Hurricane Maria left thousands of Puerto Rico’s small businesses shuttered, but San Juan’s newly vibrant startup scene is taking on the island’s troubles. One such example is a three-man start-up insurance company. Two years ago, Jonathan Gonzalez and three partners founded Raincoat, an insurance company that instantly processes claims. Cataclysmic weather near a policyholder’s home or business triggers the payment, which covers not just property damage but also anticipated lost income due to the storm.
Those that signed up for Raincoat got a test rehearsal with the recent Hurricane Dorian. Based on the life insurance model, you will pay an annual premium for a known payout amount. Gonzalez says, “If you know something happened then you can give people their money immediately.” No more State Farm agents with clipboards looking through your flood drenched house and waiting for what seems like eternity to receive funding based upon their opinion of the damage. Great concept Raincoat has come up with.
Small business statistics were staggering after Hurricane Maria in Puerto Rico. Seventy-seven percent of small businesses got hit financially, according to the Federal Reserve Bank of New York, with the number permanently closed being reported between 5,000 and 8,000, and leaving a trail of $43 billion in economic loss to the island, which is already in deep debt. The chart below depicts the volatility surrounding an epic weather event.
It is often difficult to reconcile financial success when an economy has been so devastated. Puerto Rican entrepreneurs are well aware of this fact, and are taking advantage of new government initiatives like favorably low tax rates that have allowed new businesses to prosper, and such incentives are also drawing businesses from outside of the island. Grupo Guayacan, a support organization for startups and scale-ups, has been operating on the island for more than two decades. Business is good. According to Executive Director Laura Cantero, “Hard times and crises force you to think about what you’re going to do. In Puerto Rico people are saying, I’m going to go out there and build my own business.”
It is true that many of the local startups addressed problems in areas such as energy, sustainable food production, and temporary housing that arose during or after the hurricane. However, with the advent of a more favorable regulatory environment, financial capital is coming to the island. In February, Morro Ventures, recently started by Advent-Morro Equity Partners, in San Juan, introduced a $20 million venture fund targeting early-stage companies. The Aurora Angel Network, Puerto Rico’s first angel group, has invested in two startups since its January launch.
Puerto Rico is a shining example of how capitalism can work in a low-regulatory, low-tax environment. Service exporting businesses are now taxed at only 4 percent, compared with 21 percent on the mainland U.S. This has spawned more than 2,000 new businesses as a result. Simon Vielma is one entrepreneur whose story says it all. He moved himself and his three-year-old company Bidwise, which helps connect e-commerce businesses with consumers, from Miami to San Juan. Here is the cool part.
The prospect of hurricanes doesn’t faze Vielma. His clients reside on the mainland and in Europe. His data is in the cloud and his employees can work remotely. “I think this is a big opportunity, and I would love to see more companies moving here,” he says. “We need more people raising awareness. Don’t forget about Puerto Rico.”