Completing The Latin American Innovation And Entrepreneurial Ecosystem

The Latin America entrepreneurial ecosystem has developed significantly during the last decade. Today, Latin American entrepreneurs can benefit from multiple financing alternatives from both public and private sectors. The Latin American ecosystem has proven to be a fertile ground for the creation and development of startups of great potential and substantial global impact [1]. Ecosystems across the LatAm region are maturing/gaining global recognition, and their compelling solutions are tackling world markets. Their innovations, product/service development capabilities, marketing, finance or supply chain management compete neck–in–neck with the innovations of far more developed ecosystems. Supporting this effort, investors (venture capitalist, angels, et al) have invested, often leveraging public funds in the ballpark of hundreds of millions of dollars.

For all this progress, investors are anxiously hoping that their investments will be rewarded with successful exits of their portfolio companies in the future, obtaining great multiples and promised returns to their LPs (limited partners). This aspiration has yet to fully materialize, and until it does, LatAm emerging ecosystems will remain incomplete [2]. Furthermore, frequent successful liquidity events across Latin America will have the effect of truly giving shape to LatAm entrepreneurial culture, compelling organic startup growth and attendant societal lifestyle changes.

Completing the LatAm ecosystem will require the development of a vibrant market of global buyers and sellers. This is a challenge not a single stakeholder can solve. The solution will emerge when, collectively, multiple stakeholders recognize the importance of the Exit issue––giving it the visibility/priority it deserves and working together to conceive a shared solution that “tropicalizes” best practices.

Supporting this transformation, our firm, Alaya CP, and Magical Startups are co–sponsoring a first gathering of its kind in Santiago (Chile) next week [3], which we hope to institutionalize as an annual LatAm event. Exit Day aims to collect experiences/insights and share best practices from international players tropicalized to Latin American ecosystems. Furthermore, we hope that Exit Day [4] will emerge as a convener of future buyers and sellers and an annual M&A forum for stakeholders in LatAm innovation and entrepreneurial ecosystems.

Our objectives are to maximize exit opportunities by:

  • Sharing insights and experiences among local and international Angels, VCs, and PE funds.
  • Collaborating to design and adapt best practices, as well as implement exit strategies for Latin American startups.
  • Convening and connecting Latin American sellers and global buyers.

The promotional brochure for the event consists of the following two images:

As I identified in my prior blog post [5], Latin America has made significant progress along most startup development dimensions, including product development, marketing, finance, and supply chain management. LatAm entrepreneurs aren’t just birthing intriguing conceptual/informal businesses, but are often creating full–fledged enterprises that are increasingly gaining global recognition. However, the ultimate testimonial for LatAm entrepreneurial success will be when exits become ordinary events.

Of paramount importance here is that entrepreneurs and VCs are aligned around their exit objectives, timing, and possible suitors. It is only after this alignment of mindsets that the hard work of managing successful startup exits can truly begin.

With these considerations in mind, I will briefly delineate steps for facilitating successful exits—which will be one of selected topics covered at next week’s Exit Day event. To ensure a successful exit, a startup firm must:

  1. Perform a readiness review 18 months before its intended time of exit. In fact, it is my view that startups should be “born exit–ready”. Moreover, startups should run due diligence simulations across all areas of the company need to meet the most exhaustive auditing standards. In particular, startups should ensure that they are complying with all accounting, tax, human resources, and legal guidelines in all jurisdictions where the they operate. This could be particularly challenging in Latin America, where legal guidelines are often loosely enforced by both local and national governments. This type of situation could become difficult to explain to global suitors or may require contingency plans that improve exit viability.
  2. Demonstrate future potential to possible new owners. Here, the founding team should focus on value–adding performance improvements that accelerate value creation while preparing for the exit and beyond.
  3. Search and identify venues where they may readily identify promising potential buyers. Successful firms have already reduced to a science—namely through a variety of sophisticated channels and marketing modalities—methods for efficiently acquiring customers for their products and/or services. Finding prospective buyers of companies, however, is entirely different: to be successful at this task, startups must be prepared to unlearn approaches for the former and become far more opportunistic.
  4. Prepare to disclose and actively manage unpleasant surprises and give forthright answers to buyers’ difficult questions. Startups that take this advice seriously may drastically improve their chances of awesome exit outcomes––namely by decreasing the risks of exit process derailment and ensuring that suitors will be able to appreciate the full values of their prospective investments.

See you next week at the Exit Day event, or until my next post… – Carlos B.

[1] There are several examples of Latin American Startups that have gained global recognition, including Mercado Libre, Despegar, Paperless, Globant.

[2] This topic is fully developed in my last blog post:–american–innovation–and–entrepreneurial–ecosystems–will–be–incomplete–until–exits–become–ordinary–occurrences/

[3] Hotel DoubleTree, Av. Vitacura 2727, Las Condes, Santiago, Chile.

[4] We have secured the domain, which will be the future web site for this event.



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Latin American Innovation And Entrepreneurial Ecosystems Will Be Incomplete Until Exits Become Ordinary Occurrences

Introduction: Incomplete Latin American Ecosystem

From Chile to Mexico over the last decade, the Latin American Region (LatAm) has joined the Global Entrepreneurial Revolution in full force. Inspired by entrepreneurial developments in Chile––including the now notorious Start–Up Chile seed/acceleration program launched almost a decade ago––comparable government–sponsored innovation programs have sprouted across the LatAm region. Enlightened public/private partnerships have included different actors in the ecosystems, namely two: (a) a myriad of new government regulations strengthening the emerging ecosystems and facilitating the formation of young ventures in the formal economy, and (b) the availability of venture capital from emerging funds and individual angel investors or groups thereof.

Over the past two decades, I have had the privilege to observe these developments due to my multiple connections with many actors in the public, private, and academic sectors across the region. Furthermore, the formation of Alaya Capital Partners [1] (Alaya CP or ACP for short) in 2012 and its sister US–based company, Sausalito Ventures, has enabled conversations with hundreds of potential Limited Partners, and probably thousands of founders of young companies, which consist of ventures still in their ideation stages to firms that are fully established. Furthermore, my location advantage of being based in the San Francisco Bay Area/Silicon Valley enables me to compare, contrast, and connect disparate trends and opportunities, bridging the ecosystems and exploring new opportunities across the Americas.

Alongside Alaya CP, there are approximately 50 VC funds in the LatAm region (45 of which are LAVCA [2] members), mostly in Mexico and Brazil. The emergence of VC funds in Latin America began in the early 2000s, and accelerated in the mid–2000s, particularly in Chile. Over the last 10 years, the pace has continued to grow and expand to all geographies, in particular Argentina, Chile, Mexico, and Brazil, and other parts of Latin America.

For all this progress, a critical element is missing in the LatAm ecosystem development: the exits.

The exit market continues to be immature for two reasons: reluctant international buyers and ill–prepared local/regional buyers. In this blogpost and the blogpost that follows, I will (i) identify the problem statement of the “missing exits,” which puts the sustainable growth of LatAm ecosystems in jeopardy, and (ii) refine the problem statement illuminating some potential solutions.

Problem Statement

Over the next 3–5 years, dozens of VC funds will have an approximate total of 100+ Latin startups that are “exit ready” and seeking potential buyers. If successful exits do not materialize significantly in quantity and quality over the next decade, this will represent a lethal blow to the embryonic LatAm VC industry. Its future development would be uncertain, as VC fund administrators will face increasing challenges raising future funds and persuading LPs of the attractiveness potential of their investment theses.

Problem Analysis

The diagram below illustrates the developmental steps of a venture, beginning with the venture’s idea phase and proceeding to its transformation into a fully–fledged business.

Stages (New)

The mortality rate diminishes monotonically as we move from the ideation phase (–2––mortality close to 100%) into each successive transformational phase, reaching a fully–fledged ongoing concern in the growth phase (3– with amortality probability greatly reduced). During the early formative phases (–2 and –1), the founding team borrows, begs, and “steals” resources and invests their sweat, with the hope that its effort will eventually translate into actual economic value. By Phase 0, family, friends, and angels (FFF & Angels) become the first investors of the emerging venture. Somewhere in between the validation and the growth phases (1 & 2) is the time when funds like Alaya CP and other VCs invest. Typical valuations of Latin Startups, require VC investments (or group of VCs) somewhere between $150K to $500+K dollars for anywhere between 5 and 20 percent equity in the emerging venture [3]. Once the product or service is validated in a specific market (after Phrase 2 and Phase 3), the venture may require additional funding to support its market expansion and possible global scaling (Series A and beyond). By the time the venture reaches Phase 3, the venture transformation is complete from an idea (phase –2) to an attractive business, and is now hopefully an attractive acquisition target [4]. This constitutes the exitor liquidity event, enabling all those who have invested sweat or money to cash out and hopefully multiply their initial investments by large multiples [5] for the FFF, Angels, and VCs. Of course, the founding team and the employees who received part of their compensation in equity, are rewarded handsomely here as well.

