InvestChile Insights - eBook Series

R E P O R T

VentureCapital

Industry

Projection & Opportunities in Chile

M A R C H 2 0 2 1

www.investchile.gob.cl

INDEX

01. Introduction: Brief overview of the sector

02. The Market

03. Regulation

04. Ecosystem

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Venture Capital IndustryProjection & Opportunities in Chile

MARCH 2021

InvestChile Insights - eBook Series

Data col lection & analysis developed by BNAmericas for InvestChi le

VENTURE CAPITAL

INDUSTRY

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01. Introduction: Brief overview of the sectorThe Venture Capital industry is in good health in Chile. In recent years, the country has ranked at the top of the biannual scorecard carried out by The Association for Private Capital Investment in Latin America (LAVCA), which considers 13 indicators in the business environment for venture capital (VC) and private equity (PE). Chile has one of the most developed financial industries in Latin America, with investors motivated by legal certainty, innovation in different businesses, and the participation of the State through financing programs. It is an industry which has also generated the interest of private investors across the board, including those with high net worth (family offices).

In fact, in recent years venture capital and private equity funds have proven to be an effective resource vehicle for small and medium-sized companies with high growth potential, which are fundamental to the local economy “due to their contribution to job creation and for providing services that society desperately needs,” as Cristóbal Silva, director of the Chilean Association of Investment Funds (ACAFI) has pointed out. The role of this industry in the maturity of the entrepreneurship and innovation ecosystem in Chile has been key and, as Silva highlights, currently there are more projects raising capital than there were until a couple of years ago.

In the context of a sophisticated ecosystem, fund managers have encouraged the authorities to incorporate institutional investors who, they believe, could consolidate Chile as a leading regional player in terms of size.

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Chilean pension funds have accumulated assets of about US$200 billion. The Law to Boost Productivity (2016) allowed fund managers to invest up to 15% of their portfolio in alternative assets, seeking greater liquidity and returns. It authorized investments in concession companies that build ports, airports or highways; made possible the acquisition of hotels, shopping centers and office buildings , among others; and, to enter international funds that invest in stocks and debt of companies that are not traded on stock exchanges. In April 2020 the Central Bank of Chile (BCCh) increased the investment limit in these assets (for fund A, the riskiest) to 13% from the 10% in force since October 2017, but this level is still lower than the maximum allowed by law (which stipulates a range of 5-15%).

The interest of the industry is to be able to count on more institutional funds to ensure financing for entrepreneurs, who have had to face – like all Chileans – the challenges linked to the social unrest in October 2019 and, more recently, the global crisis caused by COVID-19. The pandemic has led to the acceleration of the digital transformation and the emergence of new business models in companies of all sizes that will persist beyond the current health emergency.

ACAFI has noted that despite the adverse scenario in the last quarter of 2019, the VC&PE industry enjoyed positive results and prospects compared to other economic sectors. See graphics 1 and 2 below.

As Andrés Meirovich, chairman of the Chilean Venture Capital Association (ACVC), has pointed out: “Chile continues to set an example for entrepreneurship in Latin America and that is how we’re seen all over the world.”

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As Andrés Meirovich, chairman of the Chilean Venture Capital Association (ACVC), has pointed out: “Chile continues to set an example for entrepreneurship in Latin America and that is how we’re seen all over the world.”

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02. The MarketIndustry size and scope

In July 1989, Law 18,815 took effect, regulating and allowing the creation of public funds and investment funds for business development. As the capital market has evolved, legal and regulatory changes have been made to contribute to the promotion and development of the venture capital and private equity industry in Chile.

Currently only private VC funds operate in the country, as the resources available for these types of funds make it difficult to satisfy the structure and requirements of public funds.

According to figures from the Chilean Association of Investment Funds (ACAFI), based on statistics provided by CORFO (the National Economic Development Agency), as of December 2019, the total accumulated investment in private VC funds supported by the public entity reached US$515 million in 42 funds, of which there are 32 currently active. This implies 7% growth over the previous year. It should be noted that in terms of credit Lines approved by CORFO, the amount is US$1.3 billion.

An analysis of the historical figures of CORFO’s venture capital programs shows that 72% of the amount managed by the investment funds were allocated to companies that at the time of the first investment were classified as micro (59%) or small businesses (13%). Another 13% of the resources were allocated to medium-sized companies and 10% to large companies (there is no information on the remaining 5%, since at the time of this report they had no obligations with CORFO).

