Government Bodies to Start Own Venture Capital Funds

The health and telecom ministries and the supreme council of free trade, industrial and special economic zones are planning to start their own separate venture capital funds.

The investment funds will be established in collaboration with the government-backed Innovation and Prosperity Fund (NSFund), ICTNA reported.

NSFund chief Behzad Soltani says, “The measure is to help augment the knowledge-based economy.” The NSFund will also invest in venture capital.

Knowledge-based companies and startups are among pet projects of President Hassan Rouhani and his administration and are seen as a policy to curb the risky overreliance on oil export earnings. Setting up of VCs would enable the administration to inject money into such businesses.

Soltani says, “Lack of liquidity has hindered knowledge-based economic growth. Private firms are unable to come up with funding knowledge-based businesses and startups require,” implying that the government should step in to help.

VCs pave the way for government and state bodies to invest in cutting-edge technology. “If and when the investments come to fruition, the government organizations will be able to benefit from the first-mover advantage that the knowledge-based businesses offer.”

NSFund started operation in 2013 soon after President Rouhani took office. The loans and investments made by the fund over the past two years amount to 14.9 trillion rials ($397 million). It has provided incentives and loans to knowledge-based firms.

 Call for Deregulation

However, direct government investment in startups has often been criticized by professionals and industry watchers. The Telecoms Ministry’s Innovation Center head Hamidreza Ahmadian is of the opinion that such investment can have adverse results.

“Loan is not what startups need. Giving money to novices without providing proper education and support will hinder growth and hurt the businesses,” he says.

Making his case for deregulation, he adds, “The government should support startups by removing unwanted and unnecessary regulations and promote training to the newcomers not inject money into a handful of businesses.”

Startups and knowledge-based businesses have often criticized the government’s bloated bureaucracy and torpor seen by many as a hindrance to sustainable growth and success of private enterprise in key services sectors.

Ahmadian says, “The sector should be deregulated and a new, practical and efficient structure should be defined for startups and knowledge-based businesses for receiving permits.”

As is the belief of many experts in different economic and industrial sectors, he says the government should stop interfering in the affairs of startups.

They should be able to operate as independent entities or as time passes they will get into the habit of relying on the government for money and management, the news website quoted him as saying.

“Unless government bodies change their attitude towards the businesses, they will hinder not help growth.” Government support for the businesses should be directed through private startup accelerators,, he concluded.