Refining The Problem Statement

The need to identify buyers (local, regional or global) and successfully complete transactions for dozens (possibly over one hundred) Latin American startups which will be “exit ready” over the next 3 to 5 years, with valuations somewhere in the range between $10MM to $30MM US dollars.

The next question is how such a high volume of transactions will materialize. It is important to recognize that their sizes ($10MM to $30MM US dollars) are out of the range of transactions usually processed by established/traditional investment bankers, whose processes are optimized for transactions which are at least one order of magnitude bigger (or more). Transactions over $100MM dollars can support fees in the range of millions of dollars to compensate the sell and/or buy sides investment bankers, lawyers, accountants, tax specialists, and other players supporting these transactions. Clearly, Latin American startup exits cannot support these fees as they would represent transaction costs in excess of 10%.

LatAm VCs are compelled to identify creative out–of–the–box solutions to support the quantity of transactions efficiently, with a new breed of investment bankers and all the supporting functions leveraging technology and innovative business models.

Finally, LatAm VCs need to work closely with their portfolio companies starting at the moment of investment to have them “exit ready” at all stages of their development. Their accounting and governance need to be in full compliance of the local rules and the USA (particularly Delaware) to be ready to global suitors. Latin American startup founding teams need to persevere in their journeys to develop their ventures to sell them, balancing the goal of monetizing their product/services (and generating greater revenue returns) with the goal of selling ownership of their ventures. The latter goal could be particularly traumatic for many Latin entrepreneurs, since they have a propensity to personalize their ventures (as their babies).

I am confident this challenge will be solved. The progress made so far in the development of entrepreneurial ecosystems across the LatAm region is without a doubt impressive. However, it is now clear that there is a need to identify efficient solutions enabling the completion of the key missing element of LatAm entrepreneurial ecosystems: the development of a market of companies leading to successful exits.

My next blogpost will identify solutions (and their sub–elements) to the challenge identified in this post––in particular the process of Completing The Latin American Entrepreneurial Ecosystem.

Until my next posting – Carlos B.

Deal Volume

[1] Alaya CP was the first venture capital fund formed in the interior of Argentina (outside Buenos Aires).

[2] The Latin American Venture Capital (and PE) Association, of which Alaya CP is a member. LAVCA publishes a valuable index, the 2017/2018 LAVCA Scorecard, ranking the state of development of the Latin American Private Equity/Venture Capital markets. A more comprehensive list of indices and rankings (updated this for 2018) can be found at the Sausalito Ventures web site.

[3] Establishing a range of pre–money valuations between $750K and $10MM US dollars. The sweet spot are companies with products and/or services (v 1.0) starting to gain traction with paying customers. These startups command a typical pre–money valuations in the range of $1MM and $3MM. Convertible notes are vehicles increasingly used to postpone the need to establish the value of young startups in early developmental phases.

[4] Acquisitions are more likely for Latin American startups over the next 5 years. IPOs are not ruled out, but they are not addressed as they are considered unlikely, and if it happens it would be a singular event.

[5] These are the expected returns of Latin Startups. Obviously, funds like Alaya CP aim for the highest possible return, aligning the interests of the founding team, FFF, Angels, and other co–investing VCs.

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Reflecting on Grapes and Wines: Any imminent disruption?

A couple of weeks ago, I had the opportunity to spend a day in Sacramento at the Unified Wine & Grape Symposium (Jan 23-25th 2018). It was a fascinating experience. I have participated in dozens, and possibly hundreds of, conferences and industry trade shows around the world. However, this conference was different in almost every respect.

For starters, all other gatherings I had participated in related to IT — i.e., some emerging technology in telecommunications, information processing — or related applications. Historically, most of the gatherings I have attended reviewed wholly disruptive products or services that rendered prior offerings obsolete. Furthermore, the products or services at these gatherings were almost always “man-made” sans the direct, explicit participation of mother nature. In most cases, the climate at these gatherings was showy––with multiple languages often overheard in the hallways and Wall Street suits visibly present. Most products or services detailed were only a few years old, and anything beyond 5 years old was definitively a “museum piece”.

Wine, often, gets better and more expensive with age. The industry is only a few thousand years old. Furthermore, the grape and wine business is an important part of the economy, particularly here in Northern California. In the US, it is about a $60B per year industry, and here in California, represents 60 percent of the US, and several hundred billion dollars worldwide. Wine consumption worldwide is growing at a faster clip than the global economy, and the average unit bottle price is shifting to premium brands (over $15-20 dollars per bottle).

Furthermore, while the United States (US) leads in the rankings of wine consumption, other countries lead in production. The table below highlights the top 10 largest producers and consumers of wine[1].

Wine Table
The US leads in wine consumption but not in production

The wine industry is also unique in that, while the US dominates most IT (information technology) sectors, European countries (Italy, France, Spain, etc.) not only are the leaders of wine production, but historically have brought forth and advanced the industry’s leading technologies. They have exported their know-how, mostly via emigration[2], to the US and to most of non-European countries, with the exception of China. Wine consumption (and production) in China is a recent phenomenon in part facilitated by globalization and the continued expansion of the country’s middle class. Other emerging countries exhibit the same trend, showcasing a high correlation between middle class enlargement and demand for wine consumption.

Nature dictates the tempo of the industry. Grapes are harvested once a year and wine production is followed by an aging process which may last from a few months to a few years. Tradition and experience dominate this process, while science and technology has played an increasing role in adding value, reducing costs, and increasing quality and efficiencies across the value chain in the last century, particularly in the last several decades, post WWII.

Incremental innovations[3] galore was my first broad impression perusing the booths of the Unified Wine & Grape Symposium trade show. The range of products on display was mind-boggling, from disparate fertilizers and agriculture machines to advanced tools and bottling labeling equipment. Suppliers for every step of the value chain and every imaginable service was on display. My own professional formation (or deformation) was to look for those disruptive forces3 that would have an impact xN (multiples of N>1), and I really had to look much harder to find those.

Identifying these critical emerging disruptive forces, in general, was not a different task from identifying the disruptive forces of any other industries. I have highlighted these below for your review:

Disruptive Vectors (final)
15 Disruptive Forces Pounding on the Incumbents. A larger version of this table is available at:

My observations at the Unified Wine & Grape Trade Show elicited the following disruptive insights:

  1. IoT is slowly penetrating different elements of the value chain making possible to start talking of a “connected” vineyard or winery:
    • Precision agriculture is enabling 2, 3, 4 and 6, among others. First examples of managing water, fertilizers, growth rates, etc. are becoming available.
    • Various key building blocks of the wine-making process (such as pumps, sensors, flow meters, et al) are becoming wirelessly “connected,” enabling dashboards and automation; enabling 3, 6, 8 and 11.
  2. Software platforms are emerging to enable end-to-end management from the vineyard through production, distribution, and logistics. This is enabling 2, 4, 6, 9 and 10.
  3. Direct-to-Consumer (DtC) software and Apps, enabling disintermediation (1), connecting with the consumer directly. Furthermore, this new distribution channel enables a steadfast gathering of information about consumer tastes and preferences (4) to anticipate (8) and personalize (9) the experience, enabling increases in loyalty and revenue. Tasting rooms, wine clubs, apps, et al all play a role here.
  4. Work-in-process efficiencies and monitoring. For example, improving the aging process as it becomes dramatically reduced by using new oxygenation technologies,

CBInsights has developed the map shown below. The map identifies a list of Wine Tech companies entering the space targeting one or more areas of disruption. While it is easy to dismiss very traditional millennia-old wine industry, it seem it cannot escape the lure of technological innovations. Examples range from wine subscription services to rating apps, startups in the space are innovating more than ever before. Connected corks and bottles are starting to emerge, as well as algorithm-based recommendation features to better match personal tastes to wine.


Wine Tech Market Disruptors (source: CBInsights)

Comparing the Wine Tech market map constructed by CBInsights with the list of exhibitors at the 2018 Unified Wine & Grape Symposium, none of the 50+ companies could be found in the exhibitor’s list. This is intriguing… Could it be that they are on the waiting list of floor space for future Unified Wine & Grape Symposium trade-shows, as an executive at one of the incumbent companies responded? Or is it just possible that they are showing their wares at new trade-shows where the disruptors and the early market adopters attend? Provocative as it sounds, I lived through a very real experience in my professional journey, as data communications and eventually the internet created their own venues and conversations away from traditional, century old telecommunications industry trade shows, which were centered on voice communications. This is a far-fetched analogy, but could it be true?

