Wences Casares discusses why starting a company in Latin America is harder than in Silicon Valley or Europe. He points to high friction in the environment and a severe shortage of venture capital willing to fund entrepreneurs in the region.
The entrepreneurial ecosystems are incredibly different in Europe, in Silicon Valley, and in Latin America. And in Latin America, doing a startup anywhere in the world, it's hard, It's a game. The numbers do not look very favorable. Whatever it is, it's 1%, 10%, if you want to be incredibly generous, will be successful. But let's say it's 1%, that's a chance of 0.01 in Latin America. Any business, forget about a startup, has a 1% chance of surviving the ups and downs of the economy, the lack of a strong institutional framework or rule of law, et cetera, et cetera. It's much, much harder for companies in general to operate in this environment of very high friction than it is in the US or in Europe. And when you combine those chances, the startup chances, times the Latin America or emerging market, high friction, the result, it's an exponentially low. The risk gets compounded and the upside doesn't get compounded at all. In many cases, the upside is less than in the developed world because the markets are smaller. So unless there is a very clear angle on how you know the market or a very specific opportunity, et cetera, I think that this trade off of going to emerging markets because there's less competition is not necessarily a clear trade off that it pays off. There may be more competition here, but when you're executing in a place like Silicon Valley, you're focused 80% of the time in creating value and 20% of the time with dealing with the friction that comes with doing anything. In Latin America, in most places, you are lucky if you can focus 40% of the time to creating value and 60% of the time is dealing with friction, which for a startup, it's asphyxiating and can kill them very easily.
There is a practical example that we learned when we moved here in South America or in Europe. As an entrepreneur, whenever you start a company, you believe in it yourself. You typically put your own money to it and you start. And that gives you much more credibility than any other aspect. That's what they want to see in those environments, that you're willing to raise your own net worth. To build a business in Silicon Valley, it's wired differently here. To be credible, to be able to talk to a business or retailer or anybody that you want to build a company around, you need to show that you're venture backed. And that's just one little example of a big difference. When you get to choose a market, the venture capital industry, it's not that sophisticated nor exists so well in Latin America yet, nor in Europe. It's there, but it's not as broad as Silicon Valley. So those are some of the examples of things that you have to handle when you make a decision where you want to base.
I, if I were an emerging market entrepreneur who's very familiar with Silicon Valley, I would be looking at opportunities where I could develop a product and a business from Panama or wherever it is, and using the local talent, which sometimes you'll be surprised. The quality of the talent you can get there can be much better than what you can get here. And that's very counterintuitive. But here talent is not only expensive, but the best talent is often taken by a very large company. So when you look at the startups, they will have one brilliant engineer for every four to nine good but average engineers. And in Panama you may have the luxury of creating a team of nine brilliant engineers. That's very, very hard to do in Silicon Valley. And I think it's just a matter of time before we see a world class company addressing the world markets and developed world markets from the emerging markets. Actually, I think that the biggest reason why that is not happening is sort of self imposed censorship, if you will. There are entrepreneurs who have the right ideas to do from Vietnam or from Panama or from Turkey and they would like to launch them to the developed world from their market, but they don't do because they haven't seen people do it before and they think it's impossible. And I just think we have to see the first examples of that to begin to see a big trend in that area. Especially, yeah, especially in mobile where I think some of these markets are very advanced in how they use the mobile phone.
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