Peru is on a bid to catch up with its innovative Latin American neighbors

On a Tuesday morning in Lima, Peru, MapQuest co-founder Chris Heivly stood onstage before 600 attentive listeners at Peru Venture Capital Conference, a photo of an Amish buggy projected behind him. “It’s a common sight in the town MapQuest was created,” Heivly says. “If you can build MapQuest in Lancaster, Pennsylvania, think of what you can build in Lima, Peru.”

Heivly — who currently is Entrepreneur in Residence at Techstars — makes a good point. Lima is a bustling capital city located on the Pacific Ocean. Its culinary scene is repeatedly rated as one of the best in the world. Furthermore, Lima’s metropolitan area inhabits 10 million people, about one-third of the Peruvian population. It is the fifth largest metropolitan area in Latin America.

However, while for the past decade the Peruvian economy has been one of the fastest moving in the region — it has an average growth rate of 5.9 percent — it’s apparent Peru’s technology ecosystem is still in its infancy. A country that’s economically driven by mining, Peru invests just 0.08 percent of its GDP in innovation today. In comparison, Chile invests 0.37 percent, and has distributed about $40 million to 1,300 growing businesses.

Yet Peru refuses to be left behind. Now in an effort to reduce its dependence on raw materials, the Peruvian Ministry of Production wants to increase investment in innovation by ten-fold over the next decade. This would at least make the country comparable on a regional level, says the Director of Innovation at the ministry Gonzalo Villarán. “We’re way behind. We’re down there,” he says.

Even still, Peru deserves some recognition for its recent efforts. The country has already begun fostering innovation through hefty government support. Outside parties have taken notice of Peru to provide funding. Particularly, the startup communities in Peru are energized — and they’re ready to play a part in helping the ecosystem flourish.

Wide government support

Upon walking into a crowded Demo Day event at UTEC Ventures — a business accelerator and the entrepreneurial department at Lima’s engineering and technology university, UTEC — you’d be surprised to learn that just three years ago, Lima’s tech ecosystem was very deflated. In fact, the accelerator had difficulty finding startups to work with when it launched in 2014.

“We literally looked at every corner of the city trying to find some good startups,” said UTEC Ventures Program Manager and co-founder Andrés Benavides. “The pipeline of projects has increased significantly. I can even say exponentially.”

So what was the turning point for the ecosystem? Most notably, the government began to invest in innovation. Ministry of Production initiative Startup Peru was launched in 2012, with an objective to promote the emergence of Peruvian startups and innovative products. Just this year, 837 projects applied for seed capital from Startup Peru — of those, 106 ventures were chosen to receive the equivalent of $5,000, $46,000 and $153,000 USD in funding.

There’s also Innovate Peru, which the Ministry of Innovation launched in 2014. Its goal is to strengthen companies, entrepreneurs and support systems within the Peruvian ecosystem, and facilitate collaboration between them through dozens of specific funds — such as offering money for scientific equipment at institutions, or high-impact projects for the Peruvian economy, society or environment.

And over the years, the amount of funding has grown. Peru now boasts a whopping $100 million fund to promote micro, small and medium-sized enterprises; the Inter-American Development Bank (IDB) loaned $40 million USD toward the fund, with the Peruvian Ministry of Finance putting in $60 million USD. Even more, The World Bank approved a $45 million USD loan earlier this year for the development of science, technology, and innovation in Peru.

Additionally, Lima is currently working with the MIT Regional Entrepreneurship Acceleration Program — a two-year initiative that works with local government, academia, investors, entrepreneurs and corporations to develop an actionable framework for strengthening innovative and entrepreneurial ecosystems.

Other notable players in the ecosystem include Universidad del Pacifico, where much of the tech talent arises, Peru’s first accelerator Wayra, accelerator Endeavour Peru, as well as 10 other accelerators and incubators in the community.

Collaboration within the ecosystem

While the country’s tech ecosystem has been developing for a few years now, the Peru Venture Capital Conference — which took place in June 2017 — was really the first time entrepreneurs and innovation enthusiasts gathered under one roof.

Led by COFIDE, FOMIN and UTEC, the two-day conference focused on creating community, corporate innovation, angel investment and venture capital in the country — but perhaps more notably, it aimed to bring together all the key players in the ecosystem to foster collaboration and build momentum. According to Villarán, it was all about “that collision of atoms.”

The conference featured some pretty big international speakers, too — including Otto co-founder and Uber Director of Engineering Claire Delaunay, Paul Singh of Result Junkies, co-founder of mach49 Dave Blakely and chairman at Firth Ventures Nelson Gray.

Delaunay says she came to Peru because she believed innovation was possible in the country. “We need innovation from a lot of different…continents, and we need innovation from a lot of different cultures. Different cultures mean people do things differently, and think things differently,” she said.

“[In Peru] they have fresh energy, and they still want to change a lot of things. And I do believe they can totally rally people around to recreate the fabric needed to support startups and innovation.”

Private money and the effect on Peru

Really, Peru has just one big unicorn: Cinepapaya. In December 2016, Cinepapaya — which sells movie tickets via mobile — was acquired by U.S.-based Fandango of NBCUniversal, also in the movie-ticket selling business.

However, while it’d be nice to have another unicorn, Benavides says the real goal in Peru is to create more viable companies. It’s better for more people to have money in their pockets. “If we try to make sustainable businesses, we will be able to have big businesses. One of them is going to do really well,” said Benavides.

However, there’s still one big thing holding back entrepreneurs in Peru: There’s a serious lack of investor engagement.

“The entrepreneurs are there. Government is involved. Incubators and other support systems for startups are there. And one of the things that is just starting to evolve is the investor component,” says Benavides. In fact, he argues there are no institutional investors past seed-stage funding.

Gabriel Massa agrees. He’s the CEO of Nanda, a beauty salon booking app. “We don’t have people that want to invest in startups because of the high risk,” he says, adding that Peruvians are more likely to invest in things like apartments. “There’s a long way to go there.”

However, Peru is making an effort to change this. The Ministry of Production launched a public contest last year to fund the operation of potential VC funds, and up to $2.25 million USD will be delivered to investment fund entities that come up with high-impact proposals for funding in order to encourage the creation of venture capital funds in the country.

The goal is to provide at least 10 high-impact projects about $500,000 USD each in the next two years, according to RPP Noticias. In five years, the aim is to fund at least 50 high-impact projects — which, in turn, will create more than 5,000 high-quality jobs.

According to The World Bank, the poverty rate in Peru fell from 58.7 percent in 2004 to 21.8 percent in 2015 — still, Peru is a developing country. However, the country’s newfound support for startup innovation will hopefully — both directly and indirectly — help a larger percentage of the Peruvian population rise to success.

And there’s a lot of people rooting for them, too. “Silicon Valley is not magical. They’re not magicians over there. They are all very human. Peru has the potential to do similar things as long as the younger generation believes in it,” said Delaunay.