Seeding a Silicon Valley in Cuba

Seeding a Silicon Valley in Cuba
By Ramphis Castro, Founder, Mindchemy
March 13, 2015, 7:00 AM PDT

This Re/code series of contributed essays from Kauffman Fellows will
provide stories from their on-the-ground view of technology
entrepreneurship today, and its implications for the future. Founded in
1994, Kauffman Fellows is a Silicon Valley-based leadership program for
venture capitalists and innovators. The more than 400 graduates from
this two-year apprenticeship, collectively known as the Kauffman Fellows
Society, now lead venture capital, government, corporate, university and
startup innovation in over 50 countries around the world. Reach them
@KauffmanFellows.

When venture capitalists talk about Cuba as the next Promised Land, they
note foremost the very real political hurdles that remain, both on the
island and in the United States. The biggest obstacle, however, may be
smartphones — the dearth of them.

Even as Cuba is a bright spot in the developing world for its top-notch
health care and education systems, it remains in a technological dark
age. Its communication systems, in particular, are almost as ancient as
the Packards and Hudsons that putter around Havana. Mobile phone
penetration (about one in 10 Cubans have one) is the lowest in Latin
America, the country's Internet is slow and government-censored, and
owning a computer was illegal until eight years ago.

All of which makes it especially exciting to be a venture capitalist
pondering the possibilities for funding companies in Cuba today and
tomorrow. If VCs, particularly angel investors, can become involved
soon, they will be getting in not at the proverbial ground floor but
while the blueprints are being drafted.

Cuba, to be sure, has much to gain from the opening of its economy. For
instance, it is one of the few places in the world where organic or
non-GMO products, beloved by Americans, exclusively are grown. An export
opportunity likely lies there. And then, of course, there is the Cuban
cigar.

And certainly, the challenges for the first wave of early-stage VCs who
hit the ground in Cuba are myriad. But we have made inroads before into
early-stage economies: Iran, Yemen and Myanmar, to name a few.

Our fundamental role as VCs will be to support the creation of a new
Cuban economy — one wanted by Cubans, not necessarily one desired by the
U.S. or the outside world. Then we will back the local entrepreneurs who
will build it.

A probable priority for Cuba: Telecom. Much of the island's telephone
connection with the rest of the world moves through an old undersea
coaxial cable system. Banking networks and other infrastructure needed
for e-commerce are just as antiquated.

The easing of sanctions announced by President Obama in recent months
should make it more practicable for U.S. companies to export technology
and consulting services to Cuba. There is the potential for leapfrog
telecom networks, skipping over the wired and maybe even cellular
network stages, going right to satellite technology.

The timing is excellent for VCs seeking partnerships in Cuba, as a new
investment law, introduced in Cuba in March 2014, opens opportunities in
agriculture, infrastructure, sugar, nickel mining, building renovation
and real estate development.

Rodrigo Malmierca, minister for foreign trade and investment, believes
Cuba needs to attract $2 billion to $2.5 billion in foreign direct
investment per year to reach its economic growth target of 7 percent. To
that end, in November 2014, the Cuban government appealed to
international companies to invest more than $8 billion in 246 specified
development projects. The 168-page Portfolio of Opportunities for
Foreign Investment is available online and in English. "We have to
provide incentives," Malmierca said.

All this follows an initial effort four years ago by Cuba to make it
easier, somewhat, to start a company, an initiative that hundreds of
thousands of budding businessmen seized upon, taking their first steps
into state-sanctioned capitalism.

Still, much more needs to be done — and faster — by both Cuba and the
U.S. Congress for VC roots to take hold soon.

A recent Heritage Foundation report ranked only North Korea lower in
labor freedom, respect for the rule of law and lack of corruption.
Moreover, Cuba has repudiated or delayed debt payments to other nations
and corporations; it also wants the U.S. to leave the Guantanamo Naval
Base, which has proven to be problematic.

Meanwhile, in the U.S., resistance to normalization — although it's
lessening — remains problematic, as many Republicans, and especially
Sen. Marco Rubio of Florida, the son of Cuban exiles, are unalterably
opposed. Many Cuban exiles want reparations or the return of seized
property and businesses, an unlikely scenario.

But the energetic, animated, conversations of the older generation Cuban
exiles, often over a colada in Versailles or La Carreta restaurant in
Miami, contrast with those of a new generation of Cuban Americans who
want a different way forward and to play an active role in the
rebuilding of their parents' home country. At the same time, American
nationals continue to become more curious about Cuba, its people, its
music and business opportunities.

The rest of the world also has much to gain from Cuba's expertise in
medical-related fields; the country's infant mortality rate is one of
the lowest in the Western Hemisphere, and there's a high-functioning
universal health-care system.

Startups can catch fire in Cuba. And why shouldn't they? Necessity is
the mother of invention, and Cubans certainly have had a tough time in
recent decades. The literacy rate, however, is high — higher than in the
U.S. Cuba also has a strong culture of collaboration and support, two of
the basic tools entrepreneurs use to meet challenges large and small.

Starting a business is human nature, too. The desire to prosper from
trade has existed since antiquity. Holding back this instinct forever is
impossible — it's like stopping rain; eventually, it falls and things
begin to grow. Such will be the case in Cuba.

Ramphis Castro — no relation to the Cuban leaders — lives in Puerto
Rico. He is a Kauffman Fellow and founder of Mindchemy, a startup
specializing in bringing technology entrepreneurship into the developing
world. Reach him @jramphis.

Source: Seeding a Silicon Valley in Cuba | Re/code -
http://recode.net/2015/03/13/seeding-a-silicon-valley-in-cuba/