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NOTE: Please note that this presentation is not an exhaustive comparison of the two
cities, but rather our impressions based on a day of conversations, a quick survey of
readily available data, and our personal experience.
For any questions, please contact Davender Gupta at davender@davender.com
© 2017 Davender Gupta. All rights reserved.
Comparison of Montreal and Buenos Aires startup ecosystems
The purpose of this presentation is to compare the startup ecosystems in Buenos
Aires and Montreal.
By “startup” we mean high-growth-potential companies at the initiation stage, which
require significant capital to start and to support growth, as well as mentor support.
The “ecosystem” describes the community of entrepreneurs and all of the support
system dedicated to help these entrepreneurs grow:
- Accelerators and incubators: provide structured and unstructured training
programs, mentorship, and a support system (go-to-market, personal development,
technical development, sometimes some small seed amount)
- “VC” or Venture Capital investors (in the broad sense): individual, syndicated or
institutional investors at any stage from initial capital, seed capital (prototype
building, initial go-to-market) to growth capital (Series A and beyond)
- Other stakeholders such as governments (all levels), universities, other companies
and institutitons
Startup ecosystems are usually compared city-to-city because they tend to be
organized at a local level. There can be major differences between cities even within
the same country, depending on population, education, wealth, importance in the
national economy and many other factors.
To familiarize the team with the Montreal startup ecosystem, we participated in two
events with the Quebec Angel network and Startup Montreal/Montreal Challenge.
Both of these events featured investors (angel and professional) and entrepreneurs.
The team also had access to a number of documents, in particular the Montreal
Startup Ecoystem Survey (2017 http://startupreportmtl.com/en )
Xavier and Davender are active in the Montreal startup ecosystem as investors and
mentors so they have significant ground knowledge.
REFERENCES
Montreal Startup Ecosystem Survey 2016 http://startupreportmtl.com/en
Global Startup Ecosystem Report 2017 http://startupgenome.com/report2017/
Montreal Startup Ecosystem Canvas (Founder Institute, 2017)
http://fi.co/montreal_canvas
In Buenos Aires, we had access to some documentation describing the ecosystem.
We also had a half-day for field visits, which we used to talk to the following people:
Edwin Harvey – Jarva Brewing Company
Alexis Caporale – Trimaker (3d Printing)
Rolando Meyer – ToBuy.com (an Etsy-type online market)
Ignacio Rey Goitia – Aquafloat (Hydroponic urban farming)
We also met with some investors and ecosystem leaders:
Martin Vivas (F6S.com, angel investor, early-stage VC and BA ecosystem pioneer)
Ciro Luis Echesortu (Principal, NXTPLabs, BA’s first Techstars-affiliated accelerator,
early-stage and growth VC fund)
Sebastian Aldasoro (ARCAP – Argentina Angel Capital Network)
These meetings were all done on June 6, 2017 in Buenos Aires.
REFERENCES
Buenos Aires Ecosystem Canvas (Founder Institute) – DRAFT
https://docs.google.com/document/d/1fdfyswn78z1wamSq3gUZcW5Os0e5BMlfm1yN
SwjqKg0
Network Map of Buenos Aires Tech Ecosystem (Endeavor, 2013)
http://www.endeavor.org.ph/research/the-endeavor-multiplier-effect-network-map-of-
buenos-aires-tech-sector-march-2013/
Although the maturity of the Montreal and Buenos Aires tech startup ecosystems is
markedly different, there are a number of similarities:
- Montreal has a world-class ecosystem built on a large number of accelerators and
incubators, both general and specific, private/university/corporate/municipal and
serving different roles according to the stage of development. There are many
events (Startup Weekends, hackathons, technical and business meetups, festivals
and conferences.
