Economy, Business And Markets

Startups: New Frontier

Startups: New FrontierStartups: New Frontier

Iran is known by many as the new frontier in tech startups. The country is filled with unexplored possibilities and despite all the economic problems some tech savvy entrepreneurs are building businesses that are changing the country's landscape. A young and educated population with a culture for private business and great ideas are pushing Iran into the next stage of development, namely tech startups.

A webinar highlighting new trends in Iran's online sector was hosted recently by the Emerging Frontiers Company, a US-based frontier investment opportunities website. The panel consisted of Daniel Workman and Baldwin Berges of Emerging Frontiers, a London-based analyst of Iranian affairs, Sara Usinger, Director of the Avatech Business Accelerator in Tehran, as well as two Iranian tech entrepreneurs, who co-founded Navaar, an audiobook startup.

A Fertile Ground for Startups

Iran produces more engineers per capita and has the highest internet penetration rate in the developing world. Iran has a mobile phone penetration rate of 120 percent.

Besides, the country has a very young population due to a generation of baby boomers that were born after the 1979 revolution. Around 65 percent of Iran's population is under 35 years old. Younger people tend to adopt new technologies much quicker than the greyer generation. Hence, the amazing take-up in mobile phone and mobile internet usage has come over the past few years.

"Iranians are very education-savvy," says a London-based analyst of Iranian affairs. This is because a drive to higher education has taken root in the heart of the Iranian society. This drive goes as far back as late 1800s when education was seen by the elite as the route for modernization and prosperity. So, now many of Iran's youth have university degrees. Furthermore, there are more women in universities today than men.

Despite this push for higher education and high technology penetration rates, Iran's startup landscape is in its infancy. There wasn't much drive towards tech startups until three years ago. But as the government loosens its grip on the internet and the economy stabilizes, growth can be seen on the horizon.

First Startup Accelerator

Iran's first and currently only business accelerator Avatech started running startup weekend workshops this year – the first batch of business startups are currently going through their initial period with the company – to familiarize people with entrepreneurship and help them work on their ideas and connect with people. The company also tries to build up a community between startups and raise the awareness of investors and entrepreneurs.

An NGO, called the Iranian Entrepreneurship Association, was also created to facilitate and accelerate the startup ecosystem. They cite "capacity-building and improving the entrepreneurial environment through empowering, facilitating and providing solutions to different players in entrepreneurship ecosystem" as their mission.

In 2013, a few venture capital firms were created in Iran. So, at the beginning of 2014, Avatech founders decided to establish a startup accelerator. At the beginning of October, 20 teams joined Avatech's pre-accelerator program with an eight-week workshop. "Just last week we started the accelerator with 12 selected teams, so they will get funding and more workshops, [with] more mentorship," said Usinger. Avatech will hold its first startup demo day in March. It plans to start with 20 new teams by next April.

Money Finds Its Way

Contrary to expectations, Iranian entrepreneurs seem to have easy access to financing. "We just focused on what we were doing and the money came along as investors are becoming interested in startups," Usinger added. There are some venture capital firms but they have little experience with startups. Avatech is working to help them in this regard. "We have an investors club for people who are interested in investing in our startups," said Usinger.

The main challenge facing Iran's market is moving people from interest in entrepreneurship to creating startups that generate their first revenues. "Bridging this gap is difficult," says Usinger. This is where Avatech comes in, providing training, mentorship, connections and money to get things going. "We try to do this within four months," she announced. By then, the startups are ready for their first round of large investments.

Startup Culture in Iran?

Different countries have various views on startups. In some being an entrepreneur means you are looking for a job or in-between jobs, "while in other countries the whole culture revolves around entrepreneurship," said Baldwin Berges of Emerging Frontiers.

In some countries people call themselves entrepreneurs because it's fancy, said Usinger.

But in Iran running a startup is being taken seriously. Given Iran's faltering economy, with high unemployment and inflation, it takes more risk to begin a startup in Iran. Though, this also makes entrepreneurs more serious and focused. Teams work 70 and even 80 hours a week. "It's their baby so they want to make it happen," Usinger added.

"There are many opportunities in the market and you see that there is something inside you that calls for doing something more," said Aref, one of the co-founders of Navaar, an audiobook start-up. Then comes finding other entrepreneurs and establishing connections. "People are becoming more and more realistic as to which ideas they can work on," he noted.

But not all in Iran's startup scene is rosy. Until recently, there was much cultural opposition against tech entrepreneurship. It wasn't taken "seriously" at first but now "people want to listen," said Hamid, another co-founder of Navaar.

New data shows that there are more women who are interested in software engineering and software development than in Germany, as the proportion of females who study the field is higher in Iran. "There were much more female participants than I'd expected to be," Usinger said. But looking at startups more closely, there are "still very few" women involved. There is only one female co-founder in the 12 teams selected for the accelerator by Avatech.

Expat Entrepreneurs

Members of the Iranian diaspora are among the most over-represented demographic groups in Silicon Valley, says Workman. Iranians boast such luminaries as Arash Ferdowsi – co-founder of Dropbox, Salar Kamangar – CEO of Youtube, and Pierre Omidyar – founder of eBay.

Iranians have a culture of entrepreneurship grounded in their history. They have a long traditional heritage of being a merchant nation, sitting on the Silk Road. "Iranians tend to be individualistic," says an Iranian affairs analyst. But "it’s a double-edged sword," and ultimately many people prefer to start their own business, than to join big companies.

But the fact that there are many Iranians in Silicon Valley comes down to Iran's culture of education and some of the alumni of its top universities – most of whom emigrate to the US and other developed countries in search of better prospects.

Iran’s government extensively spends large portions of its budget to expand higher education and research. The high level of investment in sciences has led to the creation of world-class engineering universities such as Sharif University of Technology. "Around half of the Iranians in Silicon Valley come from Sharif," said the analyst.

Now and the Future

There are already some successful examples in Iran's tech scene and many of Iran’s most successful tech companies are spin-offs of western tech companies, modeled to cater to the unique challenges of operating in the Iranian market. They include DigiKala, an e-commerce website modeled after eBay that boasts revenues exceeding $120 million and a valuation of $150 million. Another, Takhfifan, is the product of a female entrepreneur associated with Avatech. Takhfifan’s concept is an intersection of Groupon and Yelp, with daily deals and customer reviews of businesses, Workman wrote in Emerging Frontiers website.

As for the future, Iran's tech market is rather underdeveloped so there are loads of opportunities. 3G/4G mobile network have only been offered for a few months. There are lots of uncharted territories in e-commerce and mobile businesses. Foreign investors have also shown interest in investing in Iran's tech scene, in case economic sanctions on Iran are eased. Be as it may, the tech party in Tehran has just started.