Nearshore Americas

Costa Rica Comes to Grips with its Lack of Support for Entrepreneurs

In Costa Rica tradition dictates that university graduates should get a job with either an established, national company, or with one of the major US multinationals, such as Intel, now based in and around San Jose. Facing stigmatization, the risk of failure, lack of funding, growing pains and steep competition for clients and qualified employees,  there are some Costa Rican who have chosen a different path.

Failure and Funding

Mario Chaves, CEO and Co-Founder of Avantica

“The main factor in play is the willingness and ability to take risk,” declared Mario Chaves, CEO and Co-Founder of Avantica Technologies, a software engineering company. While the company, established 15 years ago, is based in Silicon Valley, it was co-created by Chaves and his brother, Luis Carlos who acts as COO from Costa Rica. What began as a special project with only five developers has grown into an operation that employs 250 people in Costa Rica and Peru. Avantica develops software solutions for clients primarily on the West Cost and East Coast of the US, and specialize in the banking sector for Latin America.

Chaves is very aware of the Costa Rican cultural bias towards startups, and he has observed the stark contrast to his base in Silicon Valley, “You are in Silicon Valley because you are a risk taker. In Latin America as a whole the culture is a little risk adverse. In Costa Rica the mantra is ‘get an education so you can get a good job,’ not ‘get a good education to start your own company so you can create jobs for other people,’” he observed.

Lack of peer pressure, or a peer supported environment, also hinders the desire to start an independent venture. In Costa Rica, said Chaves, “Your peers talk about how your job is going, not what are you working on the side or ask if you have you decided what company you are going to create. If they don’t see everyone else doing it, they will be content working for someone else.”

Failure can be a very humiliating and shameful experience and this is amplified in a culture like Costa Rica. In contrast, failure in Silicon Valley is just part of life. Part of the reason for that, according to Chaves, is the availability of funding sources. The nascent venture capitalist and angel investment climate in Costa Rica is another barrier to startups, “In Latin America if you fail, you burn your shot and people aren’t willing to give you more money. But we can’t expect anybody to follow their dreams alone.”

In order for this to change, Chaves advised, there have to be success stories on the scale of tens to hundreds of millions of dollar acquisitions of Costa Rican companies. Even though there are small to mid-sized firms that have created niches for themselves, and are showing positive income and growth, they are not enough to really attract the attention of investors.

Use What You Have

Robert Wolf, CEO of EX² Outcoding

“We had to grow with our own resources,” said Robert Wolf CEO of EX² Outcoding (and one of our Power 50). “We had to invest in equipment, infrastructure, staffing. There was no formal environment to provide help to tech startups to grow. It is pretty formal now, and easier to get funding from private sector.” While this might appear to be in contrast to what Avantica’s Chaves observed, even a handful of such investors is a long way from having none ten to 15 years ago.

EX² Outcoding was formed in 2000, known then simply as Outcoding, to provide software development, QA testing, implementation and maintenance. “70% of our work,” explained Wolf, “is done by creating dedicated teams for US companies.” When he was a manager at a software company Wolf looked at the Indian outsourcing model and determined that Costa Rica would make an attractive market due to the proximity to the US, low cost travel, and the time zone – and asked why couldn’t the Indian model work in Costa Rica? “Back then there were two or three companies. I started in my house with one computer, now we have 120 developers. The development skills are pretty much the same here as in the US and our staff is fully bilingual.”

Wolf sold Outcoding to BDX, a former client based in Austin, TX, “The company is still independent with no relation with the US company,” he said. With industry growth comes more completion for good talent at an affordable salary. “This industry has been growing 130% per year,” said Wolf, “Nowadays to be a developer you have to have a decent income, so more people are entering this industry and more universities are focusing on technology.”

EX² Outcoding has a close relationship with CINDE, the software promotion agency. “They have done a good job selling the country and about 70,000 jobs have come from foreign investment,” Wolf said. “CAMTIC is very large now and includes telecoms, design companies, software developers. I believe they are creating partnerships and trying to create courses. In order for them to be successful they need to invest money and time into selling the software industry of the country.”

In Part II we talk with other Costa Rican pioneers who are creating a new future, and shifting the paradigm in their country.