- Buenos Aires has several activities, however there are few formal accelerators and
incubators. A boom is expected if the Ley des Empredadores is passed and
implemented by the Macri government (see Slide 10)
- The entrepreneurial mindset needed to launch a successful tech ecosystem is
present in both cities, however the motivations are different. In Montreal,
entrepreneurs are mainly motivated by opportunity and the potential for a “big
score”, whereas in Buenos Aires, the motivation is more immediate (revenue to
replace lack of job opportunities)
- Both ecosystems are anchored by successful companies which have launched,
grown and/or exited. In Buenos Aires, the main success is MercadoLibre with other
smaller successes such as Globant (See Endeavor’s map of the Buenos Aires tech
ecosystem, listed in the notes at Slide 5)
- In Montreal, growth and exit successes are more numerous
- Both cities have an abundance of talent, a well-educated workforce and strong
universities. For Buenos Aires, the talent headcount is balanced with the demands
from the sector, whereas in Montreal demand exceeds supply, generating an influx
of talent.
There are also several differences between the two cities:
- Montreal’s ecosystem is maturing, and rated among the best in the world. Buenos
Aires’ network is going through the right steps but taking longer to develop.
- The private investment (Angel, Venture Capital, etc) network is very active.
According to the Canadian Venture Capital Association (CVCA), Montreal-based
tech startups attracted $839M (119 transactions) of venture capital in 2016, or
about 30% of the total raised in Canada as a whole.
- The numbers for Buenos Aires (Argentina) are about 3% of the volume of Montreal
(US$23M for 26 transactions)
- In Montreal, governments at all three levels (city, province and federal) are actively
involved in financial, logistics and professional support of the ecosystem. Grants
and loans are freely available and the process is clear, transparent, and relatively
easy to access. The Canadian government’s Scientific Research and Develoment
tax credits which reimburse a major portion of salaries paid to develop technology
innovations, is a major source of cash support to tech startups.
- In Buenos Aires, government support at any level is promised but difficult to
understand and access. There is widespread corruption in the process. Tech
startups tend to avoid government support. (See slide 10)
- The stable political and economic environment in Montreal frees up the startup
entrepreneur to focus on building the business. In Buenos Aires, significant effort is
expended in coping with unforeseen changes, and to work around policy, tax,
currency and other blocks. This imposes a significant strategy difference in BA
startups vs those in Montreal ( slide 8). In particular, Argentina’s high and
unpredictable inflation rates (20-40%) eat away at revenues and capital, compared
to Canada’s low rates (0-2%)
- Canada’s geographic location and its many free trade frameworks with the US,
European and Asian markets make the movement of capital and talent very fluid.
Argentina is geographically isolated from those markets, reducing the fluidity and
increasing the cost. Even within LATAM, significant barriers reduce the ability for
people, goods and capital to cross borders.
REFERENCES
Venture Capital and Private Equity Canadian Market Overview 2016 (CVCA)
https://www.cvca.ca/research-resources/industry-statistics/2016-market-overview/
2016 Latin American Venture Capital Infographic (LAVCA) https://lavca.org/member-
announcement/2017-trend-watch-latin-american-venture-capital-infographic/
There were three main areas of difference between tech startups in Buenos Aires
compared to Montreal, which caught our attention.
The first is about the overall strategies of startups in BA vs Montreal:
- BA startups focus on revenue as soon as possible, because of the difficulty to
access seed capital, grants and other types of financial support.
- The abundance of early-stage financial support in Montreal encourages startups
here to take more “moonshot” risks, therefore a focus on scaling without the need
to demonstrate revenue right away.
We spoke to two entrepreneurs about their funding strategies:
- In the case of ToBuy, they won an international competition sponsored by Coca-
Cola, with an award on the order of US$800K. However, half of that amount was
quickly spent on legal fees, taxes, FX, inflation and other payments (legal and
grey) needed to get access to the money. This demonstrates the inefficiencies of
accessing capital coming from outside Argentina.
- Trimaker took a much more conservative approach to raising working capital,
focusing on sales and pre-sales. They have a small pool of investment capital from
the founders and friends, which they access as little as possible.