While we are still a while away from dial-a-wine, nutraceutical[4] wines or a complete synthetic wine home production[5], there is no room from complacency. I say this not because of my expertise on the wine & spirit industry, but because of my conviction that the digital transformation is creating the perfect storm for each incumbent, in each industry. Each one individually or as part of a tectonic shift in its industry, and at its own time will be unable to scape and will likely face its own deconstruction and re-construction over the next decade. Disruptive forces will pound on the incumbents, and it will be compounded due to global competitive pressures, all vying to get hold of their revenues and profits.

Until my next post – Carlos B.


[2] Italian, French and Spanish catholic missionaries were often the technology transfer agents bringing the know-how of growing vineyards and wine-making to new lands across all continents, beginning in the 1600s through the early 1900s.

[3] Incremental innovations expected improvements are about N% while disruptive innovations provide xN improvements (for example, 5% versus 5 times better performance)

[4] While the health benefits of wine are widely known, the nutraceutical food and beverage industry is still nascent.

[5] Analog to the way 3-D printing has disrupted the manufacturing, logistics and retail industries.

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Reflecting on our journey building the first VC fund in Argentina’s interior

Nov 2017 -- 1 - CopyIn 2011, I was one of five general partners (GPs) who joined[1] forces to start Alaya Capital Partners in Córdoba, the capital city of Argentina’s interior (and my home city).  Just last Thursday (11/16/2017) at the Alaya Investor Day, we announced a new goal to have US$100MM dollars under management by 2022, capping a decade-long journey.

And what a bumpy ride it has been!  Given our unprecedented announcement a couple of weeks ago, I wanted to take the opportunity share with you the areas that I thought we got right, got wrong, and other areas where we clearly misjudged market and government signals.

What We Misjudged

Nov 2017 -- 2 - CopyAmong the most successful tools to stimulate entrepreneurial ecosystems are government programs that provide matching funds to facilitate venture capital (VC) formation (as has been the case in Israel and Chile, among others). As we launched our first fund (Alaya I) and formed Alaya in 2011, we expected to promptly receive matching funds from Córdoba’s provincial government that never materialized.  Unfortunately, we failed to appreciate that these promises made to us by Córdoba’s provincial government suffered a six year delay.

In retrospect, it’s hard to imagine a more challenging time to launch a VC fund in Argentina than 2011.  The years that followed Cristina Fernández de Kirchner’s second term landslide general election victory in 2011 were among Argentina’s worst ever in terms of sociopolitical isolation, rule of law, and economic malaise.

Nov 2017 -- 4Nonetheless, we persevered.  We were extremely fortunate since all of Alaya I’s limited partners (LPs) were from Cordoba, who were well aware of the difficult climate and stuck with us.  We also earned our LPs’ goodwill by investing alongside them[2] and by taking a meager (by market standards) management fee of 2.5% that wasn’t sufficient to cover our basic fund expenses. Alaya I ultimately invested in seven startups.  These difficult circumstances over the ensuing years tested our team, and, since we refused to quit, led us to redouble our commitment to the fund.

What we got Wrong

As we rushed to invest in Cordoba-based startups, it was inevitable that we would make mistakes despite our best intentions. Originally, our investment thesis was that local startups (from Cordoba) would scale well beyond Argentina and Latin America, into North America and other global markets. This actually never happened.  These companies’ value propositions, financials, and their founding teams’ skills were simply not optimized to grow beyond Argentina’s borders. Few attempts were made to reach beyond Argentina into Brazil, Chile, and other Southern Cone countries; for the most part our initial portfolio companies, remained local businesses. We naively thought that, given the right selection process (which focused on team and scalable value proposition), we would be funding scalable ventures.

We have learned many lessons since our first investment in Translation Back Office in 2012.  We were happy that none of our portfolio companies died (died fast/fail forward).  However, we now recognize that our selection process was far too conservative, and our co-founders too local.

What we got Right

We faced significant headwinds, but we did several things right.  Alaya was and remains investor-focused.  We have conducted Alaya from day one with uncompromising integrity and ethics. Also, since investment performance is key, we have concentrated on the development of our portfolio companies. However, the support that we provided to these portfolio companies was unbounded and our advice often came across as too paternalistic, disobeying the Darwinian first principle of entrepreneurial ventures (“survival of the fittest”).

Alaya CP, had a visible impact in the local Cordoba innovation and entrepreneurial ecosystem and many provinces of Argentina’s interior. We collaborated tirelessly with the local six universities, think tanks, Endeavor’s local chapter, other NGO’s and government agencies. Today, Cordoba the intellectual capital of the early 1900’s is regaining its position leading the startup revolution in Argentina.

In late 2015, Mauricio Macri won Argentina’s general election signaling a dramatic change in the country’s leadership after 12 years of the Kirchner’s.  While Macri started to implement his new economic agenda, we at Alaya were eager to take our lessons learned and launch a second fund (Alaya II).  At around that time, we crossed the Andes from Argentina into Chile to participate in Chile’s leveraged fund program (x3) for early stage companies. The qualification process was arduous and took a full year to meet the multiple demands of CORFO (the Chilean Government’s economic development agency).

Nov 2017 -- 5Finally, in late 2016 we received CORFO’s approval and Alaya II was funded with $4MM of private investment and $12MM of Chilean leveraged funds. Today, our $16MM fund is on its way to become first a $20MM, and eventually by the end of next year, as large as $25MM, with its potential x4 leverage, if certain performance conditions are met.

Alaya II, has, by all metrics, been a resounding success. Alaya opened its offices in Santiago and hired a team there, and eight investments (more than over Alaya I lifetime) will be realized by the end of this year (2017 – Alaya II first year of operations).


Mariano Mayer, Secretary of Entrepreneurship and SMEs of the Production Ministry of the Republic of Argentina

Now that we’re two years into Macri’s term (and two years into Cordoba’s business friendly governor’s term), our national and provincial governments are now finally catching-up with the global startup revolution.  Our new leaders’ rational management style, the reduction of corruption and clientism, and Argentina’s brand new Entrepreneur’s Law have combined to create an unprecedented startup friendly environment. Alaya intends to participate in many of these programs. But something else is happening: after a decade of being compared in the same breath to Venezuela and Cuba, Argentina is now distinguished with optimism and anticipation of an epoch of growth with emphasis in innovation and opening to global markets. Recently, Alaya has launched a corporate acceleration program with an emphasis on developing an open innovation platform for the leading Argentinean companies based in Córdoba.

The Alaya team now extends from Córdoba to Buenos Aires, Argentina; Santiago, Chile; and Sausalito, California (San Francisco Bay Area). Our team is strong, diverse, and battle-tested.

We are confident in our ability to perform in periods and geographies of extreme uncertainty, deal with the ambiguity that characterize the emerging Latin American economies, and also called by innovative businesses embracing new technologies, or supporting the global growth of our portfolio companies. However, one key milestone remains elusive to definitively prove our team: its ability to exit its portfolio companies with high multiples. Alaya is at the mid-point of its first decade and, for some of our investments, “Exit Time” is rapidly approaching; when we do finally exit, and return multiples to our LPs, it will be among the happiest blog posts I’ve ever written!

Until my next posting – Carlos B.

[1] Mario Barra, Oscar Guardianelli, Omar Vega, and I were the initial GPs and Luis Bermejo (Managing Partner)

[2] The GP’s commit to invest 20% of the total fund capital.

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Reflecting on the Giga-Unicorn Opportunities Offered by the Health Care Business

I often engage in light hallway conversations with my students in between classes. Recently, while discussing the wealth accumulated by some tech entrepreneurs, I said half-jokingly that we didn’t have any trillionaires yet…

Actually, since the heydays of the modern-day pioneers of the Silicon Valley, it has produced hundreds of billionaires, a selective group of several dozen actually have accumulated tens of billions, and probably a few are pushing the 100-billion-dollar mark…but no trillionaires yet.

This reductive measure of success — the financial metric — will likely add a new trillionaire benchmark in the coming decade, but this coveted space will, in my estimation, be reserved for those select entrepreneurs able to finally disrupt the health care industry in the United States first, and then globally.

