THE BLOG

Startups Like to Tango

02/19/2015 05:06 pm ET | Updated Apr 21, 2015

Can a startup ecosystem grow in an adverse environment? Developments in a far corner of the world show that much can be achieved just about anywhere.

Today Argentina seems an extreme test track for startups. It has a sluggish economy based on natural resources. It is far from global markets and innovation centers. It presents some of the worse levels of inflation, country risk, market efficiency and economic freedom in the world.

In the midst of this toxic soup, the porteños (residents of Buenos Aires) are building below the radar a startup rainforest. Earlier this month their city won the Cities Challenge of the Global Entrepreneurship Congress organized by the Kauffman Foundation.

Buenos Aires is the birthplace of three internet companies worth over a billion dollars: MercadoLibre, OLX and Despegar. MercadoLibre is the only Internet company from Latin America listed in NASDAQ. With over 100 million users and a valuation of US$6 billion, it is the leading e-commerce platform in the region. OLX is the Craigslist of emerging markets, serving over 100 countries in 40 languages, publishing in India more classifieds than all local printed media. Despegar is the leading online travel player in Latam. It is present in 21 countries, has 4,500 employees, served 25 million travelers in 2013 and is rumored to be an IPO candidate.

A startup ecosystem is flourishing, inspired by the success of these and other players and with the support of their founders. It features hundreds of startups concentrated on consumer internet, mobile, social media and gaming. There is also activity in artificial intelligence, biotech, nano-satellites, smart devices and renewable energy. For example, Satellogic already put three nano-satellites in space, and recently raised around US$20 million to build a constellation of imaging satellites. Aivo is developing virtual artificial intelligence customer service agents, serving over one million people and growing 20 percent every month.

The investor community is beginning to take shape. New accelerators are building large portfolios, company builders are emerging and the angel investor community is growing. NXTP Labs, an accelerator born in Buenos Aires in 2011, built a portfolio of over 150 regional and global startups from eight countries. Some venture capital funds are also using the city as a home base, most prominently Kaszek Ventures, which raised over US$200 million since it was founded in 2011 and is today a leading VC in Latin America.

World-class technology service providers are also flourishing. Globant, for example, is a local technology service provider listed in NYSE and focused on creative innovative software solutions was born and is managed from Buenos Aires. It has over 3,500 professionals with operations in New York, London, San Francisco, Austin, Boston and 13 Latin American cities, serving clients like Google and Coca-Cola.

Several structural factors favor the city despite the adverse economic conditions of Argentina. Buenos Aires is the core of an urban corridor with over 20 million people ranging from Montevideo to Rosario. It is a melting pot of people and cultures from every corner of the globe. It has the rich human capital legacy of what once was one of the best public education systems in the world. The cultural and intellectual scene is vibrant and cosmopolitan, with thriving fashion and design studios and hundreds of theaters. It is an amazing city to live in, with magnificent architecture, excellent weather and fascinating people.

The challenging economy and a new mindset are pushing youth to create startups and leverage regional and global opportunities. Cloud services and the use of foreign legal jurisdictions enable startups to be born global and attract capital. A sizable cadre of successful entrepreneurs is financing and coaching new startups and connecting them to international hubs. Business schools such as IAE, and NGOs such as Endeavor have been actively nurturing startups for years now.

While there is a long way to go, some leaders of the public sector are also nourishing the ecosystem. Two years ago, building upon years of efforts, I worked closely with the city government to articulate a vision and a roadmap to turn the city into a hub of innovation, entrepreneurship and the creative economy. Mayor Macri, who is now running for President, is personally leading a cross-ministerial effort to turn the vision into a reality.

The government is working on multiple fronts to build a better future by empowering their citizens to succeed in the new economy: educating for the 21st century, promoting entrepreneurship and the creative economy, innovating for inclusion and becoming a smart city with innovative infrastructure and services.

Education is a cornerstone of the city's efforts. Public school students have laptops with wireless access to Internet and study English. The city is redesigning the curriculum to develop skills for the 21st century, for example by turning programming mandatory for high school students and striking a partnership with Codecademy. They are also deploying educational robots, Arduino tablets, electric car kits, 3D printers, hydroponic greenhouses and other paraphernalia.

The city also launched an entrepreneurship academy with free live and online courses on lean startup methodologies, design thinking and soft skills and already trained over 5,000 people and received rave reviews. It launched a matching fund program for accelerators inspired by Israel. It is sponsoring major events with Singularity University and other partners as well as regular trips with entrepreneurs to Silicon Valley. And there are dozens of other ongoing initiatives (some under wraps) such as an open data program, hackathons, free Wi-Fi in hundreds of public spaces and community centers with focus on social innovation in shanty towns.

The national government is also actively fostering science, technology and innovation, generating the conditions for further progress. It created a ministry focused on these issues which boosted the R&D budget, created innovation prizes, built new labs, launched international cooperation and tech transfer programs, attracted scientists living abroad and created innovation prizes.

It is hard to tell whether Argentina will build upon these foundations or stubbornly continue to sabotage itself. But the story of Buenos Aires shows the power and resiliency of the entrepreneurial spirit.