Inflation (2-4% per month) is a significant expense, limiting the value of amassing
large amounts of capital and requiring startups to focus on reducing fixed costs to as
low as possible.
This leads to a stark difference: BA startups don’t think in terms of “exit strategy” or
liquidation, compared to Montreal startups who attract outside investment capital. BA
startups tend to be what we call here “lifestyle” profiles, where the goal is to generate
more modest but reliable streams of income to support salaries and payments.
Another difference between BA and Montreal startups is their approach to how they
organize their companies.
In BA, savvy entrepreneurs look at reducing risk by incorporating in Uruguay to better
protect their capital, then opening an operating business in Argentina.
In Montreal, entrepreneurs take local incorporation for granted (mainly under
provincial law).
Montreal startups who incorporate a second company in the US do so voluntarily as
part of a growth strategy.
In BA, it is an operational decision for survival.
The role of government in BA startups vs Montreal is a third area of contrast.
Corruption, as well as long lead times (on the order of months and years) which incur
inflation costs, make grant-seeking (if there is any available) basically pointless.
The new Macri government has indicated they will table a new law, the “Ley des
emprendedores” which would completely revamp how small business get started and
funded, including tax breaks for investors, crowdfunding and paperwork streamlining
– in many ways these are features we don’t even yet have in Montreal. However, the
challenge is to put in place the new processes, which will require a wholesale
reengineering of the bureaucracy. The entrepreneurs we spoke to are very skeptical
that it will make a difference.
The Buenos Aires startup ecosystem has a lot of potential, especially the risk-taking
mindset and agile strategy is much more a part of the BA culture compared to the
average startup entrepreneur in Montreal.
At the moment, talent supply is roughly balanced with demand. Many talented
developers are presently doing piecework for foreign companies. If the conditions
were better, they may also want to launch companies, which would greatly benefit
Argentina’s economy.
For the BA startup ecosystem to flourish, the biggest challenge is the government.
The state must move faster and follow through on its intentions with the Ley.
The country is still a high risk environment for external investors.
We see the potential. Ten years ago, the ecosystem metrics for Montreal were similar
to those of BA today. Forward-acting leadership could transform the BA ecosystem
into an economic wealth generator for Argentina.
Comparison of Montreal and Buenos Aires startup ecosystems
Comparison of Montreal and Buenos Aires startup ecosystems
As venture investors, would we invest in the Buenos Aires startup ecosystem?
Here is a framework to consider:
- Greatly undervalued asset
- Resource seeking
- Surplus of technical expertise, Argentine entrepreneurs have a
risk-taking mindset (but not necessarily a disruption mindset)
- Market seeking
- Using Argentina as a springboard to Brazil, Chile, Peru,
Colombia, Mexico
- First mover advantage with the launch of a new environment for
startups
- Huge Country Risks
- Transfer risk and Operating risk
- Even if Ley de Empredadores is passed, will the institutions and
infrastructure succeed?
The BA tech startup ecosystem is an interesting arbitrage opportunity for a Canadian
investment fund with high risk tolerance to place a long-shot bet.
But then again, isn’t that the business of venture capital?
Comparison of Montreal and Buenos Aires startup ecosystems

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Comparison of Montreal and Buenos Aires startup ecosystems

  • 1. NOTE: Please note that this presentation is not an exhaustive comparison of the two cities, but rather our impressions based on a day of conversations, a quick survey of readily available data, and our personal experience. For any questions, please contact Davender Gupta at davender@davender.com © 2017 Davender Gupta. All rights reserved.
