Puerto Rico is in the midst of a debt crisis that could make Argentina blush. It currently has more than $70 billion in unpaid obligations and no realistic options to repay its debt. It is trying to make restructuring plans in Washington, but as of now this is a situation with no obvious solutions that devastating the island’s economy. The unemployment rate, for example, is nearly 13% compared to just 5.5% in the United States.
With repayment options slim, Puerto Rico faces the challenge to either create substantial long-term GDP growth or remain mired in these issues for the foreseeable future. To navigate its way out of debt, the government is seeking to diversify its economy away from only agriculture, manufacturing, and tourism.
Enter Parallel 18, a government-funded tech-startup accelerator that hopes to spur more innovation and create successful entrepreneurs that can help push Puerto Rico’s technology sector forward. The organization is still accepting applications through the end of the week from young tech firms founded within the past three years that have global ambitions for a five-month acceleration program will start officially on April 15.
“We are hoping to get more innovation on the island in terms of diversification of our economic development,” said Marie Custodio, outreach manager for Parallel 18. “In the long term this is part of the economic development initiative. It’s a response to the challenges Puerto Rico is facing. In the short term, this is a more of a cultural change initiative. We want to create more entrepreneurs and retain entrepreneurs on the innovation side.”
The companies that are accepted into the program will receive $40,000 in funds that come from a $2 million investment from the The Puerto Rico Science Technology & Research Trust, the Department of Economic Development and Commerce, and the Puerto Rican Industrial Development Company. Those startups that remain in Puerto Rico after the five months are up will also become eligible for another $75,000 in matched funds on top of what the company raises itself. The organization hopes that this incentive, along with opportunities to interact with and recruit talent at local universities, will keep companies on the island long term.
While the money will obviously help, the connections available through Parallel 18’s network is what the organization believes will be invaluable. With co-working space options in Puerto Rico and keyed-in experts across the globe, Parallel 18 hopes it can bring entrepreneurs together and watch the organic growth multiply. To aid in this, it has gathered together mentors and an advisory board that includes a VP from Microsoft, head of a successful startup incubator, professor, finance expert, and long-time tech entrepreneur who has launched multiple companies.
Looking to Startup Chile
In many ways, Parallel 18 is looking to model itself on the runaway success of Start-Up Chile. It is even following the adage that while talent imitates, genius steals. To help eliminate the learning curve of running a successful incubator, Parallel 18 tapped former Start-Up Chile executive director Sebastian Vidal to run the organization. They knew he had the knowhow, wisdom, and contacts to give their accelerator the best chance to thrive.
The Santiago-based accelerator, widely credited with spurring what has been dubbed “Chilecon Valley,” has many of the same incentives right down to the $40,000 equity-free funding. In its five years, the organization has “graduated” some 1,200 startups from more than 70 countries, according to Brookings, and these firms have created at least 1,500 jobs and provided community outreach to more than 200,000 Chileans.
Despite his past accomplishments and belief that Parallel 18 will achieve similar results, Vidal knows there is a still a lot work to be done. “Everything we want to accomplish, such as creating a solid ecosystem with a global view, will happen only if we create sustainable, successful companies for the long term,” Vidal told CGF Insurance.
The Puerto Rico Advantage
There is reason for positivity, though, and much of that is due to location. “Parallel 18 harnesses the uniqueness of Puerto Rico,” said Vidal.
Among the benefits, he highlights the island’s multicultural society and large diaspora that has deep roots in the United State. No Latin American nation can offer the same cultural affinity and first-hand knowledge of U.S. society like Puerto Rico. Then there is the convenient geographic location with constant flights to New York and Miami, the low cost of living and resources, and employee’s desire to live in such a beautiful landscape.
There is another key reason Custodio thinks Puerto Rico is the perfect spot for U.S. companies that are considering making the leap into the Latin American market. While regulations, tax codes, and other legal issues in places like Brazil and the Dominican Republic come with a frightful learning curve — and many surprises — Puerto Rico’s business environment is very similar to that of the United States. Companies there are under the jurisdiction of federal laws, benefit from familiar intellectual property protection laws, and don’t have much to learn when it comes to the tax code. Banks on the island are even FDIC insured.
“If you are a U.S. company and want to engage the Latin American market, Puerto Rico is ideal,” said Custodio. “You don’t lose your legal protection.”
Will Parallel 18 Succeed?
Naturally, any venture of this magnitude needs to prove itself before it can be considered a success. A desire to spur innovation and a few million dollars is one thing. Making it all become reality is another story, and there is no way to know until it gets through a few cycles and begins to push forward some tech companies of note.
Author and startup veteran Andrew Hyde is one expert who was able to visit San Juan to get an up-close look at the work done so far. And in writing about what he has seen, Hyde is expecting Parallel 18 to be a good opportunity for startups looking to reach a new market.
“If your target market is in LATAM I would put this on top of your list,” wrote Hyde. “It is an absolutely amazing opportunity, and it is exciting to see it launch.”