One of the biggest challenges of small- and medium-sized companies in Iran is financing.
These companies often do not have the conditions to borrow from banks, and even if they are eligible, the banking system can only meet a small portion of their needs. Small companies and startups face much more difficult conditions, as they may never succeed in securing the required finances. The risk of failure in such companies also causes them to have limited options for attracting financial resources, Milad Khoshzaban, doctor of business administration in finance, wrote for the Persian economic daily Donya-e-Eqtesad. A translation of his article follows:
To respond to this need, crowdfunding, as one of the few financing tools for small- and medium-sized enterprises, was approved by the Supreme Council of the Stock Exchange in May 2018 as the highest pillar of the capital market, and the Certificate of Partnership was introduced accordingly. This is not dissimilar to "partnership bonds" and they share similarities.
In the winter of 2020, the first company started to collect funds for one of its projects using crowdfunding. Now, two years on, more than 180 projects of different economic enterprises have succeeded in attracting over 10 trillion rials ($20 million at the current exchange rate). The projects of knowledge-based companies and startups are also included in the same statistics.
For a better understanding of this figure, it should be pointed out that venture capitals have invested less than 7 trillion rials [$14 million] in startups since their establishment in 2015, while crowdfunding has collected more funds for companies in a shorter period of time. However, the investment type of venture funds is different and they seek to acquire shares of investable companies. This is despite the fact that according to the crowdfunding guidelines approved by the Supreme Council of Stock Exchange, investors participate in the "project" of a company that has a specific lifespan (often less than a year) and not in the company itself. Therefore, since the Certificate of Partnership is defined on the basis of partnership contracts that specify the participants’ share in the profits and losses of the project.
In fact, the challenge of investing in these projects is that investors must understand that they are participating in a project that may not succeed for any reason and accept the risk of failure. That is why, before investing, investors are urged to study the likely risks and gain knowledge about them.
During a short period of time, the Certificate of Partnership became popular and allowed various companies to attract up to 250 billion rials [$500,000]. Presently, the funding gap of up to 250 billion rials, which existed before, was filled through this tool and according to the past trend, the ceiling of this tool is expected to be revised and increase this year.
Currently, 18 crowdfunding platforms have been permitted to operate on the Iran Fara Bourse [a Tehran-based exchange for securities and other financial instruments], which help small- and medium-sized companies achieve their goals.
Crowdfunding has managed to reach its initial target of 10 trillion rials, and in the future, more companies are expected to become familiar with the Certificate of Partnership and use it to meet their financial needs.
The launch of the Certificate of Partnership can play a significant role in financing Iran's innovation economy.