  • 3. The purpose of this presentation is to compare the startup ecosystems in Buenos Aires and Montreal. By “startup” we mean high-growth-potential companies at the initiation stage, which require significant capital to start and to support growth, as well as mentor support. The “ecosystem” describes the community of entrepreneurs and all of the support system dedicated to help these entrepreneurs grow: - Accelerators and incubators: provide structured and unstructured training programs, mentorship, and a support system (go-to-market, personal development, technical development, sometimes some small seed amount) - “VC” or Venture Capital investors (in the broad sense): individual, syndicated or institutional investors at any stage from initial capital, seed capital (prototype building, initial go-to-market) to growth capital (Series A and beyond) - Other stakeholders such as governments (all levels), universities, other companies and institutitons Startup ecosystems are usually compared city-to-city because they tend to be organized at a local level. There can be major differences between cities even within the same country, depending on population, education, wealth, importance in the national economy and many other factors.
  • 4. To familiarize the team with the Montreal startup ecosystem, we participated in two events with the Quebec Angel network and Startup Montreal/Montreal Challenge. Both of these events featured investors (angel and professional) and entrepreneurs. The team also had access to a number of documents, in particular the Montreal Startup Ecoystem Survey (2017 http://startupreportmtl.com/en ) Xavier and Davender are active in the Montreal startup ecosystem as investors and mentors so they have significant ground knowledge. REFERENCES Montreal Startup Ecosystem Survey 2016 http://startupreportmtl.com/en Global Startup Ecosystem Report 2017 http://startupgenome.com/report2017/ Montreal Startup Ecosystem Canvas (Founder Institute, 2017) http://fi.co/montreal_canvas
  • 5. In Buenos Aires, we had access to some documentation describing the ecosystem. We also had a half-day for field visits, which we used to talk to the following people: Edwin Harvey – Jarva Brewing Company Alexis Caporale – Trimaker (3d Printing) Rolando Meyer – ToBuy.com (an Etsy-type online market) Ignacio Rey Goitia – Aquafloat (Hydroponic urban farming) We also met with some investors and ecosystem leaders: Martin Vivas (F6S.com, angel investor, early-stage VC and BA ecosystem pioneer) Ciro Luis Echesortu (Principal, NXTPLabs, BA’s first Techstars-affiliated accelerator, early-stage and growth VC fund) Sebastian Aldasoro (ARCAP – Argentina Angel Capital Network) These meetings were all done on June 6, 2017 in Buenos Aires. REFERENCES Buenos Aires Ecosystem Canvas (Founder Institute) – DRAFT https://docs.google.com/document/d/1fdfyswn78z1wamSq3gUZcW5Os0e5BMlfm1yN SwjqKg0 Network Map of Buenos Aires Tech Ecosystem (Endeavor, 2013)
  • 7. Although the maturity of the Montreal and Buenos Aires tech startup ecosystems is markedly different, there are a number of similarities: - Montreal has a world-class ecosystem built on a large number of accelerators and incubators, both general and specific, private/university/corporate/municipal and serving different roles according to the stage of development. There are many events (Startup Weekends, hackathons, technical and business meetups, festivals and conferences. - Buenos Aires has several activities, however there are few formal accelerators and incubators. A boom is expected if the Ley des Empredadores is passed and implemented by the Macri government (see Slide 10) - The entrepreneurial mindset needed to launch a successful tech ecosystem is present in both cities, however the motivations are different. In Montreal, entrepreneurs are mainly motivated by opportunity and the potential for a “big score”, whereas in Buenos Aires, the motivation is more immediate (revenue to replace lack of job opportunities) - Both ecosystems are anchored by successful companies which have launched, grown and/or exited. In Buenos Aires, the main success is MercadoLibre with other smaller successes such as Globant (See Endeavor’s map of the Buenos Aires tech ecosystem, listed in the notes at Slide 5) - In Montreal, growth and exit successes are more numerous
  • 8. - Both cities have an abundance of talent, a well-educated workforce and strong universities. For Buenos Aires, the talent headcount is balanced with the demands from the sector, whereas in Montreal demand exceeds supply, generating an influx of talent.
