May 17, 2020
Entrepreneurship In Puerto Rico Gets A $100M Jumpstart From A Billionaire
Mark Wieder quickly fell in love with Puerto Rico. But when he wanted to move there, he had to convince his girlfriend and business partner, Sophie Roman.
Even though her parents were born on the island, Puerto Rico was not on Roman’s list of places to live and work. “The way that I saw it is, my parents came over for a reason,” she said.
Wieder — and Puerto Rico — eventually convinced her. This past winter, the couple moved to San Juan, the island’s largest city. Roman arrived in December, three days before an earthquake knocked out the island’s power grid.
“I was not prepared for that,” she said.
But the disaster did not dissuade the pair, who run a natural-soda business called The Pop’d Shop. Instead, they found encouragement in the island’s entrepreneurship scene, which is beginning to show traction after a huge boost last year.
In 2019, billionaire Orlando Bravo committed to spending $100 million on entrepreneurship and economic development on the island through his Bravo Family Foundation. Bravo is co-founder of Thoma Bravo, a private equity firm with interests in software and tech-enabled service companies. In 2019, Forbes listed Bravo as the first Puerto Rican-born billionaire.
At the time, Bravo said his commitment would foster entrepreneurship in individuals. “I see the innate talent, skills and vitality of so many young people who thirst for opportunity but are held back by poverty and debilitating macroeconomic forces,” he said.
“I believe this is finally a new paradigm in the way the economy of Puerto Rico is being built,” said Manuel Lobato, a finance professor at the University of Puerto Rico in San Juan. The 11-campus university system has more than 57,000 students.
Entrepreneurship on the island has been maturing despite natural disasters — nearly 3,000 people in 2017’s Hurricane Maria — and political turmoil. The population of the island shrank from about 3.6 million five years ago to just over 3.2 million, according to the Bureau of Economic Analysis.
It is a scene, both grassroots and government-backed, that some hope could revive Puerto Rico. One of the oldest members of the scene is Grupo Guayacan, a nonprofit founded in 1996. It has been joined in recent years by a raft of newcomers, including Parallel18, a business incubator started in 2016 by the quasi-governmental Puerto Rico Science, Research & Technology Trust.
In 2019, San Juan venture capital firm Morro Ventures launched a $17.5 million tech venture fund, citing an entrepreneurial boom after Hurricane Maria in 2017 and the island’s potential as a hub for Latin American tech.
But for all the advances, building a culture of entrepreneurship on the island remains a challenge.
Changing the mindset
Many older Puerto Ricans still see a stable job as the end goal of higher education, according to Lobato and other academics. The attitude is a legacy of policies that have focused on attracting business and investment from the mainland United States. Economists have noted that places with a history of mass production have been slower to adopt an entrepreneurial mindset.
In Puerto Rico, policies date back to the end of the Second World War. In the late 1940s, Puerto Rico’s leaders devised a program known as “Operation Bootstrap” to lure factories to the island. That was followed in the 1970s by a U.S. law called Act 936, which offered tax incentives to pharmaceutical companies that moved production to Puerto Rico and other U.S. territories.
However, the pharmaceutical industry largely decamped after Act 936 expired in 2006, triggering a recession and population decline from which Puerto Rico has yet to recover. Since then, the island has passed several generous tax incentives designed to entice wealthy Americans.
Entrepreneurship has often been seen as a career of last resort in Puerto Rico, observers said. But the long recession, the hurricanes and now COVID-19 — as well as a lack of jobs — has been moving it to the forefront.
“Every time we announce a competition or we announce a seminar on innovation or we bring startup founders to a conference … there’s interest,” said Lobato, who also manages the University of Puerto Rico’s Center to Foster Innovation and Commercialization, known as UPR i+c. It was founded in 2017.
Among the promising startups at the center is Insu Health Design, Lobato said. The company’s student founders are working to commercialize a portable, battery-powered device that keeps medicine such as insulin at the right temperature.
Investors — from Puerto Rico and from the mainland U.S. — are starting to pay attention. Lobato said he hears from two or three per week asking if there is a place they can put their money. “My answer always is, ‘Not yet, but give me your card. Hopefully, I will have something investable in a year or two.’”