For starters, Americans are getting a rotten deal in health care. While American citizens spend over twice as much in health care (about $10K dollars per every American) than their French, Italian, Canadian or Australian counterparts, Americans are not living twice as long; in fact, they are living less[1]. By all measures of the market economy, this is the perfect definition of a rotten deal. More often than not we are prepared to spend more to get more, but not to get less. Presently, the debate over health care reform occupies a central place in our public discourse, yet three critical issues remain silent:

  1. About the services that should be provided to every American, the answer seems simple: why not provide to everyone the same health care services that our congressmen and senators enjoy? I have never heard them voice concerns about pre-existing conditions, premium hikes, lifetime limits, or the services they enjoy for themselves and their families. So the benefits question seems settled. If they are our representatives from the people, by the people, and for the people, what is good for them should be good enough for the rest of us, as well, right?
  2. While most industries have enjoyed huge productivity increases during the last 4 decades as a result of the introduction of new technologies across all segments of their value chains, health care costs have continue to rise higher than inflation. More alarmingly, this industry has not produced any consumer surplus, as has been in the case in other industries — in part due to regulation, in part due to the massive size of the health care industry and the power of its lobbying effort. The latest statistics put health care expenditures in the US at pushing close to 20% of GDP, or about $3.4 Trillion in 2016, growing at a pace close to 6% annually[1]. In other words, the US health care economy, if a nation, would comfortably have a seat as a member of the G7, and it certainly would have been part of the G20 meeting last week in Hamburg, Germany.
  3. I often wonder when price lists for the most common services will be published and visibly displayed in our medical waiting rooms or on the web sites of our health care providers of choice. Or when we will be able to enjoy comprehensive rankings of disparate medical specialties in much the same way we are able to enjoy rankings of restaurants, or auto mechanics. Obviously, those providers in my neighborhood offering best-in-class services (5 stars) at the least expensive prices (single $ sign) with over 500+ reviews (quality assurance) will suddenly enjoy a competitive edge!

Presently, most medical treatments are marketed as kinds of art forms, rather than     as routine, often technologically-driven processes. Why? Because, to justify high costs, medical practitioners need to emphasize the uniqueness of individual anatomies and circumstances, and de-emphasize the inconvenient fact that 90% of bone fractures, mole removals, and dental cavities are treated in the exact same way. This marketing dynamic is further facilitated by a widely shared natural fear of death, or at least our aversion to pain and suffering. In other words, we allay our qualms about overpaying with the justification that ‘it’s our unique life’.

At a time where disruptive technologies mimicking human knowledge[3] are applied to disparate domains, such as self-driving vehicles or human tissue/organ image diagnoses (radiography/ pathology), we should rightfully wonder how many ‘low hanging fruit’ in the health care are ready for disruption.

Every day, millions of tissue samples, biopsies, x-rays, CAT/MRI/PET scans, et al are diagnosed by highly paid professionals throughout the world. I deeply believe that all that human talent should be liberated from the boring and repetitive task of diagnosis so that they can make higher value added contributions to medical science and in consequence to society. It is my hope that this will both (a) significantly improve our health care space at a superior price-performance point, and (b) empower medical professionals to migrate to new frontiers of health care, thereby enabling higher contributions to health care and to society.

Along these lines, I am calling for the world’s first trillionaries[4] to search for interesting market entry points and compelling value propositions, supported by innovative business models to disrupt specific sectors of the health care industry. Myriad innovations that break information and knowledge asymmetries will finally bring the democratization that has disrupted many other industries to health care. A global market of 8 Billions consumers by 2026 and 9 Billions for 2042 — all with the same bones, organs, and for the most part the same health care needs – are awaiting your irreverent disruption of the health care status quo.

Who wants to be a trillionaire?

Until my next posting – Carlos B.

[1] According to the OECD, the life expectancies at birth in Australia, France, Italy, and 22 other OECD countries all score over 80 years, while the US just scores 78.9 years.


[3] Artificial intelligence (AI), Big Data and Machine Learning are just a few of those emerging technologies.

[4] A reductive benchmark, to be clear, because not all contributions to society can be measured monetarily or in terms of accumulated wealth.

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Innovation and upward mobility across the socioeconomic pyramid: A reason for optimism or pessimism?

This past week, I woke-up on November 9th to learn the election results of the nasty 2016 US presidential election. The results prompted me to finish this post that was already in the making for some time. While for many this election was about issues like race, gender or even immigration or other factors, I believe this election was ultimately decided by voters who felt massive economic insecurity. Last Tuesday (November 8, 2016), the election provided a channel for Americans, particularly those living throughout the so-called Rust Belt, to voice their collective economic resentment as they are increasingly left behind in an era of globalization and accelerated technology changes. In today’s post-election post, I will make an attempt to discern the impact of the accelerated pace of technological innovations on upward or downward socioeconomic mobility.

Last September, I published Innovation: Impetus for Global Resentment?, in which I argued that for most of the last century, the professional re-invention process happened naturally as a part of generational improvement as parents sought better futures for their children. At that time, the variables of the time constant of innovation and lifetime expectancy were somewhat aligned, enabling a rather natural process for successive generations to capture the opportunities presented by new technologies.  Each new generation could potentially aspire to a better lifestyle, afforded by higher paying jobs with higher value added, by embracing businesses enabled by technologies unavailable to prior generations. For the most part, education was the great enabler[1].

Today, and over the next decade, global innovations facilitated by exponential technologies, will be deconstructing and reconstructing every industry and business, as we have known them.  Each industry will have its own “Kodak moment” as digitalization, demonetization, dematerialization, democratization or for short massive disruptions target established incumbent businesses. As they continue to operate under old paradigms supported by old technologies, they fall prey to new business models and technologies embraced by agile new firms. This deconstruction and reconstruction of industries and their associated businesses will challenge the disrupted workforce to either: (a) resign to accept lower paying jobs at the base of the job pyramid, or (b) re-invent by gaining new skills in new areas with the hope of maintaining or improving the income level they enjoyed before the disruption happened.

In this post, we explore how this deconstruction and reconstruction process will become a threat to those jobs in the mid-income range, polarizing society and increasing income inequality between the commodity jobs at the base vs. the high value added jobs at the top (see below, Figure 1, Job Compensation Pyramid). Each one of these transformations will impact firms (and their employees) on the winning and on the losing side of the battle lines. However, all these transformations will have in common, and as ultimate winner the consumer, as each disruption will bring what economists call “consumer surplus”, benefiting them by increased convenience and productivity, adding predictability to their lives at a lower cost. The consumer adoption of these new technologies will become irreversible, and once embraced, it will spread virally and get installed in our lives until the next new technological disruption. Obvious examples include digital photography and e-mail, since it is highly unlikely we would ever return to celluloid photography or post office (or fax) delivered letters.

The disruptors “uberize”[2] existing industries in few years, creating new customer value by introducing new products and services at lower cost (or no cost) and offering higher productivity and convenience. In fact, it is this new customer value that fuel the viralization and massive adoption by end-consumers or business customers, catapulting the disruptors as dreadful competitors of established companies now under threat.  Whether is the taxi coop, a hotel chain or a photo parlor, they are all assaulted by the new entrants. Likely, these disruptors have limited or no prior experience in the industries targeted, however, they master the digitalization of businesses, new technological paradigms, and business model innovations; while enjoying access to capital from well-connected VC, Super Angels and other strategic investors.

The investors’ motivation is dominated by FOMO (Fear Of Missing Out). They participate in a XXI century version of wealth transfer from the incumbents to the few global disruptors they fund. They place their bets by funding what they hope will become the future Amazon’s, Google’s or Facebook’s. The odds are tiny but the multiples enticing. Hence, money flows in the form of investments to these entrepreneurial teams seeking to build the next Uber by targeting the incumbents in the established industry to be disrupted.

The disruptors are typically bright and energetic entrepreneurs often in their 20s and 30s with some or limited experience, unencumbered by the responsibilities of family or children. In many ways they have little to lose, not because they are irresponsible playing with others people’s money, but rather share the view that the challenge of becoming a disruptor is a worthy endeavor. A few years of their lives committed to a high risk moonshot, can provide and extraordinary learning experience, which if successful could make enough money for a lifetime. The hall of fame proves it is feasible, with new names being added periodically to those like Steve (Jobs), Larry (Page), Michael (Dell), Bill (Gates), etc.

The incumbent companies are at large passive bystanders. Actually, most of the firms knew of possible threats beforehand, however, their response were lukewarm as they were tangled in their own internal processes, and management energy’s misplaced in internal politics and preoccupied in their own personal future while serving often dying customers. The incumbent firm focus was highly optimized in the established (old) technology and serving traditional customers, leaving its flanks open to the disruptors targeting emerging technologies and/or new customers.

By the time the new reality defined by the disruptors emerges, is often too late and by then, their tepid actions are unable to reverse their fate, which by now is a painful decline and an irreversible death. In other words the firm faces its own “Kodak moment”. While management bears most responsibility, employees and supply chain stakeholders will suffer the most, affecting potentially hundreds of thousands/millions of jobs. In the absence of a well-defined action plan, many will be consigned to jobs with lower earning capacities and risk being jobless all together.