  • 9. There are also several differences between the two cities: - Montreal’s ecosystem is maturing, and rated among the best in the world. Buenos Aires’ network is going through the right steps but taking longer to develop. - The private investment (Angel, Venture Capital, etc) network is very active. According to the Canadian Venture Capital Association (CVCA), Montreal-based tech startups attracted $839M (119 transactions) of venture capital in 2016, or about 30% of the total raised in Canada as a whole. - The numbers for Buenos Aires (Argentina) are about 3% of the volume of Montreal (US$23M for 26 transactions) - In Montreal, governments at all three levels (city, province and federal) are actively involved in financial, logistics and professional support of the ecosystem. Grants and loans are freely available and the process is clear, transparent, and relatively easy to access. The Canadian government’s Scientific Research and Develoment tax credits which reimburse a major portion of salaries paid to develop technology innovations, is a major source of cash support to tech startups. - In Buenos Aires, government support at any level is promised but difficult to understand and access. There is widespread corruption in the process. Tech startups tend to avoid government support. (See slide 10) - The stable political and economic environment in Montreal frees up the startup
  • 10. entrepreneur to focus on building the business. In Buenos Aires, significant effort is expended in coping with unforeseen changes, and to work around policy, tax, currency and other blocks. This imposes a significant strategy difference in BA startups vs those in Montreal ( slide 8). In particular, Argentina’s high and unpredictable inflation rates (20-40%) eat away at revenues and capital, compared to Canada’s low rates (0-2%) - Canada’s geographic location and its many free trade frameworks with the US, European and Asian markets make the movement of capital and talent very fluid. Argentina is geographically isolated from those markets, reducing the fluidity and increasing the cost. Even within LATAM, significant barriers reduce the ability for people, goods and capital to cross borders. REFERENCES Venture Capital and Private Equity Canadian Market Overview 2016 (CVCA) https://www.cvca.ca/research-resources/industry-statistics/2016-market-overview/ 2016 Latin American Venture Capital Infographic (LAVCA) https://lavca.org/member- announcement/2017-trend-watch-latin-american-venture-capital-infographic/
  • 11. There were three main areas of difference between tech startups in Buenos Aires compared to Montreal, which caught our attention. The first is about the overall strategies of startups in BA vs Montreal: - BA startups focus on revenue as soon as possible, because of the difficulty to access seed capital, grants and other types of financial support. - The abundance of early-stage financial support in Montreal encourages startups here to take more “moonshot” risks, therefore a focus on scaling without the need to demonstrate revenue right away. We spoke to two entrepreneurs about their funding strategies: - In the case of ToBuy, they won an international competition sponsored by Coca- Cola, with an award on the order of US$800K. However, half of that amount was quickly spent on legal fees, taxes, FX, inflation and other payments (legal and grey) needed to get access to the money. This demonstrates the inefficiencies of accessing capital coming from outside Argentina. - Trimaker took a much more conservative approach to raising working capital, focusing on sales and pre-sales. They have a small pool of investment capital from the founders and friends, which they access as little as possible. Inflation (2-4% per month) is a significant expense, limiting the value of amassing large amounts of capital and requiring startups to focus on reducing fixed costs to as low as possible.
  • 12. This leads to a stark difference: BA startups don’t think in terms of “exit strategy” or liquidation, compared to Montreal startups who attract outside investment capital. BA startups tend to be what we call here “lifestyle” profiles, where the goal is to generate more modest but reliable streams of income to support salaries and payments.
  • 13. Another difference between BA and Montreal startups is their approach to how they organize their companies. In BA, savvy entrepreneurs look at reducing risk by incorporating in Uruguay to better protect their capital, then opening an operating business in Argentina. In Montreal, entrepreneurs take local incorporation for granted (mainly under provincial law). Montreal startups who incorporate a second company in the US do so voluntarily as part of a growth strategy. In BA, it is an operational decision for survival.
  • 14. The role of government in BA startups vs Montreal is a third area of contrast. Corruption, as well as long lead times (on the order of months and years) which incur inflation costs, make grant-seeking (if there is any available) basically pointless. The new Macri government has indicated they will table a new law, the “Ley des emprendedores” which would completely revamp how small business get started and funded, including tax breaks for investors, crowdfunding and paperwork streamlining – in many ways these are features we don’t even yet have in Montreal. However, the challenge is to put in place the new processes, which will require a wholesale reengineering of the bureaucracy. The entrepreneurs we spoke to are very skeptical that it will make a difference.
