trade balance is very worrying, with exports sunk in by prices of copper. What do you think? What is the way forward?
SHEA – “In the meantime, some clarifications: the Chilean GDP grew by 2,6% in the first quarter, a growth of 3,4% is expected in 2014, and thanks to a 20% devaluation of the currency in the last six months, it is considered less risky, with foreign investment still strong in the coming years. Said this, the trade balance is still heavily dependent on the copper price. How to act? On the macroeconomic front, Chile could cope with a drop in copper prices by regulating its domestic demand and revising the dollar exchange rate to attract more foreign investment and/or use public and private savings abroad. On the microeconomic front, considerable efforts have been made over the past decade to foster innovation and entrepreneurship as a means to leverage and become less dependent on the mining sector. I am very optimistic that the new generation of startups and SMEs will bring positive change.
FIRSTONLINE – However, from what emerges from the Ambrosetti Innosystem Index it seems that in Chile it is difficult to innovate. Why, in your opinion? What could be the solution?
SHEA – “In Chile it is difficult to innovate, as in any other emerging country. Not just because of size and infrastructure, but because of institutions and culture. Innovation is mindset. An example of this is StartUp Chile, a government initiative that invites entrepreneurs from all over the world to Chile for 6 months. When we launched the program we declared that we wanted to transform Chile into the innovation and entrepreneurship hub of Latin America: with a small additional investment, this declaration had enormous effects throughout the business community and many isolated initiatives, private and public, they began to emerge and converge. Among the main lessons of the past years that can help emerging economies to foster innovation I mention three:
– Making laws that allow innovators and entrepreneurs to enter the market quickly and easily (i.e. antitrust, property rights, supplier protection, work flexibility, bankruptcy, etc.);
– Define a proactive immigration strategy to attract talent and allow them to reconnect with their emigrants living abroad;
– Instead of thinking about competing with the international innovation powers that be, or pretending to become one, focus on collaborating with them to bring their innovation to their markets and vice versa”.
FIRSTONLINE – How did he promote innovation in Chile, in his various institutional and entrepreneurial roles? What do you think there is still to be done? Is the Bachelet government working in the right direction?
SHEA – “Start-Up Chile has positioned Chile on the international entrepreneurship map and brought in more than 1.000 entrepreneurs from over 70 countries, who are reshaping the mindset of our local entrepreneurs. In the Chilean Association of Entrepreneurs, we have brought together more than 15.000 companies from across the country to organize, collaborate and gather proposals for initiatives and laws that improve the entrepreneurial ecosystem. At Cumplo we have leveraged technology to allow people to borrow money from each other, at better interest rates, along the lines of the crowdfunding tool. The greatest challenge for Chile is to overcome resistance to change. In other words, address the power of incumbents blocking innovators and disruptive technologies from entering the market. Take banks for example: while the cost of capital has never been so cheap in history, loans in Chile cost on average more than 50% per year and for SMEs we are in the 40% range. The top 3 banks represent 70% of both markets and their ROE is around 20% (compared to 7% in the US and 12% in Latin America). This has huge consequences for our economy and is hurting entrepreneurship. The most important role of governments in innovation is to set and enforce the rules and regulations that ensure competition and remove barriers to market entry. As Bertolt Brecht wrote: "Crisis is produced when the old does not finish dying, and when the new does not finish being born". As for Bachelet, although it is too early to judge, it seems that his team is well tuned to this track, based on their recently launched “Agenda for Innovation and Competitiveness”.
FIRSTONLINE – Let's talk about Cumplo, which was designed according to the crowdfunding model. Is this formula working in Chile? What are your results in 2013 and what do you expect in 2014? Can crowdfunding be said to be the business model of the future, particularly in emerging markets?
SHEA – “Cumplo is growing rapidly and we are demonstrating that the model in Chile works in Chile and has a social impact. We just surpassed $20 million in transactions and should hit 50 by the end of the year. As I mentioned earlier, spreads in Latin America and the power of social technology suggest that crowdfunding is reshaping the way people borrow and invest money. Democratizing capital – even by lowering costs – is an immediate and effective way to influence entrepreneurship and innovation. Not only in emerging markets, but everywhere in the world”.
