After a decade of rapid ascent, Iran’s once-vibrant startup ecosystem has entered a prolonged slowdown. The digital economy, which in the early 2010s placed Iran ahead of several regional peers, is now struggling with declining investment, an exodus of skilled talent, and mounting international constraints.
During the first half of the 2010s, Iran’s startup scene flourished. A young and educated workforce, inflows of venture capital—particularly from abroad—and a rapidly expanding internet and smartphone user base created fertile ground for digital entrepreneurship. Startups such as Digikala, Cafe Bazaar, and Aparat emerged as local champions, adapting successful global models to Iran’s vast, untapped domestic market. Foreign venture capital (VC) funds not only provided financing but also introduced management expertise and startup know-how that helped shape the local ecosystem.
However, the second half of the decade marked a turning point. As US sanctions re-emerged and economic instability deepened, international investors withdrew. Currency volatility, banking restrictions, and regulatory uncertainty halted most VC activity. Internet filtering and limited access to global technologies further undermined confidence. The result is an ecosystem that has lost its dynamism: while estimates suggest between 6,000 and 7,000 startups exist in Iran, fewer than 10% remain genuinely active or scalable.
Talent and Capital
Industry observers say Iran’s digital stagnation is no longer merely a funding issue—it is primarily a human capital crisis. As digital expert Nima Namdari notes, without capable professionals, innovation cannot sustain itself. Over the past several years, many founders, managers, and skilled engineers have emigrated, taking with them precisely the creativity and risk appetite that once drove the ecosystem’s rise.
This migration has hollowed out the middle layer of Iran’s innovation economy. Without experienced managers and technical teams, even the surviving startups struggle to grow. Local investors, meanwhile, remain risk-averse, preferring safer assets such as real estate. Banks still do not recognize startups as creditworthy, and domestic venture funds lack both scale and experience. Only a few large players can finance their expansion internally; smaller firms are effectively frozen.
Technological restrictions compound the problem. Sanctions limit access to global platforms, tools, and payment systems, pushing many specialists to seek opportunities abroad. Compared with regional peers, Iran’s startup scene now presents a paradox: a large number of startups but limited depth, innovation, and international connectivity. The UAE, by contrast, has become a regional hub thanks to open policies and foreign investment, while Turkey has built competitive strength in fintech and e-commerce. Iran may have quantity, but its rivals lead in quality and capital access.
According to Mohammad Hossein Sajjadi, head of Iran’s Venture Capital Association, the early 2010s were a “golden decade” for innovation when optimism, investment, and entrepreneurial energy converged. Today, that spirit has dimmed amid uncertainty and bureaucracy. He identifies three priorities for revival: mobilizing corporate venture capital under the Knowledge-Based Production Leap Act, shifting policy toward technology-based ventures such as AI and industrial innovation, and rebuilding confidence through consistent, transparent government support.
Iran’s digital economy still holds significant potential: a young population, a large internal market, and a foundation of successful platforms. But without fresh investment, policy coherence, and above all, the retention of its human capital, its innovation ecosystem risks further contraction.