  • 15. The Buenos Aires startup ecosystem has a lot of potential, especially the risk-taking mindset and agile strategy is much more a part of the BA culture compared to the average startup entrepreneur in Montreal. At the moment, talent supply is roughly balanced with demand. Many talented developers are presently doing piecework for foreign companies. If the conditions were better, they may also want to launch companies, which would greatly benefit Argentina’s economy. For the BA startup ecosystem to flourish, the biggest challenge is the government. The state must move faster and follow through on its intentions with the Ley. The country is still a high risk environment for external investors. We see the potential. Ten years ago, the ecosystem metrics for Montreal were similar to those of BA today. Forward-acting leadership could transform the BA ecosystem into an economic wealth generator for Argentina.
  • 18. As venture investors, would we invest in the Buenos Aires startup ecosystem? Here is a framework to consider: - Greatly undervalued asset - Resource seeking - Surplus of technical expertise, Argentine entrepreneurs have a risk-taking mindset (but not necessarily a disruption mindset) - Market seeking - Using Argentina as a springboard to Brazil, Chile, Peru, Colombia, Mexico - First mover advantage with the launch of a new environment for startups - Huge Country Risks - Transfer risk and Operating risk - Even if Ley de Empredadores is passed, will the institutions and infrastructure succeed? The BA tech startup ecosystem is an interesting arbitrage opportunity for a Canadian investment fund with high risk tolerance to place a long-shot bet. But then again, isn’t that the business of venture capital?

Editor's Notes

  1. The purpose of this presentation is to compare the startup ecosystems in Buenos Aires and Montreal. By “startup” we mean high-growth-potential companies at the initiation stage, which require significant capital to start and to support growth, as well as mentor support. The “ecosystem” describes the community of entrepreneurs and all of the support system dedicated to help these entrepreneurs grow: Accelerators and incubators: provide structured and unstructured training programs, mentorship, and a support system (go-to-market, personal development, technical development, sometimes some small seed amount) “VC” or Venture Capital investors (in the broad sense): individual, syndicated or institutional investors at any stage from initial capital, seed capital (prototype building, initial go-to-market) to growth capital (Series A and beyond) Other stakeholders such as governments (all levels), universities, other companies and institutitons Startup ecosystems are usually compared city-to-city because they tend to be organized at a local level. There can be major differences between cities even within the same country, depending on population, education, wealth, importance in the national economy and many other factors.
  2. To familiarize the team with the Montreal startup ecosystem, we participated in two events with the Quebec Angel network and Startup Montreal/Montreal Challenge. Both of these events featured investors (angel and professional) and entrepreneurs. The team also had access to a number of documents, in particular the Montreal Startup Ecoystem Survey (2017 http://startupreportmtl.com/en ) Xavier and Davender are active in the Montreal startup ecosystem as investors and mentors so they have significant ground knowledge. REFERENCES Montreal Startup Ecosystem Survey 2016 http://startupreportmtl.com/en Global Startup Ecosystem Report 2017 http://startupgenome.com/report2017/ Montreal Startup Ecosystem Canvas (Founder Institute, 2017) http://fi.co/montreal_canvas
  3. In Buenos Aires, we had access to some documentation describing the ecosystem. We also had a half-day for field visits, which we used to talk to the following people: Edwin Harvey – Jarva Brewing Company Alexis Caporale – Trimaker (3d Printing) Rolando Meyer – ToBuy.com (an Etsy-type online market) Ignacio Rey Goitia – Aquafloat (Hydroponic urban farming) We also met with some investors and ecosystem leaders: Martin Vivas (F6S.com, angel investor, early-stage VC and BA ecosystem pioneer) Ciro Luis Echesortu (Principal, NXTPLabs, BA’s first Techstars-affiliated accelerator, early-stage and growth VC fund) Sebastian Aldasoro (ARCAP – Argentina Angel Capital Network) These meetings were all done on June 6, 2017 in Buenos Aires. REFERENCES Buenos Aires Ecosystem Canvas (Founder Institute) – DRAFT https://docs.google.com/document/d/1fdfyswn78z1wamSq3gUZcW5Os0e5BMlfm1yNSwjqKg0 Network Map of Buenos Aires Tech Ecosystem (Endeavor, 2013) http://www.endeavor.org.ph/research/the-endeavor-multiplier-effect-network-map-of-buenos-aires-tech-sector-march-2013/
