Despite years of economic uncertainties and the lack of a proper legal framework to help promising startups obtain capital, Argentine entrepreneurs are building a vibrant entrepreneurial ecosystem.
The country is home to many of Latin Americas biggest startup success stories, and with the introduction of one new law, the pathway to success is about to get a whole lot easier. Last month, the Senate voted unanimously to approve legislation supporting entrepreneurial activity growth in Argentina.
Aimed at easing the bureaucratic onus entrepreneurs must bear, and backed by the Association of Entrepreneurs in Argentina( ASEA) and Argentina Association of Private Equity, Venture and Seed Capital( ARCAP ), the new legislation replaces the old application, approving and financing terms and conditions that took up to one year for entrepreneurs to complete before they could legally launch their companies.
The passing of the Entrepreneurs Law( Ley de Emprendedores) arrives at a pivotal hour for Argentina. It are in conformity with President Mauricio Macris push to open up Argentinas economy and place the country once again in the global market. But, to fully understand the significance of the Entrepreneurs Law, its important to understand Argentinas difficult, yet resilient, entrepreneurial past.
Decades of peaks and valleys
Argentinas startup story begins in the 1990s when, after facing years of high inflation, the government launched new initiatives to reopen the country. This period of time coincided with the 1990 s dot-com bubble, and Buenos Aires became a launching pad for some of the most successful entrepreneurs in the countrys history.
During this time, its estimated that 70 percentageof the venture capital offered in Latin America was concentrated in Buenos Aires. It was also during this time that the countrys first major internet companies got their start.
A group of Argentine entrepreneurs founded MercadoLibre, Latin Americas equivalent of eBay, which launched its IPO in 2007, as well as OfficeNet, which was acquired by Staples in 2004. For many years to come, these companies devoted aspiring entrepreneurs hope in a country where climbing the corporate ladder was often seen as the only route to advance or succeed.
Unfortunately, the 1990 s ended poorly for Argentina, and the country entered a steep economic crisis, faced a severe currency devaluation and defaulted on its public debts in 2001. Since then, entrepreneurs have faced a difficult business surrounding, relying on patience and extreme determination to uncover funding for their ventures in a capital-scarce environment.
A few tech companies, like OLX, Argentinas answer to Craigslist, and now publicly quoted outsourcing giantGlobant, were remarkably successful during the course of its 2000 s. However, in recent years, the growth of Argentinas startup ecosystem has been somewhat stagnant and laced with far too many obstacles for todays entrepreneurs to genuinely succeed.
It was during this time( in 2013) that neighboring Chile passed a similar Law of Businesses in One Day, which let Chilean entrepreneurs to start a business in only one day and complete all the necessary paperwork and registration requirements online. The Chilean Association of Entrepreneurs( Asech) helped pass the law just before the altogether government-funded initiative, Start-Up Chile, emerged to revitalize the countrys position as a global, innovative leader.
The program has since become one of the most successful acceleration programs the global startup community has ever seen. The Chilean startup ecosystem explosion and Santiago was even dubbed Chilecon Valley.
Start-Up Chile has helped more than3, 000 entrepreneurs to date, and more than 30 percent of the startups that have been through the program have gone on to raise additional capital. CORFO is another Chilean governmental initiative that invested heavily in invention and entrepreneurship in the country early on and became a leading player in transforming Chile into a global invention and entrepreneurial hub.
For Argentinas startup community, and organizations like ASEA and ARCAP, Chile has been a prime example of what is possible when entrepreneurs have the backing and support of the governmental forces. This is why the occur of the Entrepreneurs Law comes at such a critical time. Argentine innovators have always stood out in the region, but with this new law, the countrys entrepreneurs is to be able to go beyond being merely a regional success narrative and take a momentous leap forward as a leader in technology and innovation in the world.
For the last few years, emerging markets have been drawing inspiration for their entrepreneurial laws from another program that has been widely credited as a prime model of successful government intervention in venture capital: Yozma.
In 1993, the Israeli government made Yozma, a $100 million money of monies, that spawned 10 venture capital funds in simply three years. The program had three key features that contributed to its success. It supported many small monies, it did not try to select wins and, lastly, it helped promote relationships between Israeli and international venture capitalists.
