Creating a Crowdfunding Ecosystem in Chile
Report Released in Conjunction with the Minister of Economy and Multilateral Investment Fund
Jason Best (CCA), Luis Felipe Céspedes (Minister of Economy), Sherwood Neiss (CCA) and Koldo Echevarria (IDB)
Many countries are exploring the role that crowdfunding can play in their strategies to create jobs, expand entrepreneurship and drive innovation. This was why the Chilean Ministry of Economy, Development and Tourism and the Multilateral Investment Fund (MIF), a member of the International Development Bank Group, sought the assistance of Crowdfund Capital Advisors (CCA). We are pleased to release Creating a Crowdfunding Ecosystem in Chile (English or Spanish version), our seventh landmark report on how to develop a crowdfunding strategy for economic development. The report was presented at the Faculty of Business and Economics at the University of Chile on July 13, 2015. The report delivers actionable strategies to drive job creation, innovation and entrepreneurship. If you would like to learn more about how this type of analysis can help you, please contact us.
The recommendations leverage CCA’s research methodology that included face-to-face interviews with over 50 startup/SME ecosystem stakeholders, surveys, research and analysis. The research mapped the current ecosystem, identified challenges and gaps in funding and identified opportunities for increasing GDP growth that are tied to job creation, innovation and entrepreneurship. Based on the analysis, detailed recommendations were made for all parts of the ecosystem: startups/SMEs, professional investors, government agencies, regulators, the Chilean crowdfunding industry, accelerators, incubators, universities, and the general public.
While Chile has been a global leader in the promotion of entrepreneurs via Start-Up Chile and its very active, pro-entrepreneurial government agency, Corfo, challenges remain. These include the current gaps in investing in startups and SMEs, the departure from Chile of promising companies in search of follow-on capital (taking with them both intellectual property and jobs), and the challenge that even successful companies may face in securing financing from the banking sector.
In an opening statement at the event, Koldo Echevarria, the IDB Country Representative in Chile, discussed the importance of entrepreneurship, innovation and job creation as the hallmark of a strong economy. The Minister of Economy, Development and Tourism, Luis Felipe Céspedes, reiterated that thought by saying, “In order for a country to be productive and grow, it must create and fund new ideas.” Crowdfunding has proven, both in Chile and in a number of other countries, that it can accomplish these tasks.
CCA performed a Crowdfund Readiness SurveyTM (CRS) that analyzed cultural, social, technological, and regulatory variables necessary for crowdfunding to succeed. It revealed that Chile has 86% of the variables required for a successful crowdfunding ecosystem – a very positive sign. The report proposes a regulatory framework for crowdfunding in Chile. Specific recommendations include the establishment of securities-based crowdfunding to build regulatory capacity, enhance entrepreneur capacity and to raise investor awareness through education and training.
Like many nations CCA works with, Chile has a culture with low risk tolerance and low trust in business transactions. The report discusses how technology and a structured implementation approach can be used to facilitate trust and transparency and mitigate risk.
CCA met with the nation’s platforms while in Chile to discuss its recommendations and to support a vibrant industry association. The Chilean Crowdfunding Association must play an important role as the market grows. It also includes recommendations for co-investment programs to engage traditional players with the crowd. While these changes cannot happen overnight, we believe that with careful implementation of a structured approach, the ability to trust can be increased, and institutions and individuals can learn methodologies to expand their ability to risk.
“Like many countries, Chilean finance and technology pioneers are already utilizing securities crowdfunding even though its legality has been questioned,” says CCA principal Sherwood Neiss. “These platforms are highly motivated to create a transparent, efficient, and collaborative industry that works with the Chilean government to create balanced regulation and a successful crowdfunding marketplace.” Jason Best, CCA Principal added, “By utilizing The CCA Balanced Stakeholder Framework™, Chile can create regulation that addresses issues that currently inhibit early-stage funding and craft a regulated framework that seeks to provide investor protection, capital for SMEs, and transparency for regulators, in order to foster the proliferation of crowdfunding platforms.”
Stay tuned for two more reports that will be released shortly!