  4. Although the maturity of the Montreal and Buenos Aires tech startup ecosystems is markedly different, there are a number of similarities: Montreal has a world-class ecosystem built on a large number of accelerators and incubators, both general and specific, private/university/corporate/municipal and serving different roles according to the stage of development. There are many events (Startup Weekends, hackathons, technical and business meetups, festivals and conferences. Buenos Aires has several activities, however there are few formal accelerators and incubators. A boom is expected if the Ley des Empredadores is passed and implemented by the Macri government (see Slide 10) The entrepreneurial mindset needed to launch a successful tech ecosystem is present in both cities, however the motivations are different. In Montreal, entrepreneurs are mainly motivated by opportunity and the potential for a “big score”, whereas in Buenos Aires, the motivation is more immediate (revenue to replace lack of job opportunities) Both ecosystems are anchored by successful companies which have launched, grown and/or exited. In Buenos Aires, the main success is MercadoLibre with other smaller successes such as Globant (See Endeavor’s map of the Buenos Aires tech ecosystem, listed in the notes at Slide 5) In Montreal, growth and exit successes are more numerous Both cities have an abundance of talent, a well-educated workforce and strong universities. For Buenos Aires, the talent headcount is balanced with the demands from the sector, whereas in Montreal demand exceeds supply, generating an influx of talent.
  5. There are also several differences between the two cities: Montreal’s ecosystem is maturing, and rated among the best in the world. Buenos Aires’ network is going through the right steps but taking longer to develop. The private investment (Angel, Venture Capital, etc) network is very active. According to the Canadian Venture Capital Association (CVCA), Montreal-based tech startups attracted $839M (119 transactions) of venture capital in 2016, or about 30% of the total raised in Canada as a whole. The numbers for Buenos Aires (Argentina) are about 3% of the volume of Montreal (US$23M for 26 transactions) In Montreal, governments at all three levels (city, province and federal) are actively involved in financial, logistics and professional support of the ecosystem. Grants and loans are freely available and the process is clear, transparent, and relatively easy to access. The Canadian government’s Scientific Research and Develoment tax credits which reimburse a major portion of salaries paid to develop technology innovations, is a major source of cash support to tech startups. In Buenos Aires, government support at any level is promised but difficult to understand and access. There is widespread corruption in the process. Tech startups tend to avoid government support. (See slide 10) The stable political and economic environment in Montreal frees up the startup entrepreneur to focus on building the business. In Buenos Aires, significant effort is expended in coping with unforeseen changes, and to work around policy, tax, currency and other blocks. This imposes a significant strategy difference in BA startups vs those in Montreal ( slide 8). In particular, Argentina’s high and unpredictable inflation rates (20-40%) eat away at revenues and capital, compared to Canada’s low rates (0-2%) Canada’s geographic location and its many free trade frameworks with the US, European and Asian markets make the movement of capital and talent very fluid. Argentina is geographically isolated from those markets, reducing the fluidity and increasing the cost. Even within LATAM, significant barriers reduce the ability for people, goods and capital to cross borders. REFERENCES Venture Capital and Private Equity Canadian Market Overview 2016 (CVCA) https://www.cvca.ca/research-resources/industry-statistics/2016-market-overview/ 2016 Latin American Venture Capital Infographic (LAVCA) https://lavca.org/member-announcement/2017-trend-watch-latin-american-venture-capital-infographic/