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Summary by Investment Fund: CORFO Venture Capital program

Line Investment Fund Initial DateApproved

Credit Line (UF)Fund’s Debt

to CapitalDisbursement

(UF) Invested

Funds (UF) NumberLine

StatusCredit Line

Outstanding (UF)

F1 Chiletech 13-04-1998 223,912 1:1 200,900 761,529 13 Closed 0F1 Columba 01-12-1998 208,000 1:1 208,000 250,487 9 Closed 0F1 Halcón 01-07-2003 286,000 1:1 217,236 450,013 4 Closed 0F1 Mifactory 01-11-2002 81,621 1:1 36,119 36,119 2 Closed 0F1 Negocios Regionales 22-12-1999 240,000 0,5:1 240,000 1,058,987 11 Closed 0

Line F1 Total 1,039,533 902,255 2,557,136 39 0F2 AXA Capital Chile 12-01-2006 630,000 2,98:1 448,779 605,947 4 Active 0F2 Crecimiento Agrícola (9) 16-11-2005 277,707 3:1 237,087 235,772 6 Closed 0F2 Expertus 13-12-2005 500,000 2,94:1 500,000 654,254 8 Closed 0F2 Halcón II 01-08-2005 500,000 2,91:1 322,600 399,743 2 Closed 0F2 Precursor 27-04-2005 420,000 3:1 420,000 695,150 9 Active 0

Line F2 Total 2,327,707 1,928,466 2,590,866 29 0F3 A5 Capital 28-12-2006 250,000 2:1 193,210 238,227 2 Closed 0F3 Agrodesarrollo (9)(10) 29-01-2010 510,804 3:1 465,212 1,506,073 10 Active 0F3 Aurus Bios (9) 10-03-2010 539,694 3:1 551,949 677,490 9 Active 0F3 Aurus Tecnología (9) 10-03-2010 544,106 3:1 491,957 639,852 14 Active 52,149F3 Austral Capital 14-01-2008 715,500 3:1 715,500 929,358 13 Active 0F3 Copec-UC 09-07-2008 200,000 2:1 191,165 264,934 5 Active 2,981F3 Ecus Agri-Food 18-10-2012 400,000 1,8:1 120,159 140,200 1 Active 160,000F3 Emprendedor I 20-12-2006 300,000 2:1 167,474 203,646 4 Closed 0F3 Equitas Capital I 15-09-2008 600,000 3:1 545,698 568,263 5 Active 54,303F3 Equitas Capital II 14-01-2010 600,000 3:1 543,944 615,380 5 Active 56,056F3 IG Capital 02-06-2009 600,000 3:1 548,564 798,804 6 Active 51,436F3 IM Trust Energías Renovables 02-02-2010 400,000 2:1 166,720 217,767 2 Active 160,000F3 Inv Empresas Innovadoras 12-09-2006 67,000 2:1 41,353 65,498 7 Closed 0F3 Patagonia 26-11-2007 273,200 2:1 59,903 89,855 1 Closed 0F3 PI Capital 28-08-2006 255,000 3:1 227,763 251,545 4 Closed 0F3 Precursor II 11-12-2009 400,000 2:1 119,240 152,264 3 Active 160,000F3 Tridente 06-08-2008 380,710 2:1 334,084 478,407 4 Active 0

Line F3 Total 7,036,014 5,483,895 7,837,563 95 696,924FEM Asset Chile Exploración Minera (9) 04-01-2012 333,923 2:1 379,268 516,588 9 Active 0FEM EPG Exploración Minera (9) 06-01-2012 414,244 1:1 230,037 338,255 9 Active 0FEM IMT Exploración Minera (9) 06-01-2012 322,998 1,8:1 172996 229,854 3 Active 0FEM Lantánidos (9) 21-12-2011 284,998 2:1 320,954 525,611 1 Closed 0FEM Mining (9) 06-01-2012 346,621 1,5:1 83,848 86,492 3 Active 116,519FEM Mining Equity 05-01-2012 300,000 1,98:1 198,270 230,269 2 Active 98,830

Line FEM Total 2,002,784 1,385,373 1,927,070 27 215,349K1 Mater 08-02-2010 380,000 248,763 601,926 4 Closed 0

Line K1 Total 380,000 248,763 601,926 4 0FC Aurus Ventures III 28-04-2015 825,000 1,327:1 392,990 707,848 9 Active 432,010FC Cleantech Ventures I 27-12-2017 392,000 1:1 60,737 90,705 1 Active 331,263FC D´E Capital Energía Renovable I 07-04-2015 450,000 1:1 394,347 394,738 2 Active 55,653FC Endurance Venture Equity 04-06-2014 525,000 1,5:1 381,208 569,631 4 Active 143,792FC Equitas Capital III - FC 02-03-2017 550,000 1:1 0 0 0 Active 550,000FC Minería Activa III 13-03-2013 479,600 1:1 354,723 654,004 3 Active 0FC Victus Chile (10) 05-06-2014 487,500 1:1 487,500 786,438 6 Active 0