For most individuals, their position in the socioeconomic pyramid is determined by their compensation. Figure 1 below identifies three areas of the socioeconomic pyramid as defined by the job compensation.

At the base of the pyramid are commodity jobs typically compensated in the US under $20/hr.[3] They tend to be workers performing highly standardized activities with little differentiation generally prescribed by simple rules or algorithms. They often require limited amounts of training and the individuals holding those jobs for the most part are easily replaceable. Examples of these jobs are janitorial service providers, painters, customer service representatives, fast food workers, etc.

At the top of the pyramid are the highly compensated jobs (>$100/hr.). These tend to be professions requiring skills difficult to standardize. They often require knowledge and experiences that the market values highly, and are likely in limited supply. Therefore, these positions are generously rewarded. Examples of these jobs are plastic surgeons, board members, physicists, mental health professionals, most engineering fields, etc.

The middle income jobs (between $20 and $100/hr.) are those most challenged. These are the positions susceptible to disruption by emerging technologies (i.e. digitalization, machine learning, 3D printing, AI and big data, etc.). These workers perform activities able to be targeted by blue and white collar robots, and are sufficiently paid to justify the ROI (return on investment) by applying these new technologies. In other words these are the jobs that large sections of society holds, often referred as middle class jobs. Examples of these jobs include traditional manufacturing jobs across many industries, first/second level supervisor and administrative roles, logistical operators, financial analysts, etc.

As new technologies disrupt many jobs, it is worth mentioning two important dynamics:

  1. New technologies, as they become established, create new jobs, requiring new skills along the three ranges of the job compensation pyramid,
  2. Technological innovations do not know of “sacred cows”. Once considered “high value jobs”, at some point their protection erodes as new technologies are able to perform their functions better and more cheaply. The health care and legal professions have long been considered untouchable, but these too will feel a downward pressure from their positions of privilege.

Furthermore, the average lifespan of each technology is shortening, often to less than a decade to complete its life cycle, instead of multiple decades, which was the life cycle of technologies for most of the prior century. Therefore, “Kodak moments” are becoming increasingly likely, with the unfortunate consequences of the destruction of shareholder value and employment.

For the affected workers holding mid-income jobs, three possible outcomes are expected:

  1. Accept lower paying jobs and suffer income decreases at lower levels in the job compensation pyramid,
  2. Work longer hours or take second/third jobs to protect income levels,
  3. Re-invent by gaining new skills in new areas often borne out of one of the aforementioned disrupting technologies.

Options (1) and (2) are self-explanatory and represent suboptimal solutions since they require accepting in perpetuity lower income levels, or working longer and longer hours to retain prior income levels. Option (3) brings some hope, yet requires the non-trivial decision of applying the time, effort and resources required to embrace the personal/professional re-invention process. However, the selection of the area of re-invention or what new skills to acquire cannot be left completely to individual choice; rather, this decision will require guidance emanating out of a concerted collaboration between government and the technology and educational sectors.

Until my next post amigos – Carlos B.

[1] My own life experience is a perfect example. My immigrant father had only a 3rd grade elementary school education and my mother only completed 6th grade, yet their two children went on to college and completed graduate studies overseas.

[2] UBER disrupted the taxi and limo industries around the world in just few years (<5 years)

[3] Fully loaded salaries, in other words, the gross salary plus the cost of the benefits paid by the employer.

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Innovation: Impetus for Global Resentment?

Seismic global events such as Brexit, the rise of nationalistic movements, or Trump’s nomination as the Republican presidential candidate here in the United States, are not isolated phenomena, but actually have something in common: both appeals to citizen fears. Over time these accumulated fears lead to collective resentment across broad sectors of society motivated by income stagnation, job losses, increased socioeconomic inequality, etc. Daily headlines in the global media identify simplistic targets, when they are actually pointing to visible consequences, rather than identifying root causes or, even more rarely, possible solutions.

In this blogpost, I would like to connect the accelerated pace of global innovation as one of the root causes of today’s painful societal structural cracks, which are exacerbated by a longer life expectancy of the population. Citizens feel increasingly disconcerted by the speed of the disruptions they experience, feeding individual fears into collective resentment.

We can commence our thought experiment by considering the introduction of the Ford Model T in 1908, which sought to replace the horse-pulled buggy, the prevailing mode of transport in society. This disruption was as big as any of today’s eminent disruptions. However, its impact was felt over decades since society was slow to adopt this new technology. Hence, individuals who made a living moving goods or people via the incumbent technology (the horse-pulled-buggy) were slowly phased out over a period of time. Not only was the adoption much slower (the automobile took about 5 decades to reach approximately 60% of US households), but the average life expectancy of those affected, or disrupted, by the advent of the motorized buggy, was relatively much shorter.

Transition Time Frame Incumbent Technology New Technology Number of years to penetrate  60% of US households
1900 – 1950 Transportation technologies:

Horse-buggies, or other animals or humans used as power source

Motorized vehicle 48.7 years
US Life Expectancy in 1911 (Caucasian) at Birth M= 50.2,   F= 53.6

at 30 years old       M= 64.8, F= 66.9

1990 – 2005 Information transport technologies: Dial-up modems, Fax machines, Postal Service Internet 15 years
US Life Expectancy in 2000 (Caucasian) at Birth M= 74.5,   F= 79.9

at 30 years old       M= 76.4, F= 80.9

2003 – 2010 Celluloid Photography Digital Photography 7 years
US Life Expectancy in 2004 (Caucasian) at Birth                   M= 75.7, F= 80.8

at 30 years old       M= 77.3, F= 81.8

Table 1: Key disruptive technologies, adoption rates and the life expectancy (M= male and F= female)

Following the same example, a Caucasian male conductor of a horse buggy in 1911 of age 30 would be expected to live to age 63.8. Assuming he would be able to work until age 55, he would likely have another 25 years in his occupation without disruptions. Given that the threat of being replaced by the new technology took decades, it is likely he would be able to retire in his mid-fifties without being significantly disrupted by this new technology[1].

Let’s envision now a more current scenario: a Caucasian male 30-year-old photographer/dark-room developer of film (or celluloid) photography in the year 2004. Here, the likelihood of his being disrupted before age 35 is extraordinary (2004 is approximately 5 years after the market introduction of digital photography), since digital photography took only 7 years to be embraced by 60% of US households. Our hypothetical photographer would be left with about 30 years of productive life before retiring. Clearly, he will need to reinvent himself, not once, but possibly multiple times throughout the rest of his professional journey.

Our hypothetical photographer is not alone in his drama. The transition from film to digital was so rapid (only 7 years to penetrate 60% of the US households)[2] that it would have been very difficult for him to reasonably foresee the severity of its impact. First, this disruption democratized ownership of a camera by dematerializing it: each smart phone included a digital camera, as well as a myriad of apps whose effects would be profoundly felt by the entire photography equipment sector. But the damage did not stop there, since that same disruption demonetized many of the revenue streams of the photography industry, e.g., the copy and print photography sub-industry. Hence, our hypothetical photographer had abundant company. The disruption of the entire film photography industry was devastating, indeed.

Our hypothetical photographer’s challenges, unfortunately, do not end there. The living wages he was able to earn as a photographer have quickly eroded as many of the tools of his trade have been dematerialized, demonetized, and in consequence democratized. This example is thus far different from our example of the horse buggy conductor, who could possibly have continued in his profession into retirement or death. But our photographer has seen his livelihood and living wages at best quickly eroding and at worst completely disappearing.

A quick summary of our discussion can be captured as follows:

  • The pace of innovations is accelerating at an exponential pace;
  • Willingness of society to adopt innovations to alleviate perceived market pains is also increasing at an exponentially faster pace;
  • If successful, each innovation wave disrupts incumbent technologies, reducing them to obsolete status and destroying the jobs of those involved;
  • Professionals of ALL ages need to re-invent themselves by acquiring new skills and training;
  • As innovation and adoption patterns accelerate, the need to re-skill and re-train may occur several times in the lifetime of an individual, requiring a constant process of professional reinvention.

Every aspect of our human activities has been, is being, or will be disrupted over the next decade. The way the incumbents created economic value has changed or is in the process of changing. While incumbent technologies and their operators fight with tooth–and–nail to preserve the status quo[3], most of the time the allure of the benefits resulting from demonetization, dematerialization, and democratization offered to the consumer become too attractive to pass up, rendering disruption inevitable and irreversible. However, a fraction of those very same consumers would become disrupted as a result of their behavior.

