Nicolás Santana
Philippi, Prietocarrizosa Ferrero DU & Uría, Santiago
nicolas.santana@ppulegal.com

Mauricio Clavel
Philippi, Prietocarrizosa Ferrero DU & Uría, Santiago
mauricio.clavel@ppulegal.com

General overview of the Chilean venture capital ecosystem

In 2021, venture capital investments in Chile increased by 1,722 per cent compared with 2020, reaching an historic US$2,915m, with 104 deals and two unicorns (Cornershop and NotCo), with a third (Betterfly) added in early 2022.^[1] However, experts agree that, this year, it will be more difficult for startups seeking to raise capital, and high valuations seen in previous years will no longer be as common due to the global inflationary crisis and generalised rise in interest rates that has followed, which could lead investors to turn to other less risky investment instruments.

Notwithstanding the above, we believe that there is still much room for growth, particularly through some initiatives that allow the incorporation of new players into the Chilean venture capital industry and the further development of a successful entrepreneurial ecosystem.

Two interesting initiatives

The current structure of Chilean venture capital funds consists of private investment funds leveraged by the Chilean Economic Development Agency (Corporación de Fomento de la Producción de Chile or 'CORFO'), which provides access to public financing through the granting of loan facilities with terms of up to 12 years. To mitigate this strong financial dependence on the government, Chile is planning to create a public–private fund of funds, where CORFO would be entitled to subscribe and pay up to 30 per cent of the total value of the fund. The fund of funds will be focused on investment in venture capital funds and managed by a General Fund Manager, an entity supervised by the Financial Market Commission (Comisión para el Mercado Financiero), which will be selected through a public bidding process. This initiative aims to attract new players into the venture capital industry, such as pension funds or large foreign funds, and to reinforce investment in later, more advanced rounds of financing, which would allow Chilean startups to scale their business models without the need to turn to foreign financing.^[2] A fund of funds bill is currently being discussed in Congress.

Another initiative to promote venture capital investments in Chile is the creation of a new alternative financing market for startups by the Santiago Stock Exchange and CORFO called ScaleX Santiago Venture Exchange. This platform aims to allow startups in the growth phase to make public offerings to obtain local or international investment, in the same manner as an initial public offering that companies undergo to go public on the stock market, but subject to ad hoc requirements. ScaleX Santiago Venture Exchange seeks to connect Chilean startups with the world of venture capital, investment funds, family offices, and qualified local and global investors.

ScaleX Santiago Venture Exchange has already been approved and is expected to begin operations in the coming months. In its first year, the project envisages to support between five to ten local and regional startups receiving funding of up to US$3.7m. ScaleX Santiago Venture Exchange has aroused interest from the local ecosystem, and over 200 startups and more than 100 investors have already registered on the initiative's website.^[3]

Conclusions

The fund of funds initiative and ScaleX Santiago Venture Exchange shows that Chile has the potential to become a hub for the venture capital industry in Latin America, and that the development of new initiatives would be a great catalyst towards meeting such a goal.

Without disregarding the difficult conditions that may arise in the short term, we are optimistic about the future of venture capital in Chile, considering that there is still a lot of room to continue growing and interesting projects that can be a great contribution to the development of the industry in the coming years.