Line FC Total 3,709,100 2,071,504 3,203,364 25 1,512,719FT Amérigo Chile Early-Stage & Growth08-04-2013 360,163 1:1 300,981 489,143 7 Active 59,182FT Best Potential 11-05-2015 225,500 1,811:1 53,097 73,968 1 Active 172,403FT B2B Venture Growth 02-12-2019 281,000 2:1 0 0 0 Active 281,000FT Clin 01-02-2018 300,000 2:1 48,750 49,590 6 Active 251,250FT Desafío Global 04-09-2013 262,500 0,806:1 212,696 337,943 3 Active 49,804FT Equitas Capital III - FT 02-03-2017 350,000 2:1 0 0 0 Active 245,000FT Fen Ventures II 14-03-2018 332,200 2:1 31,732 34,186 5 Active 300,468FT Génesis Ventures 30-05-2013 306,000 2:1 223,674 269,247 5 Active 82,326

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For more information regarding the private equity and venture capital funds currently operating in Chile, ACVC recently published their first Impact Report, and ACAFI’s yearly VC&PE report.

FT Impact Investment Chile 02-02-2018 300,000 2:1 112,404 112,404 6 Active 187,596FT Invexor Innovation I 07-03-2018 150,000 2:1 122,425 141,018 5 Active 27,575FT Nazca Ventures 21-08-2013 219,033 2:1 126,488 138,508 15 Active 87,613FT Nexo Chile Ventures I 14-12-2017 350,000 2:1 68,281 68,492 1 Active 281,719FT NXTP Labs 02-05-2013 211,000 2:1 109,264 116,212 31 Active 65,502FT Waste to Energy I 26-12-2012 218,750 1,5:1 218,750 298,419 5 Closed 0

Line FT Total 3,866,146 1,628,542 2,219,130 90 2,091,438FET Alaya II 25-01-2017 300,000 3:1 149,703 149,703 18 Active 150,297FET Alerce VC 26-01-2017 300,000 3:1 136,789 159,221 13 Active 163,211FET Chile outlier seed Fund I 31-08-2018 159,600 3:1 15,208 15,564 7 Active 144,392FET Manutara I 08-11-2017 300,000 3:1 110,360 110,856 9 Active 189,640FET Vulcano 05-05-2018 300,000 3:1 34,364 35,995 6 Active 265,636

Line FET Total 1,359,600 446,423 471,340 53 913,177 Total in UF 21,720,885 14,095,221 21,318,394 362 - 5,429,607 Total in US 882,506,096 568,816,090 853,231,130 206,429,919

Summary by Investment Fund: CORFO Venture Capital program

Line Investment Fund Initial DateApproved

Credit Line (UF)Fund’s Debt

to CapitalDisbursement

(UF) Invested

Funds (UF) NumberLine

StatusCredit Line

Outstanding (UF)

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Recent growth data on number of deals and amounts

According to the 2020 LAVCA Industry Data & Analysis report, which looks at the results of a survey of more than 500 fund management firms in Latin America and the Caribbean, private equity fund managers invested US$10.6 billion in Latin America in 2019, a record year according to the Association data.

VC investments have been doubling annually since 2018. In 2019, VC investments reached US$4.6billion in 440 transactions that represent more than 40% of the total amount invested by private equity funds. Exits totaled US$6.5 billion in 82 divestments representing the best year for exits since 2011.

According to the latest edition of the LAVCA Scorecard published in 2018, Chile is the number one market in Latin America in terms of the environment and outlook for PE/VC. Chile stands out in almost all categories compared to regional peers, particularly in intellectual property rights, legal transparency, and perceived corruption. However, at the time of publication, the tax scenario and restrictions on institutional investors were cited as challenges.

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LAVCA figures indicate that in Chile US$708 million was invested in 48 VC&PE transactions in 2019, which puts the country in fifth place after Brazil, Colombia, Mexico, and Argentina. LAVCA registered 40 VC transactions in Chile for a total of US$63 million. Among the operations that involve private capital in Chile the 2020 LAVCA Industry Data & Analysis regional report highlights Ardian and Chilean fund manager CMB, which made an investment in the Vespucio Norte Express concession and San Cristóbal tunnel, within the framework of CMB’s infrastructure fund of US$400 million. In other sectors, Linzor Partners completed an investment in telecommunications provider Mundo Pacífico, while Altra Investments and DEG invested in financial services company AVLA. Regarding exits in the same period, the LAVCA report highlights Minería Activa, which sold BioLantánidos, a rare earth elements company, to Hochschild Mining of the UK for US$54 million.

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Funding gap and average ticket size

In general terms, Chile has five financing stages for the development and creation of new companies: seed capital, angel investment, venture capital, development capital and buyout.

At a local level, the horizon for VC investors is between five and 10 years, before exiting the project.

In Chile, given that the ecosystem has been strongly supported by CORFO’s credit line program, the average ticket size is directly related to its programs:

FET (Early Stage Technology Fund) and FT (Early Stage Fund): up to US$300,000.

FC (Development and Growth Fund): between US$3 million and US$7 million.

This presents an opportunity for investors interested in co-investing with local funds and participating in follow on rounds.

