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Business Management

Medellin: Colombia's emerging tech hub

Medellin, Colombia’s second city, is tucked away towards the north of the country with a population of about three million. It is a city with a patchy history as the home of infamous drug lord Pablo Escobar and the Medellin Cartel. At one point it was known as the “murder capital of the world” but now Medellin is trying to earn a new moniker – tech hub.

Colombia as a whole is getting online swiftly. The government is aiming to have 63% of its people connected by 2018 in a bid to curb poverty. It currently stands at 51%. Smartphones are on the up too.

Meanwhile Medellin is growing as a bilingual city, which may aid efforts to attract international investment. The government is taking a keen interest in developing Medellin to its full potential.

What is the advantage of Medellin?

Travel search startup Viajala relocated to Colombia from Chile last year. Following an investment round, it opted for Medellin over Bogota for several reasons including better transport systems, nicer weather and a growing entrepreneur-friendly attitude, says CEO Thomas Allier. Viajala was also able to benefit from Ruta N [Spanish], which provides office space for new startups, and was funded by public and private money.

The startup environment in Medellin has only emerged recently, explains Allier. “If you had come here five years ago you would have had nothing but right now you have many options,” he tells IDG Connect. “It’s not like in San Francisco where you come with a PowerPoint and raise $2m, but if you have a very good product and a lot of traction, there are actually funds available to you.”

There have been some recent success stories with startup funding rounds and exits over the last year or so in Colombia. Food delivery service ClickDelivery was acquired in 2014 by German food delivery network Delivery Hero, while older veteran companies like software developers PSL have been based out of Medellin since 1988 and saw early opportunities in the city.

What about Facebook and internet.org?

Colombia has caught the eye of Mark Zuckerberg and Facebook of late too. Colombia was one of the many countries chosen for the launch of Facebook’s internet.org, an initiative that aims to make the internet more affordable and accessible in emerging markets.

Several African and Asian nations are already on board. This plays in nicely to Colombia’s growing phone use as internet.org is targeted at mobile users on the country’s Tigo operator network.

“The Colombians can have more opportunities for personal and professional development,” said Tigo Colombia GM, Esteban Iriarte. Tigo, which is under the Colombia Movil umbrella, is the nation’s third largest operator.

Claro and Movistar are the two other major operators whose customers can’t yet avail of the service.

What are Medellin’s challenges?

Most recently Medellin suffered a serious blow when Hewlett-Packard pulled its office from the Ruta N campus and closed other offices in the city. The $14m Ruta N office opened in 2012 and was tipped to employ thousands. According to a report from Nearshore Americas, which first reported the story, the investment in Colombia was mismanaged from the beginning.

“Much of what is on the internet is hype and the technology scene is nowhere as big as it has been made to seem, especially in Medellin,” counters David Feldsott, founder of Medellin-based PanTrek. He references high tax structures as a prohibitive to many startups growing in Colombia.

“The Colombian government provides tax incentives to new businesses for the first two years of operations, but that does not make up for it in the long-term,” he says.

After two years, companies will need to file taxes monthly, which can include minimum taxes on assets, along with the quagmire of needing a Colombian bank account and a business visa, explains Feldsott.

The first two years’ exemption works for some startups to get an opening but not for others says Allier. Many startups spend their first two years building and not making a profit.

“Colombia is very bureaucratic. I think it’s because in a lot of Latin American countries there has been a lot of corruption and they have to be extra careful about everything. Anything you have to do, you have to go sign it personally, to have everything certified. It takes a lot of time, especially in the beginning when you don’t have a lot of time or people helping you with that,” says Allier.

“The banks are not startup friendly at all,” he adds. “In the case of Viajala, we raised half a million dollars before getting a credit card from a Colombia bank.”

The slow spread of internet access across the country has caused some challenges for startups too in trying to reach customers or investors. “With internet access I feel it is the lack of competition between internet providers [that causes problems],” concludes Allier. “The cost of internet access is very high.”

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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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