Overall, investment in Puerto Rico has lagged entrepreneurial activity, said Laura Cantero, a former banker who is now executive director of Grupo Guayacan. “I think that the recession obviously caused a significant erosion of local capital. But, you know, I’m one of the bullish ones who believe there is still capital out there looking for good investment opportunities.”
The nonprofit provided $1.2 million in seed capital and emergency funding to small businesses in the two years after Hurricane Maria and helped 175 businesses, half of which were founded by women. “What keeps me up at night are the people that I can’t help because they are more than the people that I can,” Cantero said.
The pandemic could inflict some casualties, particularly among restaurants, coffee shops and other startups dependent on crowds of people and tourists. Puerto Rico, which has had nearly 800 cases of Covid-19, imposed one of the strictest lockdowns in the U.S. Other ventures will tweak their business models to survive.
‘Resilience is in our blood’
“I think it’s a struggle that a lot of startups will face, but I’m confident that we will find a way out,” said Gustavo Diaz Skoff, a 20-something entrepreneur based in San Juan. “Resiliency is in our blood.”
This spring, Diaz Skoff hopes to unveil an entrepreneur-focused magazine called Based. He also operates a travel service for entrepreneurs interested in scoping out the island. Roman and Wieder were recent clients. They credit Diaz Skoff with introducing them to resources that could help The Pop’d Shop, which had reached a turning point.
The startup was operating out of a Lancaster, Pa., storefront where it sold food and snacks, in addition to soda, Wieder said. But the soda business was taking off. Their sales over the last six months came to about $17,000, Wieder said.
So Roman and Wieder decided to focus on the sodas, as well as on finding a place to move. They had settled on Portland, Oregon, before Wieder successfully pitched Puerto Rico.
Locally sourced ingredients
Wieder was drawn to the island’s sunny climate and welcoming residents. It also offers access to farmers who grow tropical ingredients for The Pop’d Shop sodas, whose flavors include citrus, hibiscus, rosewater and coffee. By next year, the company plans to source at least 80 percent of its ingredients from Puerto Rico.
Puerto Ricans also are a target market for The Pop’d Shop’s flavored syrups, which can be mixed into drinks at restaurants and bars.
“The more I thought about it, the more I thought, he’s right,” said Roman, who added that the island’s entrepreneurial spirit fits her own. “You definitely have to make your own way here.”
Sales tax exemption
Wieder and Roman were accepted this spring into the business-accelerator program at Parallel18, which comes with two rounds of grants totaling $40,000. They also are weighing whether they can take advantage of any tax incentives, Wieder said. A sales-tax exemption for sales to U.S. businesses could come in handy.
Startups need to set their sights on markets beyond Puerto Rico, said Jose Caraballo, a business administration professor at the University of Puerto Rico’s Cayey campus, about 33 miles south of San Juan. He said that in order to make a real impact, entrepreneurship in Puerto Rico needs to scale up.
“If we look at the successful small economies all around the world, they are engaged in exporting.”
He would also like to see more academic resources for entrepreneurs. Caraballo said he has been trying for several years to win approval for an entrepreneurship major at his school, so far to no avail. Young people are interested, however. And they have proven adaptable entrepreneurs, even during the pandemic.
Older farmers have complained about losing business when restaurants and hotels shut down, Caraballo said. But young farmers have taken to the Internet to create online marketplaces and home-delivery services, boosting their sales.
For David Miranda Nieves, the pandemic has underscored the importance of his venture, a startup called Marepesca. Its goal is to develop sustainable technology for small-scale fish farming and then provide the training, equipment and capital for people to run their own fish farms. He is currently applying for grants to start a demonstration project on a small island off the southern coast of Puerto Rico in partnership with the University of Puerto Rico.
Although Puerto Rico is surrounded by water, it imports about 90% of its fish, and the Caribbean region as a whole does very little fish farming, said Nieves, a fellow at The Legatum Center for Entrepreneurship & Development at MIT.
“We’re seeing a lot of ideas coming up now around food security in the island,” Miranda Nieves said. “Both the hurricane and Covid have really pointed out how underdeveloped we were in food production … and how much we rely on imports.”
He said he never considered going anywhere but Puerto Rico.
“Things are not perfect,” he said. “But I think that today the best way to go back to the island is to be an entrepreneur and to start a new market, a new opportunity, a new venture.”