  6. There were three main areas of difference between tech startups in Buenos Aires compared to Montreal, which caught our attention. The first is about the overall strategies of startups in BA vs Montreal: BA startups focus on revenue as soon as possible, because of the difficulty to access seed capital, grants and other types of financial support. The abundance of early-stage financial support in Montreal encourages startups here to take more “moonshot” risks, therefore a focus on scaling without the need to demonstrate revenue right away. We spoke to two entrepreneurs about their funding strategies: In the case of ToBuy, they won an international competition sponsored by Coca-Cola, with an award on the order of US$800K. However, half of that amount was quickly spent on legal fees, taxes, FX, inflation and other payments (legal and grey) needed to get access to the money. This demonstrates the inefficiencies of accessing capital coming from outside Argentina. Trimaker took a much more conservative approach to raising working capital, focusing on sales and pre-sales. They have a small pool of investment capital from the founders and friends, which they access as little as possible. Inflation (2-4% per month) is a significant expense, limiting the value of amassing large amounts of capital and requiring startups to focus on reducing fixed costs to as low as possible. This leads to a stark difference: BA startups don’t think in terms of “exit strategy” or liquidation, compared to Montreal startups who attract outside investment capital. BA startups tend to be what we call here “lifestyle” profiles, where the goal is to generate more modest but reliable streams of income to support salaries and payments.
  7. Another difference between BA and Montreal startups is their approach to how they organize their companies. In BA, savvy entrepreneurs look at reducing risk by incorporating in Uruguay to better protect their capital, then opening an operating business in Argentina. In Montreal, entrepreneurs take local incorporation for granted (mainly under provincial law). Montreal startups who incorporate a second company in the US do so voluntarily as part of a growth strategy. In BA, it is an operational decision for survival.
  8. The role of government in BA startups vs Montreal is a third area of contrast. Corruption, as well as long lead times (on the order of months and years) which incur inflation costs, make grant-seeking (if there is any available) basically pointless. The new Macri government has indicated they will table a new law, the “Ley des emprendedores” which would completely revamp how small business get started and funded, including tax breaks for investors, crowdfunding and paperwork streamlining – in many ways these are features we don’t even yet have in Montreal. However, the challenge is to put in place the new processes, which will require a wholesale reengineering of the bureaucracy. The entrepreneurs we spoke to are very skeptical that it will make a difference.
  9. The Buenos Aires startup ecosystem has a lot of potential, especially the risk-taking mindset and agile strategy is much more a part of the BA culture compared to the average startup entrepreneur in Montreal. At the moment, talent supply is roughly balanced with demand. Many talented developers are presently doing piecework for foreign companies. If the conditions were better, they may also want to launch companies, which would greatly benefit Argentina’s economy. For the BA startup ecosystem to flourish, the biggest challenge is the government. The state must move faster and follow through on its intentions with the Ley. The country is still a high risk environment for external investors. We see the potential. Ten years ago, the ecosystem metrics for Montreal were similar to those of BA today. Forward-acting leadership could transform the BA ecosystem into an economic wealth generator for Argentina.
  10. As venture investors, would we invest in the Buenos Aires startup ecosystem? Here is a framework to consider: Greatly undervalued asset Resource seeking Surplus of technical expertise, Argentine entrepreneurs have a risk-taking mindset (but not necessarily a disruption mindset) Market seeking Using Argentina as a springboard to Brazil, Chile, Peru, Colombia, Mexico First mover advantage with the launch of a new environment for startups Huge Country Risks Transfer risk and Operating risk Even if Ley de Empredadores is passed, will the institutions and infrastructure succeed? The BA tech startup ecosystem is an interesting arbitrage opportunity for a Canadian investment fund with high risk tolerance to place a long-shot bet. But then again, isn’t that the business of venture capital?