Why Start-Up Chile Isn’t Enticing More Entrepreneurs

Start-Up Chile recently announced that they received only 133 viable applications and selected 110 to participate, indicating that the program is failing to attract entrepreneurs to apply who believe that working in Chile for 6 months will advance their company. A larger pool of applicants is necessary for success because many applicants are merely trying to create lifestyle businesses, those that aim to create an income for the founders, rather than make a major impact that employs many people.

Only Junar and Piccsy from the original 23 Start-Up Chile participants have attracted investment. Early stage investor Mike Maples Jr., in a recent interview discussing the most successful incubator, Y Combinator, founded by Paul Graham, may provide some clues to why Chile isn’t enticing more entrepreneurs:

I’ve become more bullish on Y Combinator through the years. Early on, it wasn’t all that famous. We invested in a company called Weebly, which was one of the first Y Combinator startups, and it’s a great company and has done very well. But when I step back and look at incubators, the biggest problem they have always had is that whoever runs the incubator constrains the potential success. Historically, incubators have always been the extension of one visionary who tries to spin out a whole bunch of different companies. Very quickly, the limits to that become apparent and it stops working.

The thing Paul Graham did that was really smart was that he combined his visionary capabilities with the benefits of being able to select people from the outside world. Bill Joy once said you should always assume that the smarter people are outside your company. And that is what Paul got right. He understood that if you married the incubator idea with the idea of accepting applications from entrepreneurs throughout the world, you no longer had to be the person who generated the good ideas—you could become a picker of good ideas and good people.

Picking “good ideas and good people” is extremely difficult, as Steve Ballmer, the CEO of Microsoft, can attest. He took over a company operating in a growing industry ten years ago, but has been unable to exploit the available opportunities, and the stock has declined by a third, while competitors Google, Apple, and Amazon have thrived.

Start-Up Chile is a risky deployment of Chile government funds because the founder, Nicolás Shea, graduated from business school in 2009 and has never managed a successful incubator. Successful entrepreneurs are more likely to lead successful incubators, such as Paul Graham of Y Combinator and Brad Feld of TechStars. Shea has not created a successful business, and is unlikely to make Start-Up Chile successful.

Even if Start-Up Chile could recruit Paul Graham or Brad Feld, it still would likely fail because of the oversupply of seed stage capital that amounts to an investment bubble. This is because Chile must address unmet needs to succeed. Business needs good government to succeed, so Chile ought to consider relatively efficient lean government to be their product, and refine and promote it accordingly. Argentina, Europe and the USA have created large welfare states burdened by heavy debt, so there is an obvious need for a viable alternative. Making Chile even leaner would be better, so the two main political coalitions in Chile should be persuaded that big government causes more problems than it solves.

Related posts:
Technology Business Incubators: Can Chile Compete?
Igniting Startup Companies in Chile
Why Does Start-Up Chile Want to Mimic Silicon Valley?
Nobel Economist Pans Start-Up Chile Concept
Vivek Wadhwa talk sponsored by Start-Up Chile

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