BUENOS AIRES (Reuters) - The founder of mobile banking startup Uala, Pierpaolo Barbieri, says that just a few years ago big name investors would never have put their money in early stage companies like his in Argentina.

Now, in what he says is a sign of changing times, the 30-year-old entrepreneur can count among his backers billionaire George Soros and Point72 Ventures LLC, funded by the family office of hedge fund magnate Steve Cohen.

Argentina is South America’s new hotspot for venture capital, with the growth of investment inflows outpacing neighboring Chile and Brazil. Much of that heads to Argentina’s elegant riverfront capital, Buenos Aires.

While startups still face regulatory challenges and other hurdles including high inflation, President Mauricio Macri’s business-friendly agenda has revived interest from foreign investors who shunned Argentina during previous populist governments.

“Uala is the first Soros investment in the real economy in Argentina in 15 years, so that should tell you that timing matters,” said Barbieri, who launched his app on Oct. 2 with the aim of changing how Argentines handle their money.

Spokespeople for Soros and Point72 declined to comment.

Between 1999 and 2003, Argentina spawned some of Latin America’s most successful startups, including U.S.-listed online marketplace Mercado Libre Inc and Internet travel agent Despegar.com Corp.

But innovation slowed after former President Cristina Fernandez imposed currency controls and nationalized energy firms during her 2007-2015 administration, scaring away foreigners.

With Macri improving the business environment, Argentina saw a 214 percent leap in venture capital transactions from 2014 to 2016, according to data from the Latin American Private Equity and Venture Capital Association (LAVCA).

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Although Brazil, South America’s largest economy ahead of Argentina, leads the region in the number of transactions, its growth rate was just 32 percent and Chile’s was 46 percent, during the same period, LAVCA said.

In the case of Uala, Barbieri sought to bridge a gap between a thriving industry and one that lacked innovation.

While Argentines have a very high rate of cellphone ownership, only half of people older than 15 have a bank account, according to data from the World Bank and mobile operator trade body GSMA.

Lower-income Argentines are routinely rejected for loans or avoid banks because of a slew of fees, Barbieri said from Uala’s cramped offices, saying he wanted to provide an alternative to banks or “immoral” payday lenders.

He pointed to messages from clients tacked on the wall: one from a teenager said that having an Uala card to buy a Netflix subscription would make him feel like he had escaped poverty.

INFLATION A CHALLENGE

While Argentina is now the third-largest venture capital market in Latin America, attracting 10 percent of the region’s total investments, startups still struggle against red tape, weak economic growth and price rises.

“Most challenging of all is the inflation,” said Shakara Ledard, 42, a model and entrepreneur who launched juice company Nutri Boost out of her kitchen five years ago, pointing to annual inflation that hit 22.9 percent in October.

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“From the bottles, to the labels, to the produce, literally it would change in one week.”

On the World Bank’s 2017 ease of doing business report, Argentina ranked 117 out of 190 countries.

Macri’s business-friendly policies have also drawn criticism. Domestic manufacturers say a more open trade stance has left them unable to compete against imports, while working-class Argentines have complained about rising utility bills as the government winds down subsidies even as it cuts corporate taxes.

For startups not ready to snag the likes of Soros, getting early funding remains tough.

“Bigger funds are around when you are looking to raise $10 or $20 million,” said Matias Recchia, 36, chief executive of IguanaFix, an online company for hiring home service providers.

His company raised $16 million in 2016 from Temasek Holdings , Singapore’s state investor, and Qualcomm Ventures, the corporate investment arm of the U.S. tech giant.

“But a lot of companies that have good initial traction and need to raise $1 to $5 million, that’s a matter of more investors coming to the scene and the government creating the right incentives,” Recchia said.

In an effort to address lingering problems, Macri pushed through a Entrepreneurs’ Law allowing the registration of businesses online within 24 hours.

Tax and labor reforms aimed at attracting investment could lower costs for startups, helping to bring Argentina’s largely informal economy into the 21st century.

The Buenos Aires city government is also exploring ways to promote impact investing, including issuing bonds to raise $2 million to reduce youth unemployment while funding social enterprise.

Other efforts include IncuBAte, a city government seed fund program that offers startups as much as $30,000 in funding, free office space for a year and mentoring.

There were 575 applicants for the 2016 pilot and already more than 773 applicants for 2017 ahead of the Dec. 28 deadline, officials said.

“Something like IncuBAte is going to create a ripple effect that...attracts a global range of investors who recognize there’s so much potential in Argentina,” said Lisa Besserman, who works with the city on startup initiatives.

“The ones who get there the quickest, the early stage investors, are going to be the ones who have the highest return.”