As indicated by the Chilean Ministry of Finance, the country has undertaken a process of both legal and administrative reforms that have allowed, on the one hand, to provide the capital market with significant degrees of development, liquidity and depth and, on the other, to acquire proven experience in managing financial resources. The foregoing, added to factors such as responsible fiscal management and macroeconomic stability and stable institutions, have put Chile in a privileged position to face the challenges of an increasingly complex and dynamic global market.

Chile is ranked as the best economy in Latin America and the Caribbean to do business in. The country ranked 33rd in the Global Competitiveness Index 2019 produced by the World Economic Forum. This places the country as the most competitive economy in the region thanks to a stable macroeconomic context (1st, out of 32 economies) and open markets (10th). Chile´s institutions, Infrastructure, Information and Communication Technology (ICT) adoption and macroeconomic stability is listed as its main pillars in the index.

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Investment vehiclesIn Chile, the most common investment vehicles are private investment funds (FIP), which are formed through contributions from limited partners managed by privately held companies (GP’s) at the risk of their contributors. They do not make a public offer of securities.

These funds are not supervised by the securities regulator, the Financial Markets Commission (CMF).

Unlike corporations, FIPs are exempt from first category income (corporate) tax as long as there are a minimum of eight contributors, who together with their related parties cannot own more than 20% of the fund’s shares.

The number of contributors to a private investment fund cannot exceed 49, unless some of them are related. If this figure is exceeded, they will be subject to the regulations applicable to public investment funds, having to notify the CMF along with adapting their internal regulations to those established for public investment funds.

Funds usually invest in convertible notes, a mutual debt instrument that can be converted into shares and is traded on the market; SAFE (simple agreement for future equity), an agreement that gives the investor the option to obtain shares of the company in the future under certain conditions; KISS (keep it simple security), similar to SAFE but has a debt element that includes interest and maturity, and an equity element without interest or maturity; and equity, or direct ownership of shares.

Recent success stories in prominent industries

At the regional level, the most prominent Chilean success (2019) was that of NotCo, in the Foodtech sector, which uses artificial intelligence to develop plant-based foods. The funds The Craftory, Bezos Expeditions, Maya Capital and Kaszek Ventures invested US$30 mm in the company in an early stage, due to the attractiveness of its proposal in an expanding sector. Local media reported in September 2020 that NotCo closed a round of capital financing, managing to raise some US$85 mm and became the startup with the highest foreign investment in Chile. Jeff Bezos of Amazon

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and Biz Stones, co-founder of Twitter, invested in the funding round that was also used to expand the company’s product range, according to Diario Financiero.

Several other milestones have been reached in recent months. Recently, Burn to Give, an enterprise whose business model aims to convert the calories burnt while excercising into equivalent rations for children with malnutrition. This venture raised US$8.5 million in a Series A round. The capital came from local and international funds, such as Albatross Capital, Grupo Prisma and Katapult Impact from Norway, as well as renowned entrepreneurs and investors like JP Morgan, Endeavor, Grupo Bio Ritmo and Genesis Investment Management, among others.

Among other operations highlighted by ACVC is the case of Inti-Tech, an energy company that developed an autonomous robotic system for cleaning photovoltaic plants without the use of water, in a financing round with Engie Factory, Alaya Capital Partners and Albi Investments. Another is Rocketbot, funded by Manutara Ventures, which consists of a platform that creates bots for the robotization of Processes, which now provide the service with a SaaS model to clients such as Sonda, Inovabiz and Codebase. Another example is Wenu Work, an IoT application for energy efficiency in all types of companies, funded by Engie Factory and Genesis Partners.

The VC industry is a key link in the financing chain of companies in Chile and the ecosystem is an example of collaboration between the public and private sectors in the region, as shown in the ACAFI Venture Capital & Private Equity 2019 Report. The VC industry in Chile can also be analyzed in the 2020 LAVCA Industry Data & Analysis.

The VC industry in Chile has been growing and gaining space among investors, including the big corporations. According to the Corporate Venturing Latam report, published in 2020 by Wayra and the IESE Business School, Chile ranks fourth in Latin America when it comes to corporations working with startups. The main sectors involved are financial services (25%), consulting (17%), information technology (13%) and telecommunications (9%). Among them are various multinational companies such as Engie, Wayra, Bimbo and Accenture, among others, as well as local companies such as Masisa.

Corporate Venturing in Chile

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In recent years, local activity has been noted for large operations such as the acquisition of the marketplace site Linio by regional retailer Falabella for US$138 million, and the purchase of a majority stake in Cornershop – by Uber in an operation valued at more than US$450million. This delivery startup is present in seven Latin American countries and is considered Chile´s first unicorn. –

There are other notable recent cases:

In 2019, Copec, the fuels arm of the local group Angelini, created its first corporate venture capital fund, Wind Venturesin Silicon Valley, with the aim of taking advantage of Copec’s experience and resources in order to accelerate the startup and growth of firms linked to the areas of energy, mobility and retail in the Latin American market. The initial plan is to make six annual investments generally ranging from US$1million to US$10 million in A, B and C+ companies. However, in August 2019, Wind Ventures invested US$30 million in Stem Inc, a global leader in artificial intelligence services for energy storage.

