Iranian officials are yet to reach a consensus on how to finance startups and knowledge-based firms since some insist on loans as the wisest choice and others propose venture capital and angel investment.
On one end of the spectrum is Behrouz Soltani, the head of government-backed Innovation and Prosperity Fund, who believes more bank investments must be directed at startups and knowledge-based firms.
On the other end is Vice President for Science and Technology Sorena Sattari, who strongly believes that giving out loans to startups is tantamount to diverting them from the right course.
The dispute between government officials over which path to take with startups and knowledge-based firms is dragging on, the Persian economic daily Donya-e-Eqtesad reported.
President Hassan Rouhani favors the promotion of knowledge-based companies and startups to curb the overreliance on oil export earnings.
Soltani said currently a mere 0.02% of bank investments are extended to knowledge-based firms, which should be increased to one-tenth of the banks’ resources.
This is while fund itself has been criticized over the way it handles its financial resources, as its resources are deposited in bank accounts to offer its interest as loans to certain firms.
The fund started operations in 2013 soon after Rouhani took office to foster startups and knowledge-based firms.
Responding to the suggestion that the fund must use the principal money to invest in such firms and not the interest, Soltani said, “If we did that, the fund’s financial resources would be exhausted in no time and we would not be able to support knowledge-based firms.”
Some find the financing method ironic coming from the head of a fund with the sole purpose of navigating the economy toward privatization and investment in production.
Unending Saga
The vice president Sattari, who is in favor of venture capital and angel investment, believes granting loans to startups “is in effect betraying them”.
“Startups incur losses for years before they bear any profit, so the expectation that they start repaying the loans soon after getting them is not helpful,” he said.
Sattari believes startups must attract angel investors and steer clear of government loans.
On the inability of startups and knowledge-based firms in repaying their debts, Soltani deflects the criticism by pointing at government organizations that sign contracts with knowledge-based firms and direct the firms to the fund for loans.
The companies carry out projects and deliver their products to the government.
“However, the problem begins when the government entities refuse to pay the knowledge-based firms for their services. [Government] entities send us letters declaring that since we have not paid the firms, you should not ask for the reimbursement of loans either,” he said
The absurdity of the situation and the inconsistent attitude of government entities toward startups and knowledge-based firms not only have made them wary of the so-called government support, but also made many of them steer clear of state entities.
Startups’ Perspective
Startups point to several concerns when it comes to loans granted by the fund.
The first problem arises from the amount of collateral sought by the fund. It is high and at times demands a property deed, while these firms are mostly funded by limited personal investment.
Some argue that if startups had such collaterals, they could get better loans from banks and would not need the fund’s support.
Another issue is the documents required for the loans. The fund asks for the financial statement of the company and expects it to be “relatively lucrative” while it is common knowledge that such firms are loss-making in the first couple of years.
The red tape involved in the process and favoritism are some of the other hurdles mentioned by startups.
Hamidreza Ahmadian, the head of ICT Ministry’s Innovation Center, said the sector should be deregulated and a new, practical and efficient structure should be defined for startups and knowledge-based businesses for receiving permits.
“Unless government bodies change their attitude toward these businesses, they will hinder and not help growth,” he said, adding that government support for such businesses should be directed through private startup accelerators.