While it is easy to intellectualize a constant process of reinvention whereby society continually harvests ever increasing rewards from the market by increasing the amount of economic value added, the implementation of that process is far more challenging. For one, re-invention takes resources, time and dedicated effort. Even if these three conditions are simultaneously met for any given individual, it remains unsolved, the identification of the area of re-invention. Distinguishing technology fads from real strong and durable trends is often hard to distinguish, especially in its early stages, even for the trained eye. All together re-invention is often a fearful and distressing proposition, transforming the sum of individual fears into collective resentment.

Furthermore, governments and policy makers are ill-prepared to guide our hypothetical “film photographer” for his journey of periodic reinventions, because their policies are often predicated on antiquated economic models, e.g., industrial societies. Actually, government employees, due to the protected nature of their jobs, are often incapable of understanding the realities of these market disruptions, augmenting the resentment of the affected private citizens.

Lastly, the globalization of innovation adds to incumbents’ accumulating fears as new unheard players from remote geographies threaten the incumbent firms and the jobs of all those they employ. Those that lobbied hard for free trade a few decades ago, now lobby even harder to return to protectionism with the hope of avoiding the blows of disruption. The often pronounced statements of politicians to bring back old manufacturing jobs is misguided and counter-productive. If China or Vietnam wants to continue assembling combustion engine vehicles we should let them do it, while we lead in the development of electric self-driven vehicles…. But, wait a minute… did I just say electric self-driven vehicles? Then, we will need to address the fears of all the Uber and Lyft drives, gasoline station operators, etc., etc…. as they will all be massively disrupted.

My hope is that I have provided in this post a context for the unsettling reality that many today are experiencing in their professional careers. In my next post, I will explore possible opportunities for solutions. No doubt that in the meantime, we should be prepared to think carefully about the reasons for growing global resentment and challenge our politicians with hard questions that consider the complexity of the issues. Let’s not allow them to get away with the often overly simplistic solutions of the soundbites they propose.

Until my next post – Carlos B.

[1] Keep in mind that in the ensuing years many older colleagues left the profession due to retirement of death, delaying any possible effect to our hypothetical Caucasian male horse buggy conductor.

[2] Taking many casualties in the process. Kodak, the undisputed leader of film photography and, counter-intuitively, the inventor of digital photography.

[3] Performing incremental improvements, which in retrospect often result in too little––too late changes.

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My New Year Salute!

Dear Amigo, this a time of the year is to reflect, acknowledge and appreciate friendships amidst the ups and downs of our hurried lives. During these uncertain times YOUR friendship is a bedrock of confidence and optimism to continue our battles and re-double our bets!

Thank you for bringing perspective and depth,
Thank you for being the best medicine for the pessimism and negativity that seems to be omnipresent in our world,
Thank you for sharing your “joie-de-vivre” with all those who surround you, and most important,
Thank you for being you.

This is my way to recognize your friendship and express my gratitude,
extend my invitation to share many more adventures together in 2016, and wish you a Happy New Year!

Carlos S. Baradello, PhD
Managing Partner of Sausalito Ventures, and
Professor of Innovation & Entrepreneurship at HULT International Business School

Cell: +1 (415) 342 6663
Skype: baradello

424 Johnson St., Unit “A”
Sausalito, CA 94965

Posted in My posts, Personal note | 1 Comment

Constructing an Entrepreneurial Ecosystem

Para la versión en Español ver abajo.

Constructing an Entrepreneurial Ecosystem

I returned last week to the Bay Area after participating in an event in Buenos Aires organized by Banco Ciudad and the IAE Business School. The theme of the event was “Innovation and the entrepreneurial spirit: Developing an engine for economic development, entrepreneurship and citizenship in Latin America”. Which such ambitious goal, the event was held last July 8th. This posting is a summary of my notes resulting from the interview the day before the most listened radio talk show in Buenos Aires (Lanata) conducted the prior day to the event.

Carlos Baradello during his conference titled:  “Constructing an Entrepreneurial Ecosystem”

Carlos Baradello during his conference titled:
“Constructing an Entrepreneurial Ecosystem”

Throughout the world, government leaders, businesses, educators, entrepreneurs, thought leaders, non-governmental organizations (NGOs), and other members of civil society — including young and so not young people — are attempting to co-create environments where human flourishing prosper. In this enterprise, they seek not only economic development, but seek to strengthen of all aspects of human society in particular its creativity and ability to change for the benefit of all its citizens.

I have observed this nascent trend most acutely in Silicon Valley and the broader San Francisco Bay Area, where visitors from the four corners of the globe come to visit, explore, learn, and share experiences. These are the proverbial techno–tourists, whom I have also dubbed the twenty–first century alchemists. The alchemists seek clear and simple formulas that allow them to replicate Silicon Valley on their respective continents, in disparate cities and regions including forgotten corners of the world. These alchemists, as you will recall, like to turn sand (silicon) into gold (wealth).

The reality is that Silicon Valley would not be able to re-create itself today even if it wanted to, because its development has not followed a single formula or prescription. As a result, the master blueprint for Silicon Valley that everyone seems to be chasing doesn’t exist. The lingering assumption that such a formula exists (with accompanying easy and fast solutions for its implementation) has given way to economic policies that sometimes have had the opposite effect inhibiting its economic progress as well as in some extreme cases to abort the gestation of entrepreneurial ecosystems.

Along these lines, I have outlined here ten observations guiding the development of an entrepreneurial ecosystem:

  1. Economic growth is necessary to create successful Startup environments. Not the opposite as it is often believed! In other words, you need to be already successful to aspire to become a stronger ecosystem. Some countries and regions mistakenly associate economic growth and development with an ascendance of a Startup culture.
  1. Entrepreneurial ecosystems to become self-sustaining must benefit many disparate actors of civil society, including:Government benefits as a result of an increase in employment and tax base.
  • Entrepreneurs benefit from the successes of their innovations.
  • Investors benefit from the investment returns.
  • Businesses benefit from innovations, new products, new talent, and improvements in the value chains, etc.
  • Universities benefit because of greater knowledge and increased donations.
  • Civil society benefits because of quality jobs created and higher employment. Some of the new wealth created spills over to foundations and NGOs, benefitting the arts and other cultural activities, as well as social welfare projects.
  1. Co-working spaces, leveraged funds for angels and venture capitalists (VCs), incubators, accelerators, development programs in innovation and technology, etc., are all part of the solution and facilitate the development of the ecosystem. But these “fads” do not constitute the secret formula the alchemists are chasing.
  1. Recognition of the distinction between subsidies and incentives. Subsidies are harmful and undermine entrepreneurial environments, while incentives are temporary tools that can remedy economic/social situation while stimulating new patterns of behavior.
  1. Entrepreneurship is essentially a Darwinian activity. As a result we need to liberate entrepreneurship from all forms of benevolent paternalism. Because of this dynamic, death is an integral component of an entrepreneurial ecosystem, and the lessons emanating from these deaths benefit broadly the flora and fauna of the entrepreneurial community, which comprise other entrepreneurs, investors, stakeholders, etc. Another important corollary of the Darwinian principle is that greater diversity in the ecosystem strengthens the quality of the ecosystem population. Diversity in thinking, perspectives, and problem-solving approaches, strengthen the entrepreneurial ecosystems and the quality of its inhabitants.
  1. Entrepreneurship is and should remain an inherently challenging human endeavor. Going to extremes seeking to minimize these adversities with government or other agencies subsidies, will prove to be counter-productive and harmful. A competent entrepreneur proactively jumps bureaucratic hurdles, understands that entrepreneurship requires great effort and sacrifices, and is steadfastly aware that the probability of his failure is greater than the probability of his success. He also knows that finding talent is difficult, finding the first client more, and financing his Start­up in its embryonic stages is even more difficult still.
  1. No one manages, governs, or administers an entrepreneurial ecosystem: an entrepreneurial environment is dynamic in nature and self–regulates its disparate actors: obviously there are various connectors and agents who influence one another. Some examples include:
  • Professors and thought leaders,
  • Investment bankers, venture capitalists (VCs), and angel investors.
  • La catalytic support infrastructure for innovation and entrepreneurship: non-governmental organizations (NGOs), foundations, consultants, and other participants.
  1. Companies (independent of their capital structure[1]) are important actors in the development of an ecosystem, because:
  • They could become partners of Startups (open innovation platforms/corporate incubators/accelerators, etc.), distributors, integrators, technology partners, etc.
  • They could become clients of Startups.
  • Their executives, with the right talent, can be good mentors/advisors to Startups.
  1. Focusing on strategic areas to leverage existing knowledge, competencies, and other local prevailing skills will facilitate ecosystem development. Furthermore, if the ecosystem optimizes the creation of products/services that meet the demands of global markets, the startups produced by this ecosystem will grow in both quality and quantity.
  1. Dream big, dream on an international scale with big global markets, and remember that the difficult things take great effort and sacrifice, and the impossible ones only take a little bit more additional effort. One must be impatiently patient, because the development of a successful company takes 10/15 years, and the development of a successful entrepreneurial ecosystem takes even longer.

