Looking for a Latin American Seed Fund? Try the Colombian Government

"That's where the money is."
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Grooveshark creator Andres Barreto is placing a bet on Colombia. 

Barreto, who founded the music sharing site before he hit 20 and has built tech companies everywhere from Gainesville to Guadalajara, thinks Colombia could skip its "industrial revolution" and transform directly into an information economy. "There's a huge opportunity, business-wise, for entrepreneurs who want to build companies from Latin America... [We're] building the services and technology for the next 3 billion people who go online.... I think the resurgence of Colombia as a political and economic power has allowed it to become a player - investors are now seeing the potential for growth." When he weighed his options for where to start his next project, a start-up incubator called Socialatom Ventures, the choice was clear, but not for the reasons one might think: "The Colombian government offered the best resources and showed the best intentions of making something like [Socialatom Ventures] work quickly."

The governments of other Latin American countries, such as Chile, Brazil, and Mexico, have gotten lots of attention for their efforts to jumpstart entrepreneurship and lure international start-ups to their countries. Colombia's efforts look a bit different, though: Several national initiatives, including programs called iNNpulsa and apps.co, funnel money from various agencies directly to Colombian entrepreneurs who are looking to start new companies or scale their businesses globally. Instead of trying to attract entrepreneurs from abroad or import start-up models that have worked in places like the United States, these programs aim to develop promising Colombian companies that provide the services most needed in-country, like e-government applications and accessible tech for small businesses.

iNNpulsa, housed under the Ministry of Commerce, Industry, and Tourism, works much like a bank, issuing government-funded grants to promising entrepreneurs in everything from health care to food production. However, the more tech-focused initiative, apps.co, focuses on partnering with universities and private companies to provide seed funding, training, and mentorship to aspiring entrepreneurs. Working almost exclusively with entrepreneurs who want to build web-based applications, apps.co will give $33 million dollars to partnering accelerators and university-based entrepreneurship programs from 2012-2014. According to Information Technologies and Communications Minister Diego Molano Vega, most of that money comes from taxes on foreign exports like oil and coal; about ten percent of that revenue is directed toward "innovation projects."

Considering that the Colombian government had to set up significant financial regulations after struggling with accusations of corruption and money laundering in the 1980s and '90s, these direct-funding efforts have gone smoothly -- mostly. "Entrepreneurial leadership in government is clearly an oxymoron," said Bob Dorf, a Columbia University Business School professor and mentor for Lean LaunchPad Colombia, one of the apps.co partner programs. "But other than when you need a contract signed or a bill paid, I haven't seen any of it [in Colombia]... I think [the government has] shown the same kind of courage and truly boundless, laudable energy that I've ever seen in a government or even for-profit organization."

Barreto, who is a native of Colombia, says that privately-run, publicly-funded programs like Socialatom Ventures can help new start-ups avoid the "painful, hard work" of navigating regulatory hurdles with dedicated government relations teams. The administration seems all for this kind of leadership from the private sector, too. "The market as far as possible, the state as far as needed" is the guiding principle for these programs, said Minister Vega, who is acting as a personal mentor for some of the most promising start-up companies in the apps.co program, along with five other ministers from the Colombian government. Catalina Ortiz Lalinde, the Managing Director of iNNpulsa, said that the government sees its programs as "kickstarters, not long-term players. ... We want to imitate the market as best as we can, [because] we believe that this is only sustainable and viable in the long run if we have more private involvement." Some hurdles remain, though: another person familiar with the programs said the government has "filtered the companies that can get into an incubator," making the process of selection and mentorship more difficult.

For entrepreneurs running startups and incubators in Colombia, access to capital will determine whether or not Colombia can be a viable home for tech startups. Juan Diego Calle, the CEO of Colombian-based start-up .co, said that the government's programs have been "very, very clearly" good for their company, explaining that "we're starting to see venture capital firms, private equity investors. ... Three years ago, that was non-existent." Although American companies like Microsoft and Google that have offices in Colombia are helping to build the investor ecosystem in the country, start-ups like .co, which has a big presence in Miami, play a larger role in building confidence among potential U.S. investors. Now, a small portion of the royalties derived from the .co domain contribute to programs like apps.co, which is "something we're pretty proud of," said Calle.

Dorf, who has worked with rapid-fire launch pad programs in both the U.S. and Colombia, was a little bit more reserved. "At the end of the first cycle," he explained, "one of the challenges that remains is that there is no investor community," which is a critical part of an entrepreneurial ecosystem. "Very few if any of the [new Colombian] companies are ready to receive external investors, and in most countries, maybe not all countries, American venture capitalists are unwilling to invest in foreign countries like [those in] Latin America." Especially in this particular case, he said, early-stage venture capitalists have concerns about corruption and the level of effort an investment will require.

For others, loftier narratives about "democratic prosperity" and international economic equality bubbled beneath these assessments of Colombia's potential as a start-up hotbed. As Minister Vega put it, "the whole goal of this government is to reduce poverty." According to the CIA World Factbook, an estimated 37 percent of the Colombian population lived below the poverty line in 2010, ranking below Kazakhstan, Botswana, and Azerbaijan in terms of per capita GDP. Minister Vega hopes that Colombia will one day become "internationally recognized as the place where [digital] applications for the developing world, the base of the pyramid, are being developed. ... That's where the money is." 

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Emma Green is the assistant managing editor of TheAtlantic.com, where she also oversees the National Channel and writes about religion and culture.

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