Nathan Lustig

Startup Chile is one of the most innovative government programs I’ve ever seen. Chile’s government wanted to improve it’s entrepreneurial ecosystem, change the culture to support entreprenuership, create jobs and diversify the economy. Instead of investing in infrastructure like expensive research parks or picking a few companies to invest hundreds of millions of dollars, Start Chile gives entrepreneurs $40,000 grants, a visa and office space in exchange for coming to Chile to work on their business. Since 2010 more than 600 teams have come to Chile to develop their business. It’s an unquestioned success.

The culture has improved, Chile’s known for startups, many companies are having success and most of the money is being recycled into the Chilean economy. Entrepreneurs are staying, partnering with Chileans and continuing to find success. After being featured (for free) in every important media outline in the world, the worldwide perception has changed.

Before: Earthquakes, wine exports, fruit exports, rescuing miners. Now:  When I went to South By Southwest, everyone had heard of Startup Chile and talked about Chile as an innovative, startup friendly country.

When I first came to Chile in 2010 a typical conversation with a new Chilean acquaintance was:

Chilean: “Where do yo work?”
Me: “I have my own business.”
Chilean: Quizical look. “So you don’t have a job?”
Me: “No, I have my own business”
Chilean: Confused. “So you’re unemployed?”

Now people say, oh awesome, entrepreneurship, followed by “I have an idea for…” or “my boyfriend, sister, best friend has an idea for…” In 2010 girls I’d meet would turn up their nose at entrepreneurship, be worried and ashamed that they couldn’t explain what “an entrepreneur” did to their friends and parents. Now, while they still prefer someone who works in a big company, it’s at least cool to have your own business.

The program is working and other countries are starting to emulate Chile’s success. Brazil has launched the most credible alternative, but companies have to give up equity to private incubators. I believe Startup Chile could make a few changes to improve version 2.0, if they decide to do it and that other entities should being to copy the model. I doubt another country will be able to do it on a national level because of national politics, finances and beurocracy. That Chile was able to is almost a miracle and a huge credit to SUPs founders. But a state, city or even private foundation in a desirable country like the US, Canada, most of Europe, Australia, etc could iterate on the model and find success.

Creative, innovative, hard working people power our new tech driven economy, relying on an ever shrinking percentage of the population to grow the economy. Cities and countries should be competing to attract this top talent. And an iterated Startup Chile type program is one of the most cost effective policies that one can impliment. Here’s how I’d structure a Startup Chile 2.o, whether it’s on a country, state, city, or even private foundation level:

1. Give entrepreneurs equity free grants in exchange for moving to your city for 4-8 months. Grants can be between $20,000 and $80,000, depending on the incentive needed to get people to move. For example, Chicago is an incredibly livable city and might only need to pay $20,000, whereas Des Moines, IA might have to pay $60,000, and Gary, Indiana, $80,000.

2. Entrepreneurs apply online, but to be selected you must have an in person or skype interview. In person preferred, but skype will suffice. A skype interview would have weeded out many of the maringal Startup Chile entrepreneurs.

3. Judges should be successful entrepreneurs and investors. No academics, government officials or lay people.

4. Favor entrepreneurs with experience, judge on quality of entrepreneur (80%), less on the quality of the idea (20%).

5. Favor entrepreneurs who are attacking a need in the local market. The best Startup Chile companies attack the Latin American market or at least use it as a test market. These teams are more likely to stay after the program ends.

6. Never bring more than 20 teams per month.  SUP currently brings teams in groups of ~50 six times per year. That’s too much. Bring 20 every month to increase networking, camaraderie and even out entrepreneur demand for services.

7. Help with housing, social life and integrating with the city. You want entrepreneurs to stay. Make their lives easy. Don’t let them live in bad neighborhoods and help them with network.

8. Fund entrepreneurs in residence to act as mentors and search for ideas in the local market. Give entrepreneurs time and a bit of money and they’ll find a problem to solve. After I sold Entrustet, I would have loved to get paid a stipend to cover living expenses to come to Chile, mentor SUP particpants and look for ideas. Bring entrepreneurs to your city and watch them work.

9. Require weekly mentorship meetings with EIRs, local mentors and local team. This fosters relationships between the local staff, gets the entrepreneurs more plugged into the city and forces them to have some accountability.

10. You recieve 50% of the money up front. After half of the program, there’s a progress report. ~25% of teams recieve no further funding. They may stay in the program, but don’t get more money. The savings are used for follow on rounds for the top ~10% of companies or EIR ideas.

11. A strong demo day to force entrepreneurs to show what they’re doing publicly and give them press, connections and a taste of being in the spotlight.

12. A private weekly blog to track company progress. Mentors, peers and team can view, comment and give feedback.

13. Alumni tracking. The strongest accelerators (YC, Techstars, 500 Startups), have powerful alumni networks, analytics about previous companies. They know why they failed and succeeded. Use this data to show that the program is working, plus iterate on the model to improve entrepreneur selection.

I would love to see Madison or the state of Wisconsin be the first place in the US to iterate on the model. Whether the funding comes from the city, the state or even a private foundation, I think Madison could do something incredibly innovative for $750,000. That’s a drop in the bucket for the state budget, a bigger commitment for the city, but completely in reason for a private non profit.

I would bring 10 teams to Madison for four months (summer/fall of course) and give them an initial grant of $20,000, help finding office space, a place to live and connections to the local startups. After four months, I’d give the most successful ones a follow on round of $40,000 as a incentive to keep them in town. I’d also bring 5 entrepreneurs in residence to act as mentors and search for their own ideas. I’d hire a staff of 4 to manage the program, rent a small office and get going.

For $400,000 of grants, plus an office and four jobs, you could replicate Startup Chile in Madison. At least half of the $400,000 would likely be spent on local rent, hiring locals and at bars, restaurants and local service providers. For a total of $750,000 you’d immediately create four jobs and jumpstart your economy. After the first round, we could see if it was working. I bet it would be. And then we could iterate some more and expand.

Focus on people and your economy will grow.