In Mexico, INADEM and NAFIN teamed up to replicate the Yozma model, as spreading money across as many monies as is practicable has its advantages. For one, the number of companies funded by venture capital is what matters in job creation and GDP growth, rather than the actual amount invested in those companies. More venture capital flowing entails more investors are provided with the opportunity to learn the trade.
The new Entrepreneurs Law in Argentina consists of a number of measures aimed at increasing entrepreneurial and investment activity in the country by improving the ease of doing business, new channels of financing and, perhaps most importantly, attractive new tax breaks and incentives for those interested in investing in Argentine startups and venture capital funds.
Heres an overview of how each of these measures will play a significant role in launching the next wave of startups Stimulated in Argentina.
Fast-track for company enrollment
The Entrepreneurs Law will facilitate the establishment, promotion and potential growth of new companies by allowing them to set up their businesses via the internet in 24 hours with a simplified business entity( SAS) model. This includes the opening of a bank account, digital books and setting up a CUIT( identification number ). Another interesting advantage of the Company by Simplified Shares( SAS) model is that even though it allows Argentine companies to have just one owner, if a founder wishes to add a partner, there is no need to modify the type of partnership.
Currently, the entire process to set up a business in Argentina can take anywhere from six months to one year. This setup time is now significantly reduced, even companies with a temporary address. Founders will then have between six and 12 months to change to a permanent address.
New channels of financing
For the first time, Argentina will allocate public funds to co-invest with private investors in order to promote the development of entrepreneurial projects. The Entrepreneurs Law will create the Fiduciary Fund for the Development of Venture capital( FONDCE ), which will work to finance ventures and venture capital organizations. Over the next year, the fund will contribute up to 40 percentage( of the total capital perpetrated) to three venture capital funds, so long as the institutions also provide a counterpart.
A formal registry of venture capital institutions will also be created and be used as a place for Argentinas various institutions and investors to register and share information. Fund administrators, private investors, as well as funds and trusts, regardless of whether they are public or private, will all be able to register. This will make it much easier to track VC activity in the country.
Attractive tax incentives for investors
Argentine startups constantly face a short supply of financing possibilities from the private sector. As a outcome, theyve had to rely on a very few angel investors, VC monies and, of course, traditionally bred FFF sources of capital( friends, family and buffoons .)
With the new Entrepreneurs Law, investors now have more incentive to invest in qualified startups or venture capital funds. Seventy-five percentage of any investment in an SAS company or SAS accredited investment fund will be tax-deductible for up to 10 percentage of the investors annual earnings. Investors who choose to invest in less developed areas, with lower access to capital, will be able to deduct up to 85 percent.
Greater support for accelerators, crowdfunding platforms
The government plans to provide technical and financial assistance to 13 accelerator programs 10 dedicated to technological and social ventures and three to science-based ventures with the creation of a new seed fund program.
Financial assistance will come from various channels, including soft loans , non-reimbursable contributions and the FONDCE. Over the next year, the government also plans to co-create with the private sector 10 new accelerators, constructing it an exciting period for programs that help Argentine entrepreneurs drive their companies forward.
Finally, companies that wish to raise fund by selling equity, or offering convertible notes online via crowdfunding platforms, can now do so. The Entrepreneurs Law enables crowdfunding platforms to register their services and assist entrepreneurs across the country receive investments for their projects with ease. An interesting component to point out is that the law also awards a secondary crowdfunding market to be implemented, allowing investors to sell their equity and convertible notes, and, therefore, injecting liquidity into the market.
A new wave of startups coming to life
Despite years of political and economic uncertainties, Argentina has managed to produce some of Latin Americas biggest startup success stories. The country is home to four out of the regions nine most valuable unicorn technology companies. But its period for VCs to start paying attention to todays entrepreneurs.
Even though Argentina is still in the early stages of this new government-startup collaboration, it will be arousing to witness firsthand all of the unbelievable things Argentine entrepreneurs can accomplish when they have the support of the government and friendlier conditions to operate.
With a boost in investments, a new wave of companies will also be able to generate chores that will have a real social, environmental and economic impact on the country. The struggles Argentine entrepreneurs once faced will be mitigated with the Entrepreneurs Law; however, remove those impediments altogether will require even more the guidelines and supporting from the startup community. But there is hope that local investors will now be able to provide them with merely that.
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