After IPOs Vanished in Chile, a Startup Exchange Wants to Cash In on Thirst For Returns

It was standing room only as Robert Mayne-Nicholls pitched the public debut of his copper-mining company Pampa Camarones to investors in Santiago’s financial district.

(Bloomberg) — It was standing room only as Robert Mayne-Nicholls pitched the public debut of his copper-mining company Pampa Camarones to investors in Santiago’s financial district.

All the company needs, the chief executive officer said, is $7 million.

The deal is expected to launch later this month, becoming Chile’s largest initial public offering since 2019 and only the third on the nation’s new, startup-focused ScaleX Santiago Venture Exchange. 

The listing could hardly come at a better time for investors who are eager to see if a less-restrictive bourse will jumpstart Chile’s sputtering equity market after years of social unrest, pandemic lockdowns and attempts to rewrite the constitution. 

And demand could grow further. Chilean regulators are in talks to include ScaleX as an alternative investment option for the nation’s all-important pension funds, which are under pressure to ramp up returns. 

“The main benefit is to give folks another choice,” said Douglas Cumming, a professor at Florida Atlantic University who’s studied venture capital exchanges. The rise of junior exchanges means “more choices that people have to access capital markets and investors.”

ScaleX last year joined the world’s small-but-growing cohort of startup stock exchanges, offering Chilean businesses a chance to raise capital by selling shares with fewer rules and legal requirements. 

It’s a phenomena that’s garnered popularity in markets such as Canada and Spain, where small- and mid-sized companies have struggled to compete against larger peers for investment. Spain’s BME Growth, for one, has seen its top 15 gauge gain 83% over the past six years, compared to an 11% loss in the the broader IBEX 35.

In Chile, companies that list on ScaleX are only required to disclose results annually, rather than quarterly, and can choose from a list of vetted financial sponsors instead of hiring expensive investment banks. So far, software firm ZeroQ and electronics maker Osoji-Robotics have been the only firms to sell shares on ScaleX, raising $2.9 million and $3.4 million, respectively. 

That makes Pampa Camarones’s proposal both the largest offering on the exchange, as well as the first from a company outside the technology industry. If all goes according to plan, the copper miner will sell as much as 152,000 shares Oct. 12.

For institutional investors — especially pension funds, which oversee about $184 billion in assets — these types of listings offer a major opportunity. At a recent financial-industry event in London, Chile’s pension-fund regulator said it had proposed increasing limits on alternative investments to as much as 20% for riskier pension funds. There is no clarity on when that change would come into effect as it would need approval from the central bank.

Still, a bigger cap for pension funds on alternatives — which range from real estate to private equity — would unleash about $4.5 billion of new investment in local markets, said Francisco Guzman, chief investment officer at AFP Capital. It could also support returns for the funds, he said.

AFPs, as the funds are known, returned just an average 4% per year between the beginning of 2001 and September 2022, according to data from the country’s industry chamber Asociacion de AFP. 

“The returns on our current portfolio of alternative investments are more than twice than that of the publicly traded investments,” Guzman said. “The way to improve future returns for the next 20, 30 or 40 years is with a percentage in alternatives — similar to what the developed world has, and that is approximately between 15 and 20%.”

But even without higher limits, ScaleX is poised to pick up the pace of growth. Pampa Camarones CEO Mayne-Nicholls said the process was ultimately more efficient than organizing a debt sale or wooing private investors. 

Other firms appear to be exploring the same path. Low-cost drugstore operator Fraccion, chat-bot developer Chattigo and Ecometric, a company that provides surveillance services to wind farms and other industrial operations using AI, are all mulling share sales on the exchange, said ScaleX head Jaime Herrera. 

Javier Vega, founder of Fraccion, said that the company plans to raise $5 million this month which would give it a valuation of $25 million. 

Vega adds that ScaleX should help to shake things up for Chile’s overly cautious venture funds. Those investors “in bigger countries are willing to share your vision,” Vega said. “In Chile, they only want to invest in something with no risk.” 

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