I’m from Ecuador, and my professional career happened in Silicon Valley, and nothing would make me happier than seeing Ecuador prosper aided by technology. This article talks about the successes at Ecuador’s Yachay University.
According to Pitchbook, in 2005, 34% of V.C. in the United States went to firms in Silicon Valley. By 2014, that figure jumped to 44%. Silicon Valley currently has $4,433 per capita in V.C., outstripping the nation’s $206 per capita 21-to-1. Unlike the California Goldrush of 1849, anyone has a chance to develop software nowadays. The riches are not limited to geographical location. This opportunity ignites people’s imagination from all over the world. Engineers don’t have to move to Silicon Valley to work for a startup anymore. Chile, Brazil, Argentina, Colombia, Canada, Germany, and a long list of countries are actively trying to clone Silicon Valley. The same is happening in cities throughout the United States, such as Los Angeles, New York, Miami, Chicago, etc.
Yachay University: Fostering A Culture Of Innovation
Silicon Valley continues to fascinate entrepreneurs and governments worldwide; however, it remains difficult for many regions to create a similar environment to Silicon Valley. Marc Andreesen, the co-founder of Netscape and Andreesen-Horowitz, argues that the value of Silicon Valley depends primarily on its culture and how it supports innovation.
«…the freedom to create new technologies without having to ask the powers that be for their blessing. Entrepreneurs can take advantage of the difference between opportunities in different regions, where innovation in a particular domain of interest may be restricted in one region, allowed and encouraged in another, or completely legal in still another. For example, the laws and guidelines for using drones or taxing bitcoin already vary widely across the globe, just as they do for ride-sharing services across different cities in the U.S.»
Marc Andreesen
Just how did replicating Silicon Valley fair at Yachay University? The plan certainly looked promising. «In 2013, Ecuador’s former president, Rafael Correa, launched the institution [Yachay University] in part of a bid to transform the nation’s economy from one reliant on exports of oil and other commodities to one that generates its innovations.» Yachay is Ecuador’s attempt to leapfrog into the next economic frontier. The government began erecting Yachay, coined the «City of Knowledge.» Correa boldly predicted that Yachay University would become Latin America’s Silicon Valley.»
Fast forward four years to today, we can see that economic and political pressures unraveled Correa’s dream of a technological frontier. In other words, Ecuador’s plans to replicate Silicon Valley lacked a foundation. Considering that innovation is paramount in today’s world economy, building an environment that supports innovators is crucial. Ecuador’s struggling economy and plummeting oil prices led to a shift in national priorities in the ongoing years. An austerity plan was initiated, cutting $2 million in university expenses. Similarly, surrounding public companies capped employment opportunities for the students. Leading scientists who were previously hired were quickly let go or poached by neighboring universities.
Innovation in Silicon Valley is largely due to the area’s culture and governmental support. In order for this to work in any location, there needs to be a cultural shift and government approval to incentivize, not punish new businesses. The opportunity for Ecuador is reliant on deregulation and specialization of resources available within the country.
Lessons from Yachay University
How can other emerging countries make the Silicon Valley vision a reality? Start by systematically considering and creating the area’s regulatory competitive advantage. Here are some suggestions that can help make this happen:
Encourage Collaboration, And Celebrate Successes and Failures
Yachay is located two hours from Quito, the capital of Ecuador. The best parallel is Palo Alto which is located in between two major US cities: San Jose and San Francisco. This small city, Palo Alto, CA, became the capital of the world for startups. So shouldn’t Yachay fair just as well? Not in the slightest. Yachay’s disadvantage is twofold. First, its culture became homogeneous rather quickly, given immigration limitations.
And second, support for disruptive technologies and business plans was absent. If you have a mix of people with diverse backgrounds and experiences, it helps build a creative culture. In an article titled «Why Silicon Valley Can’t Be Copied,» Vivek Wadhwa explains the success of Silicon Valley and attributes it to culture malleability.
«The reasons were, at their root, cultural. It was Silicon Valley’s high rates of job-hopping and company formation, its professional networks and easy information exchange, that lent the advantage. Valley firms understood that collaborating and competing at the same time led to success—an idea even reflected in California’s unusual rule barring non-compete agreements. The ecosystem supported experimentation, risk-taking, and sharing the lessons of success and failure. In other words, Silicon Valley was an open system—a giant, real-world social network that existed long before Facebook.»
Regulation Fosters Innovation
Here’s a side-by-side comparison of what works in Silicon Valley when starting a company. The second column contains suggestions to move things forward.
| Silicon Valley Policy and Culture | Current Ecuadorian Policy and Culture |
|---|---|
| Starting a company takes a few minutes, and it can be done online for a minimal fee. | Starting a company can take many weeks to months after following many complicated steps. Fees and taxes are required. Owners have to verify the dollar value of the company before forming it. |
| Hiring people is easy. There’s no red tape or any strict regulation. If you pay your taxes, you are in good standing, and the government will not interfere. | There are many governmental protections for workers, making it difficult to have a trial period for employees. Firing low-performing employees is complicated. Long-term contractors are prohibited and must become employees of the company. |
| Investors and companies understand that traction trumps profits in the short term. Highly valued companies such as Google, Facebook, Pinterest, Twitter reported losses and took many years to figure out how they would be profitable. (Some companies are still figuring it out.) | The government shuts down companies that report losses for more than five years. |
| Business processes such as hiring, paying taxes, accounting, and banking are highly efficient and can be automated to a large extent. | Many transactions happen in person instead of online. The entrepreneur is often concerned about obscure regulations that can shut down the business from one day to the next. |
| Credit is easily accessible. | Interest rates are high, and it can be tough to obtain loans. There are even many obstacles in simply opening up a savings account. |
| Equipment is readily available and fixable, and anyone can get computers and software quickly and efficiently. For example, if I am starting a software company, I don’t have to worry about my laptop failing and waiting months to get a new one or pay a government-driven protectionist tax on foreign goods. | If computer equipment fails, people often must wait months to get replacements, before which they must pay high tariffs or government-driven protectionist taxes on foreign goods. The latest technology is not readily available. |
| Unless you are entirely careless, the government will not shut down your business. The I.R.S. wants the income from your company and does not want to shut you down. | In South America, government officials are keen on «catching” non-compliant businesses and shutting them down. |
| The entrepreneurial culture of the Valley gives entrepreneurs a ready-to-go support network where people help each other while at the same time competing against each other. | Entrepreneurism is lonely and isolating, and there is no vibrant support community. |
