With a small stock market where institutional investors have been in short supply since the nationalisation of pension funds in 2008, and few angel investors or venture capital funds, the traditional source of seed capital is what is known as FFF: friends, family and fools.
'There is no culture of investment. People stick their money under the mattress, they don't put it to work,' says Leo Piccioli, who used to work at Officenet, a stationery and supplies start-up bought in 2004 by Staples, the US office supply chain store, and is now that company's Argentina country manager.
I interviewed the founders of Officenet for my article—along with many others—and heard much the same thing. The FT presents the lack of investment capital as a cultural problem, but I think that's only part of the story. Argentines don't refrain from investing solely because it's in their cultural DNA; they refrain because the country has been plagued by instability. For all but the richest people, investing a lot of money is simply too risky. From my story:
The country ranks 115th on the World Bank's Doing Business index and 138th on the Heritage Foundation's Index of Economic Freedom, thanks to a tangle of taxes, tax credits, subsidies, prohibitions, exemptions, and delays. These rules change constantly, aren't enforced uniformly, and are forever subject to bending or breaking if a bribe is paid. And almost everybody pays: Transparency International ranks Argentina 105th in terms of corruption, worse than famously corrupt countries such as Mexico, Egypt, and Liberia.
I know it's not popular to say in 2011, but compared to places like Argentina, the U.S. remains a pretty good place for a middle class person to start a company:
American entrepreneurs are blessed...Our country has so far escaped the cancers of uncertainty, mistrust, and cynicism. We may complain about taxes, but the vast majority of us pay what we owe. Our country has low inflation and sane regulations. The Argentine entrepreneurs I met see America as a model of efficiency and stability. They keep their money in U.S. bank accounts, buy apartments in New York City, and take their kids to Disneyland. Argentines see America as a country that works.