At the beginning of 2019, financial services group Consorcio created a Corporate Venture Capital Program with an initial budget of US$10 million and with a view to doubling it in five years. As they explained, it was the first step to promote a new way of relating to the fintech and insurtech world in order to face the challenges and speed imposed by the technological revolution and to leverage the growth of the group’s different business lines. The goal of the program for 2020 is to invest in at least four startups in Chile, Colombia, Peru and Mexico. They are already working with Pago Fácil, a Chilean fintech focused on payment solutions, investing US$500,000 to consolidate growth and expansion in exchange for a 15% ownership stake.

Likewise, the Kaufmann Group launched the company builder GÜIL, which develops service industry startups for the future of mobility. Currently, it participates in five projects in different stages of development.

Fundación Chile, through Chile Global Ventures, is also a contributor to the CLIN investment fund, which has US$20 million, of which 33% is private capital from investors Zoma Capital, a private investment fund founded by Lucy Ana Avilés de Walton and Ben Walton; Entel, the largest telecommunications company in Chile; and Engie Factory, the venture

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capital arm of Engie, a world leader in energy. CORFO’s leverage is 67% of the total. This fund seeks to invest in between 20 and 25 companies that are in early stages of development with innovative technologies and high potential for scaling up to international markets, mainly focused on B2B markets and in sectors associated with the sustainable use of natural resources.

03. RegulationEstablishment of funds

In May 2014, the Single Fund Law (LUF) came into force, which eliminated certain asymmetries and restrictions established in the regulation of third-party fund management in Chile, and made adjustments to the tax treatment applicable to foreign investors. This regulation currently regulates the funds.

As of March 1, 2020 the Tax Reform Law increased, , the minimum number of non-related contributors that FIPs must have. According to an analysis provided by ACVC Director and Partner of the Carey Law Firm, Francisco Guzmán, the law regulating FIPsstipulates the following:

1. FIPs must have at least eight contributors, each (together with their related parties) with a maximum 20% share of the FIP (unless one or more of their contributors are institutional investors who have at least a 50% share of the FIP). Before this modification, FIPs were obliged to maintain a minimum of four unrelated contributors, each one with a minimum 10% share of the fund.

In the event that a FIP does not comply with this requirement one year from its creation and while it is active, it will be considered a public limited company (and its contributors, stockholders) for the purposes of the Income Tax Law.

The FIPs active as of March 1, 2020 will have a period of one year to comply with this requirement. The new requirement will not be applicable to FIPs that as of February 24, 2020 have received contributions from CORFO, to the extent that such investment has been made in accordance with the investment policies defined by the agency.

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Alternative assets

Fintech law, scenario for payments, R&D law

2. FIPs must have fewer than 50 participants who are not members of the same family. Members of the same family are understood to be those who maintain a kinship relationship with each other up to the third degree of consanguinity or affinity and the entities controlled, directly or indirectly, by each of these persons. In the event of not complying with the rules, the FIPs will be governed by the rules applicable to public investment funds, having to adjust their internal regulations and become administered by a general fund manager (AGF), in the case of being an administrator, by an administrator of FIPs. These regulations were not affected by the Tax Reform Law.

3. After one year has elapsed since the creation of a FIP, the management company (together with its related parties) may not own more than a 20% share of the FIP. The consequence of non-compliance with this requirement is the same as that referred above. This rule was not modified by the Tax Reform Law.

Total investment in alternative assets by pension funds amounts to US$4 billion as of august 2020, equivalent to 1.9% of total pension fund assets. To date, these investments have been made through local investment funds (feeder funds) and have remained relatively stable in recent years. The majority of the investments are in foreign assets (79%) and focused on private capital fund of funds and buyout type strategies.

The government has expressed its willingness to send a draft Fintech Law to Congress. According to the Ministry of Finance the aim is to promote the creation of more and better technological financial innovations, “because we are convinced that these constitute a significant contribution in terms of financial inclusion, job creation and competition, and cost reduction in financial markets, among other positive effects.” Along these lines, the ministry together with the other regulatory authorities of the financial market are developing a legal framework granting legal certainty to the different participating players, protecting consumers and the public trust in the proper functioning of the capital market and at the same time, promoting entrepreneurship and competition.

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The FinteChile Association, which groups together fintech firms, has indicated that in the context of the current global crisis caused by COVID-19 it is necessary to be officially recognized as financial providers as soon as possible in order to support the government.

According to the industry, the Fintech Law is seen as a catalyst for Chile to become the financial hub of the region, considering that the major global financial centers are not necessarily those that have the greatest depth in their capital markets, but rather those that have put financial technology at the service of the people and their economy in general.

