Chile’s Financial Market Commission has greenlighted the country’s second stock exchange, the Santiago Venture Exchange (ScaleX). Expected to launch in the first half of 2022, it will serve scaleups, which are startups past their early stage and with a growing business model.
ScaleX is a public-private initiative that seeks to turn Chile into Latin America’s startup-investment hub. More recent initiatives, such as AIM in England and BME Growth in Spain, have proved there is widespread investment appetite for this business segment.
What Will ScaleX Enable?
ScaleX is a joint venture among the Santiago Stock Exchange, the government’s entrepreneurship promotion agency Corfo, the business accelerator Start-Up Chile, and the advertising conglomerate Grupo Raya.
ScaleX will enable capital-markets access to companies that would otherwise not meet the requirements for listing on Chile’s main bourse, the Santiago Stock Exchange.
The platform aims to connect tech ventures with qualified investors through the issuance of equity and debt in a transparent and secure manner.
Growth-stage startups will be able to raise up to $3.7 million each from investors. Moreover, Corfo has created a $75 million fund to help ventures get listed on ScaleX. It will cover 50 percent of each company’s costs to improve and prepare their public offerings, including consultancies, due diligence advisory, audits, and listing fees.
ScaleX founders are planning to launch the platform in the first quarter of 2022. If successful, the exchange will retain and attract capital to the region from VC firms, investment funds, qualified investors, and family offices.
Who Can Get Listed on ScaleX?
Firms must meet the following requirements:
- Show an annual growth of at least 20 percent either in the number of employees or income during the firm’s first three years.
- Secure a sponsor—a company authorized by the Santiago Stock Exchange—to support the startup before, during, and after the public offering. No information is currently available on the terms of this relationship.
- Run a company valuation with the support of the sponsor and a registered brokerage firm.
To kickstart the application, startups must register at www.scalex.cl. The exchange will then guide applicants through all the steps and let them know of any other requirements. The process is online and straightforward.
To help startups get a sponsor, ScaleX will host business rounds so entrepreneurs can pitch their companies. If a startup cannot strike a deal with a sponsor, it can try again in the next business rounds after implementing changes based on feedback.
ScaleX’s first-year goal is to find sponsors and raise funds for between five and 10 startups. Considering the recent success of Chilean tech ventures—namely the delivery startup Cornershop, the foodtech NotCo, and the insurtech Betterfly—ScaleX founders believe the tech market is ripe for investment.
What Are the Advantages of Investing in ScaleX?
Historically, capital markets in Latin America have been underdeveloped, not realizing their full potential. While the United States, for instance, has a stock-market capitalization of 202 percent of GDP, capital markets in the region remain below 100 percent of GDP.
Chile, along with Brazil, is one of the most mature markets. Leading the pack in the region, the Santiago Stock Exchange accounts for 87 percent of Chilean GDP.
ScaleX offers a ramp for startups to then go public on the Santiago Stock Exchange, which is connected to the Latin American Integrated Market (MILA). This gives investors in Chile, Peru, Colombia, and Mexico the chance to diversify their portfolios with tech-based instruments.
To access these opportunities, local investors currently have two alternatives:
- invest through international brokers; or
- give seed capital directly to entrepreneurs in local funding rounds or accelerator programs, where risks are higher.
By retaining capital in their country, Chileans will avoid expensive wire transfers, taxes, foreign-currency risk, and other financial and management fees.
Investors from other countries will also be able to benefit from opportunities in one of the most stable markets in the region.
How Can ScaleX Benefit the Region’s Startups?
Although Latin America is late to the tech-startup scene, the winds are quickly changing in its favor. There are now several world-class unicorns from the region, and venture capitalists are paying attention. In 2021, startups from the region raised $14.8 billion in VC rounds.
Global investors perceive that Latin America, despite its many challenges, is ripe for disruption through tech. To name a few opportunities, there is still a large underbanked and unbanked population; real-estate investment is in its infancy; and low e-commerce penetration persists.
ScaleX widens funding opportunities to entrepreneurs by building a platform to leverage local and foreign capital. In this regard, it offers:
- Customized and digital-only procedures from registration to issuance.
- Financial and mentorship support prior to listing and funding.
- A trusted platform that enhances transparency and liquidity for instruments.
- A showcase opportunity to attract both capital and talent.