Successful ecosystems foster innovation and entrepreneurship create multiple economic and social benefits in their communities and generating positive spillover effects that impact broadly society. Successful ecosystems create role models of success and generate new conversations driven by a positive attitude and the ethos that anything is possible.

In order to compare and contrast the 10 observations that facilitate the development of an entrepreneurial ecosystem development (see above), I am including below 10 enabling characteristics that facilitate of creation of Startups (quantity and quality) in Silicon Valley:

Silicon Valley Enabling Characteristics -- English

You can read more about the Banco Ciudad/IAE Event at:
1. agenda-del-Banco-Ciudad--20150702-0005.html

[1] Public, private, family owned, etc.

Como se Construye un Ecosistema Emprendedor?

Reflexionando sobre el evento que acabo de participar en Buenos Aires, organizado por el Banco Ciudad y la Escuela de Negocios del IAE, sobre el tema “El espíritu emprendedor y la innovación: motor de desarrollo económico, emprendedor y ciudadano en LATAM“, llevado a cabo el 8 de Julio pasado en Buenos Aires. Este posting es el resumen de mi entrevista con Lanata el lunes 7 de julio para su programa por Radio Mitre en Buenos Aires.

Carlos Baradello durante su presentación titulada:  “Construyendo un Ecosistema Emprendedor”

Carlos Baradello durante su presentación titulada:
“Construyendo un Ecosistema Emprendedor”

La construcción de un ecosistema emprendedor, esfuerzo amplio y mancomunado de la sociedad civil, líderes de gobierno, empresas, educadores, emprendedores, líderes de pensamiento, ONG’s, etc., a quienes les interesa crear un ambiente donde los jóvenes[1] (y no tan jóvenes) puedan co-crear un ambiente donde prospere el desarrollo humano. En otras palabras no busca solamente el desarrollo económico, sino que también potencia todos los aspectos del comportamiento humano.

Observo semanalmente a los visitantes que llegan de los cuatro rincones del planeta a visitarme en mi oficina en Sausalito y explorar el Silicon Valley/El Área de la Bahía de San Francisco. Ellos son tecno-turistas, a los que yo los llamo: “los alquimistas del siglo XXI”. Ellos buscan fórmulas fáciles y precisas, que les permitan replicar Silicon Valley en países/regiones, en su deseo iluso de transformar la arena (Silicio) en oro (riqueza).

La realidad es que Silicon Valley NO podría re-crearse hoy a sí mismo, aunque si quisiera, dado a que su desarrollo NO siguió una formula prescripta. Por lo tanto NO existe un blue-print o plan maestro que haga posible su re-creación. Esto crea constante confusión y ha dado lugar a la aparición de una mitología que propone soluciones sencillas e instantáneas y veces lleva a intervenciones equivocadas que son dañinas y retrasan o incluso hacen abortar el desarrollo de un ecosistema en gestación.

Las 10 observaciones para facilitar el desarrollo de un Ecosistema Emprendedor son:

  1. El Crecimiento Económico es el elemento necesario para crear un ambiento propicio para los Startups. No lo opuesto!, como algunos países/regiones que asocian erróneamente el crecimiento/desarrollo económico con un aumento en el número de Startups.
  1. Requiere que participen un amplio espectro de la sociedad y muchos se beneficien, como condición para que sea auto-sustentable, incluyendo:
  • El gobierno se beneficia debido a la generación de empleo y aumento de los impuestos
  • Los emprendedores toman riesgos mayores y hay una minoría importante que tiene éxito,
  • Los inversionistas se benefician de la riqueza creada,
  • Las empresas se benefician de las innovaciones, nuevos productos, nuevo talento, mejoras en la cadena de abastecimiento/valor, etc.
  • Las universidades se benefician debido a una mayor creación de conocimientos y donaciones,
  • Y la sociedad civil[2] se beneficia con buenos puestos de trabajo creados. Parte de la nueva riqueza creada tiene derrames en
  • Fundaciones y ONG que estimulan las artes, actividades culturales y también se promueven emprendimientos de beneficio social.
  1. Co-workings, fondos de apalancamiento para Ángeles y VC’s, incubadoras, aceleradoras, programas de formación en Innovación & Emprendimiento, etc.; son parte de la solución y facilitan el desarrollo del ecosistema. Pero NO son la fórmula secreta para el éxito de los alquimistas!
  1. Tener muy clara la diferencia entre subsidios y incentivos. El subsidio es perverso y deforma la cultura emprendedora, mientras que el incentivo es una herramienta temporaria que facilita/estimula a cambiar un comportamiento o adquirir uno nuevo.
  1. Emprender es una actividad esencialmente Darwiniana. Por lo tanto hay que liberarla de todo paternalismo. Como tal produce mortalidad, excrementos y descartes que fertilizan el ecosistema, producen aprendizajes que mejoran la raza (flora y fauna) de sus habitantes (los emprendedores, inversionistas, etc.). Como corolario importante al principio Darwiniano, es que una mayor diversidad del ecosistema ayuda a mejorar la raza. Es por ello que la diversidad de pensamiento, perspectivas y modos de resolver problemas ayudan a fortalecer un ecosistema emprendedor.
  1. Emprender es y debe ser difícil y por lo tanto facilitarla con docenas de subsidios es nocivo y contraproducente. Un buen emprendedor salta burocracias, sabe que requiere grandes esfuerzos y sacrificios, y es consciente que las probabilidades de fracaso son mucho más grandes que las de éxito! También sabe que conseguir talento es difícil y que el financiamiento durante las etapas tempranas más difícil aún!
  1. Nadie maneja, gerencia o administra un Ecosistema Emprendedor: un Ecosistema Emprendedor es dinámico y auto-regula a sus actores. Obviamente hay múltiple conectores y agentes que lo influencian. Algunos ejemplos incluyen:
  • Profesores y líderes de pensamiento en esta área,
  • Banqueros de Inversión, Venture Capitalist e inversionistas ángeles,
  • La malla catalítica de apoyo a la innovación y el emprendimiento: ONGs, Fundaciones, Consultores and otros participantes.
  1. Las empresas constituidas (independiente de su estructura de capital[3]) son actores importantes en el desarrollo del ecosistema, porque ellas:
  • Pueden ser socios de los Startups (Open Innovation Platforms/Corporate Incubators/Accelerators, etc.), distribuidores, integradores, partners tecnológicos, etc.
  • Pueden ser clientes de los Startups,
  • Sus ejecutivos con el talento apropiado pueden ser buenos mentores/ asesores de los Startups.
  1. Focalización en áreas estratégicas que apalanquen conocimientos, competencias y otras riquezas locales existentes facilitará el desarrollo del ecosistema. Si sus productos/servicios satisfacen grandes necesidades de los mercados globales esto facilitará más aun, la creación de Startups en cantidad y calidad,
  1. Soñar en grande, soñar grandes sueños y soñar con mercados globales, recordar que lo difícil es lo que cuesta mucho trabajo y lo imposible solamente un poquito más de esfuerzo. Y ser impacientemente paciente, dado que el desarrollo de un ecosistema basado en la innovación lleva décadas y puede llevar 10 años o más para empezar a generar emprendimientos exitosos.

Los ecosistemas exitosos que potencian la Innovación & Emprendimiento crean múltiples beneficios económicos y sociales en las comunidades de interés que participen; y una variedad de derrames positivos que impactan toda la sociedad en general. Crea roles de modelos éxitosos y nuevos temas de conversación donde permea una actitud positiva y llena de mensajes “que se puede hacer y lograr”!

Para comparar y contrastar estas 10 observaciones de como facilitar el desarrollo de un ecosistema emprendedor, copio abajo las características del ecosistema emprendedor más desarrollado del planeta. Estas son las 10 características que facilitan la creación de Startups (en calidad y cantidad) en Silicon Valley:

 Silicon Valley Enabling Characteristics -- Spanish

You can read more about the Banco Ciudad/IAE Event at:
1. agenda-del-Banco-Ciudad--20150702-0005.html

Notas de pie de página:
[1] Emprender es altamente riesgoso y por lo tanto los jóvenes son los que menos tienen que perder.
[2] Las familias pueden ser emprendedoras como así también las organizaciones a las cuales pertenecen (i.e. clubes, escuelas, iglesias, etc.) dado que ellas abrazan la innovación en sus actividades.[3] ya sea que sean públicas, privadas, familiares, Co-operativas, etc.
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Reflecting on the role of Government in Latin America (and other Emerging World Regions)

As I mentioned in my prior blog, after my intense three week travels late last year across Latin America, I am convinced that the democratization process, enabling more and more Latin entrepreneurs to access the innovation revolution is irreversible.