The legal framework for financial services in Chile comprises a set of special laws whose supervision has been mainly entrusted to the Financial Markets Commission (CMF). The relevant laws are the General Banking Law, the Securities Market Law, the Law on the Administration of Third-Party Funds and Individual Portfolios, the Law on Clearing and the Settlement System of Financial Instruments, the Law to Regulate Agricultural Product Exchanges, the Law on Deposit and Custody of Securities, and the Insurance Law, among others.

These laws contain norms that were structured under the traditional model of providing financial services, in other words, in which there is an office where those offering and seeking to contract financial services meet in person, and where multiple services are offered y by the same company.

The spirit of the new law considers that new financial business models that incorporate technology in traditional processes are desirable for the economy, the benefits of cost reduction and improvement in the quality of service, as well as the greater inclusion in the financial world that the massification of these technological advances involves.

The Tax Incentive Law for Research & Development, meanwhile, allows companies incorporated in Chile, which are first category (corporate) taxpayers, to improve their competitive capacity through tax exemptions on more than 50% of expenses associated with R&D projects certified by CORFO: 35% as a credit against first category tax and 65% as an expense necessary to produce income. This applies to activities such as basic research, applied research, experimental development, and protection of certified R&D project results (patents, utility models, industrial designs and drawings, copyrights on computer programs and rights to new vegetables varieties).

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Payment methods

With the exit of Banco Santander from Transbank, the implementation of a new payment model known as MP4 emerged informally, consisting of four parties – the merchant, the acquirer, the bank, and the credit or debit card brand. This model adds a fourth link in the chain, between the bank and the acquirers, with the aim of introducing greater competition, allowing businesses to choose the acquirer to serve them.

The acquirers currently in the market are Transbank, Multicaja and CompraAquí (Banco Estado), and Banco Santander – through subsidiary Getnet – and BCI, will soon join this list with their own acquiring network.

According to figures published by the CMF, as of March 2020, there were just over 16.7 million valid credit cards in Chile, and 11 card brands. The company with the largest credit card market share is Mastercard with 57%. Second is Visa with 28%. Credit card issuers are banks and retail outlets (non-bank issuers).

MACH Pay of Bank BCI and Tenpo of Credicorp issue prepaid cards.

The legal framework entrusts the regulation and supervision of means of payment to the Central Bank and the CMF respectively. The Central Bank has issued specific regulations applicable to issuers and operators of electronic means of payment.

In October 2016, Law No. 20,950 was published,authorizing non-banking entities to issue prepayment means, which previously only banks were allowed to do.

Prior to this law, the Central Bank had already introduced important regulatory changes. In 2013, the Central Bank revised its credit card regulations to strengthen the payment system and facilitate competition and innovation in retail payment methods. In 2014 a series of regulatory requirements to facilitate the issuance and operation of bank prepayment methods were adjusted and updated.

Additionally, in January 2017, the Chilean Competition Tribunal (Tribunal de Defensa de la Libre Competencia -TDLC) recommended the modification of laws and regulations with the aim of promoting competition in the payment industry. Among these recommendations, the TDLC stated that the interchange rate between the issuer and the acquirers should be regulated. In July 2020, the Ministry of Finance announced a bill that would regulate these rates, which will be subject to a maximum depending on the type of card (credit, debit or prepaid).

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Tax aspects

Tax exemptions

As in the LUF, taxpayers not domiciled or resident in Chile who invest in public investment funds or mutual funds are subject to a single tax of 10%, without the right to a tax credit.

In the case of foreign contributors to funds that invest in companies under the RUA (attributed profit regime), the profits will be attributed to foreigners with a 25% tax credit. However, the funds may optionally retain 10%.

Profits of the funds from companies under the partially integrated regime will be taxed at a single rate of 10% when they are distributed,. That is, foreigners who invest in funds that in turn invest in companies under the partially integrated tax regime will pay 10% as a single tax on the distribution of these flows.

In the case of funds that invest 80% in international assets and 20% in Chilean ones, foreign income will not be taxed on the pro rata portion invested abroad, provided certain conditions strictly required by the legislation are met.

The exemptions stipulated in article 107 of the Income Tax Law or LIR (unearned income from listed fund quotas or with investments in listed assets under the conditions and requirements of the regulation) and 108 of the same legal text will be maintained. In other words, for capital gains, the benefits of the tax exemption for unearned income and capital gains from bonds registered by the Central Bank and the General Treasuryare maintained, as specified in article 104 of the LIR, and also from highly traded shares on the stock market.