However, governments across Latin America are slowly “getting” the importance of developing their innovation/entrepreneurial ecosystems as a matter of national interest to promote their economic development, national competitiveness and productivity as an engine of sustainable and equitable growth and prosperity.

Multiple actors need to work simultaneously to achieve positive impact on the ecosystem

Multiple actors need to work simultaneously to achieve positive impact on the ecosystem

Unfortunately, the minds of many in the region are still focused on large infrastructure projects, multi-billion dollar financings, debt swaps, etc. As governments approach the topics of innovation and entrepreneurship, their methods often, remain unchanged from such larger scale investments. As an extension of their past behavior, governments want to “control” the process and apply traditional metrics. As it happens, innovation and entrepreneurship is inherently chaotic, unmanageable and long term. These governments would be well served to focus on enabling policies, levelling the playing field, establishing the right incentives and getting out of the way, leaving the rest to Schumpeter, Smith and the Darwinian market forces. I often address these issues at my conferences as I try to be provocative to the government officials who might be in the audience. A summary of these key points follow below:

  • It is about incentives and NOT subsidies: the transformational effect of these innovation ecosystems will not happen by fiat; therefore, it will be necessary for governments to provide the right incentives to tempt the right sectors to take some risks that otherwise would be very “unreasonable.” The design of these incentives will need to be intelligently crafted to reach the right target audience and provide the desired outcomes. A point of caution is to recognize an invisible thin line that separates incentives from subsidies. Subsidies have a perverse impact in the development of these ecosystems, since they promote undesirable behaviors of clientelism and undue benefits.
  • It is about experiential diversity and not uniformity or standardization: Let a thousand flowers bloom, and let most die quickly, publicize the lessons learned, and capitalize on these lessons learned as positive, not negative, experiences. This approach will help to create a culture that failing is fine. Failing fast and forward even better!
    • It is about the right level and types of immigrants to increase the diversity of the “gene pool”: Start-Up Chile started right opening this program exclusively to foreigners. However, in later editions politicians gave-in to the public outcry of “giving money to strangers…” and opening it up to Chilean nationals. In the case of Start-Up Peru foreigners can only participate if they are able to join a Start-up formed by Peruvians. In either case, politicians struggle to welcome foreign entrepreneurs from Shanghai or Warsaw to enrich the diversity and richness of the national ecosystem gene pool.
    • It is about making it easy to operate in the legality and transparency of rule-of-law. Across Latin America in varying degrees, entrepreneurs operate their ventures at some level of informality (you can read more in a prior blogpost: ). Why? Because these entrepreneurs are crooks and love to cheat their governments? NO! Instead, the answer is because the cost of compliance it is too high! This challenge presents one of the most fertile areas for public policies to resolve. Public policy reforms that would help include:
  1. Flexibilization of labor laws: Young, dynamic start-ups cannot commit for long-term employment due to their uncertain futures. Hence, the ability to hire-and-fire-at-will can incentivize the creation of employment without unbearable separation costs in the likely event of failure.
  2. Tax holiday for the first 3 to 5 years of operations of any new start-up: This simple law would make every start-up automatically in compliance for the first 3 to 5 years. This is an excellent opportunity to require, during this tax holiday period, a “compliance simulation” period. In other words, during the tax holiday period the Start-Up would need to meet all the filing requirements with the social security, corporate taxes, etc., and other fiscal obligations without any financial or legal consequences other than keep the tax holiday status. A sort of training wheels as you learn how to ride the bicycle.
  3. Simplification of venture creation and closure: The incorporation of a Start-Up and its possible dissolution (in the likely event of the failure, since most start-ups do fail), must be a simple procedure whose implementation should be measured in few days and few hundred dollars (or less). There is no justification for such processes to take months, be cumbersome requiring legal and tax experts, and cost thousands of dollars or more!
  4. Simple bankruptcy laws: Let’s face it. Most of start-ups go under (fail) well before they have any sign of success. Hence their founders and corporate officers should not be stained with the presumption of wrong because of their ventures failure, for years into the future!
  5. No Imputed taxation for stock options: Stock options are one of the better incentives and forms of compensation for start-ups. They align the interests of investors and founders with directors, executives and employees. Taxing an imputed value at the time of granting stock options makes this compensation instrument unviable. The requirement to pay income tax upfront on a presumed value of the option kills its intent as an incentive vehicle. Since, you will be paying taxes on a presume value that very seldom materializes as most ventures fail,
  • Find your niche in the global economy and leverage your uniqueness. What is unique about your city, region or country’s economy? How you can rally the society towards a national identity that can distinguish it globally? Each country needs to develop its “man-on-the-moon” vision and have its leadership articulate it as clearly as J.F. Kennedy did during his Man-to-the-Moon Speech at Rice University on September 12, 1962 — (in particular between 8’24” and 9’15”). This is a tall order but completely doable!
  • Do not waste your time by attempting to re-create Silicon Valley in your city, region or country. Silicon Valley happened because it happened. It is the result of over one century and a half of “accidents” from the Gold Rush to the accidental re-settlement of William Shockley (co-inventor of the transistor and Physic Nobel Prize winner) to the San Francisco Bay Area. Furthermore, the “Silicon Revolution” provided the region with an exceptionally virtuous cycle of value creation of over five decades of device miniaturization, lower costs, faster devices and lower energy consumption. This “Moore’s Law on Steroids” enabled the creation of an ecosystem of stakeholders who all benefitted from an ability to predict price/performance points years ahead to target specific applications and/or market sectors. This enabled multiple waves of innovations from integrated circuits, to PCs and software, to networks and the internet, to web applications and mobile, and so on. A formidable sequence of value creation hard to match!

On a weekly basis, delegations from the four corners of the world descend onto the Bay Area to learn its most treasured secrets, best practices, and recipes to recreate its success in their own locales. I call these visitors the “alchemists of the XXI century,” since they are searching for ways to enrich their countries or regions by transforming plentiful and inexpensive commodities – such as sand or silicon – into new sources of wealth.

It is not too difficult to identify a set of best practices that make Silicon Valley (or “The Valley” as it is often called) the premier innovation and entrepreneurship ecosystem in the world.

In fact, I anticipate that the fundamental lessons learned by our visitors to take back home center around three principles:

  1. Free circulation of people and ideas
  2. Circulation of capital
  3. Promotion of a risk-taking culture permeating all levels of society

Drilling deeper into each principle, we can identify specific areas of public policy reforms, cultural changes in society, and institutional adaptations that can together enable entrepreneurs to take risks, unleash creativity, and promote innovation across all sectors of society. However, it is in the specifics that the best-intentioned changes can result in failure.

In my travels, during conference Q&As, and when I welcome visitors to my office, I am often asked why it is so difficult to replicate Silicon Valley. I have concluded that recreating any semblance of The Valley in any other locale (regardless of its socioeconomic stage of development) is VERY DIFFICULT, if not impossible.

In fact, Silicon Valley probably could not have recreated itself today, even if we wanted. By many measures, Silicon Valley’s genesis was a fluke of nature. The Valley flourished by accidental twists and turns, without a master plan and without a blueprint from enlightened bureaucrats. Instead, The Valley was borne from the aligned self-interest of multiple stakeholders, a favorable geography and climate, and a series of fortunate historical circumstances.

While there is no “secret sauce” to recreate Silicon Valley in new geographies, countries can take pro-active steps to improve the odds of success by:

  1. Working to develop ALL ecosystem stakeholders simultaneously (not sequentially) to affect change;
  2. Planning and committing actions for a transformation that will take decades; and
  3. Managing expectations accordingly to sustain long-term support.

Initial progress will be painfully slow and early successes will need to be well-publicized and celebrated. Unfortunately, the transformation sought by emerging Latin American countries from commodity-based to knowledge and innovation-based economies will take longer than any presidential term to achieve. This transformation will take concerted and sustained effort by multiple stakeholders. Unfortunately, politicians tend to focus on the crisis of the day or the urgency of the moment. However, the initiatives I have discussed will require long-term commitment, over decades, to bear fruit.

A successful transformation will create a legacy of sustainable prosperity for future generations, but achieving it will require political, business and civil society leaders to think and commit to a lasting vision. Are they up for the challenge? 

Until my next posting – Carlos B.

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