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Taxes on digital platforms and rules for the export of servicesThe tax modernization reform approved in January 2020, establishes the application of value added tax (VAT) on digital services provided from abroad. Services in Chile are subject to VAT (currently at a rate of 19%) when they involve industrial and commercial services and services related to mining and extractive industries, among others, and digital platforms is now included To this end, it is presumed that a service is used in Chile: the IP address of the device used by the user or another geolocation mechanism indicates that it is in Chile; the card, bank checking account or other means of payment used is issued or registered in Chile; the address indicated by the user for billing or the issuance of payment vouchers is located in the country; or the subscriber identity module (SIM) card of the mobile phone through which the service is received has the Chile country code.

State incentives and subsidiesIn 1997 a series of financing programs were implemented by state agency CORFO in the form of quasi capital, in response to the lack of investments in early-stage companies in the capital market. To date, CORFO has developed eight programs to support the VC&PE industry, of which the following 3 are still active:

FC: Development and Growth Fund (2012)

FT: Early Stages Fund (2012)

FET: Technology Early Stages Fund (2015)

The VC programs generate an increase in sales of companies, which in part can be explained by their lifecycle. In recent times, CORFO has chosen to focus its programs in order to better serve companies in different stages of development, with the FT and FET programs aimed at companies in early stages and in the process of market entry, while the FC program targets more mature companies already in a process of expansion.

In September 2020, CORFO several modifications to the Venture Capital Credit Line Program - Early Stage Fund (FT). It established that local companies with equity below US$1.9 million at the time of the first investment with fund resources, are eligible. It also allows, under certain

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conditions, investments in foreign companies with financial interests in Chilean companies, or in Chilean companies in internationalization phase, up to 35% of the amount of the approved credit line.

CORFO maintains the restriction of not investing in companies in tax havens. Also, companies with links to other companies of the fund’s contributors are not elegible.

Funds that meet the requirements may receive credit lines of up to 200% of the contributions paid or committed to the fund. The amount committed in the lines ranges between US$3.8 million and US$13 million. See graphics 3 and 4 below:

The status of the lines of the different funds can be seen on the CORFO website.

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04. EcosystemChile has an active entrepreneurship system with state, university and corporate incubators and accelerators, financing entities, coworking spaces and mentor networks in Santiago as well as in the different regions of the country. A good reflection of this can be found in CORFO’s Directory of Entities to Support the Entrepreneurial Ecosystem.

Similarly, the presence of international equity crowdfunding platforms stands out. These include platforms such as Founderlist or Broota, the Y Combinator accelerators – in which the Chilean startup Fintual participates – and 500 Startups – including Chile’s Chipax, Agrapp and Comoquiero – along with Endeavor Chile, a global organization that seeks to train high impact entrepreneurs.

Endeavor has supported successful cases such as Crystal Lagoons, Grupo ALTO, Colegium, Oxxean, Drillco and ComparaOnline. It is very active in the local entrepreneurship ecosystem and in 2020 turned its attention to fintechs in particular in orderto promote the scaling of local firms – through The Endeavor Scale Fintech acceleration program which has already selected the first five startups to participate: Pago Fácil, Migrante, Colektia, Mejores condiciones and JooyCar – and in 2021 plans to add a program aimed at agtechAThe global venture capital investment fund 500 Startups, based in Mountain View, California and considered the most active in its area, recently announced that it will invest US$600,000 in 10 startups in Latin America, including three in Chile with a strong technological component in their proposals: Agrapp, which developed a platform that allows farmers to manage their business; Chipax, which created an online cash flow control platform for SMEs; and Como Quiero, which implemented a weekly menu planning platform for the home with a one-click shopping list.

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Public entities in the ecosystem

Other highlights are the purchase of local data science firm Metrics Arts by the Chilean operation of EY andthe investment of US$500,000 of financial and insurance group Consorcio in Pago Fácil, an announced investment of Y Combinator in the startup that integrates e-commerce with the Justo delivery service, the investment of US$3 million from The Venture City fund and co-financed by CLIN in the startup SimpliRoute, the expansion of Protera, a company that creates proteins from artificial intelligence, and the investment raised by Burn to Give.

InvestChile.Is the government agency responsible for promoting Chile in the global market as a destination for foreign direct investment, serving as a bridge between the interests of foreign investors and the business opportunities offered by the country and providing world-class services in line with the country’s economic development policies.

Since 2018, InvestChile has worked with Venture Capital investors, bringing them closer to business opportunities through meeting agendas, contact lists and information from relevant actors at the local level, in addition of providing information on the ecosystem and programs to facilitate investments in Chile.

The agency implements initiatives to publicize, promote, coordinate and implements actions that seek to encourage foreign direct investment (FDI) in Chile. InvestChile offers specific and free-of-charge services for each stage of the foreign investment cycle, through a multicultural and multilingual team of professionals that advises over 700 companies each year.

This work is done through the implementation of all kinds of promotional, communicational and advisory initiatives. It provides general information about Chile, its economic and social environment, its legal framework and its policies on foreign investment, offering specific information about how to start a business, as well as, the procedures and regulation which all investors must comply in order to bring FDI into the country.

It publishes regular reports about Chile’s business climate and the specific investment opportunities and coordinates business meetings, conferences and seminars.

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CORFO.Is the government agency that supports economic development and promotes innovation and entrepreneurship, in order to improve competitiveness and productive diversification in Chile. CORFO provides subsidies for venture capital, -entrepreneurs, incubators- with lines of credit that it calls ‘quasi equity.’

According to the 2019 Venture Capital Public Report, CORFO has committed resources to private investment funds totaling US$883 million in support of the development of the venture capital industry. At the end of 2019, the investment funds had disbursed 65% of the total committed resources for investment in eligible companies.

Start-Up Chile.A public startup accelerator created by the government of Chile for high-potential entrepreneurs to launch their startups and use Chile as a base. Today, 10 years after its creation, Start-Up Chile is the leading accelerator in Latin America, and ranks among the top 10 worldwide, and is one of the largest and most diverse startup communities globally. Since its founding, 50 countries have followed suit and created similar programs.

Despite the pandemic, the local entrepreneurship ecosystem, where Start-Up Chile plays a predominant role, continues to grow with new leverage, including local firms that have registered capital increases.

ProChile.The Export Promotion Agency of Chile, ProChile, is an institution under the Ministry of Foreign Affairs and has 56 offices worldwide, providing support for Chilean firms for international trade. Since 2018, it has provided specialized services to support the internationalization of innovative Chilean companies and highly scalable solutions, with the aim of increasing Chilean value-added exports. The organization has a series of instruments and tools to support Chilean startups and scaleups in their expansion processes.

Through training and financial instruments for prospecting and immersion, the entity provides support to innovations in the scaling stage, where the GoGlobal program carried out in conjunction with CORFO stands out, through which both entities are supporting -from Miami- 40 companies with soft landing services in the markets of the Pacific Alliance and the United States.

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Ministry of Science, Technology, Knowledge and InnovationThe Ministry of Science, Technology, Knowledge and Innovation, together with CORFO, launched “Startup Science” in May, 2020. It is a fund to promote science-based technology entrepreneurship in Chile, through co-financing and supporting the process of creating new scientific/technologically-based companies, providing the necessary tools to facilitate their consolidation.

This new instrument will finance projects up to around US$290,000 that add value to the productive sector through the generation of knowledge.

Associations and private organizations in the ecosystem

ACVCThe Chilean Venture Capital Association (ACVC) seeks to promote the venture capital industry in Chile, fostering the financing of entrepreneurship and innovation. As a trade association, it represents the investment funds in entrepreneurial capital that are key players within the global innovation and entrepreneurship ecosystem.

The ACVC has become an industry spokesperson in communicating with government entities, investors, and other players. Wayra, Genesis Ventures, Global Ventures, Digevo, Alaya Capital Partners, Manutara Ventures, Engie Factory, Dadneo, Endurance Investments, MasisaLab, Allvp, HCS Capital, Consorcio and Beagle Ventures participate as members. Other members include business accelerators and innovation centers.

ACAFIThe Chilean Association of Investment Fund Administrators AG (ACAFI) is a trade association representing the fund manager industry in Chile, with 40 associate members and 11 collaborators of the Venture Capital industry. It was created in 2005 and its main objectives are to represent ithe interests of its members and to deploy efforts and initiatives leading to the modernization of the capital market in Chile.

As a trade association, ACAFI has been the interlocutor between the industry and the executive and legislative branches of government with respect to initiatives such as the capital market reforms (MKI, MKII and MKIII), and the Single Fund Law (LUF).

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FinteChileThe association representing fintech companies operating in Chile.Its purpose is to promote the growth of the industry, with the vision of making Chile the most important fintech hub in Latin America. Around 80 companies and enterprises in the industry participate in FinteChile, with active participation in the drawing up of public policies and regulations, attracting talent in the industry, the attraction of more and better quality investments in the industry and the mass use of fintech services.

Agtech ChileAgtech Chile is an association of companies that offer solutions in the area of new agricultural technologies that includes biotechnological inputs, bio-inputs, bio-stimulants, e-commerce in foodstuffs, sustainable proteins, new irrigation systems, biomaterials and bioenergy, among others.

Through a project financed by CORFO’s program Innova Chile and private companies, the association supports training and technology transfer to a group of bio-input and precision agriculture companies. In the first stage, 22 companies participate in the project.

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InvestChileForeign Investment Promotion Agency

This publication was developed by InvestChile, with BNAmericas collaborating as the data collector. The main purpose is to contribute to a more dynamic sector

InvestChile is the public organization that promotes Chile internationally as a destination for foreign direct investment, serving as a bridge between investor’s interests and the business opportunities the country offers.

We provide tailor-made and individually-focused assistance, working closely with private organizations, public institutions and ministries to plan and offer attractive sectorial projects to promote investment.

Check out our services and let’s make your next project happen!

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