Ready and willing, Iran's startup scene

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Soheil Alavi didn’t see much opportunity in the Tehran tech scene during a visit in 2013.

Fast forward 18 months and the unfortunate death of his father had him back in town. What the Toronto-based Iranian developer and designer saw this time left him feeling quite different.

“My mind was blown,” he tells Wamda. “I saw all the relevant elements of a startup ecosystem coming together.”

Alavi (below) decided to return home to exploit the entrepreneurial opportunities he felt were emerging. While the startup ecosystem’s growth has not been without its challenges, things are starting to look up, not least when it comes to investment.

Soheil Alavi
Soheil Alavi. (Image via Soheil Alavi)

The apparently rapid development of Iran’s startup ecosystem has been helped along by, of all things, the years-long negotiations around halting Iran’s nuclear program. International chatter around future investment opportunities in startups has been rising as the possibility of sanctions ending has increased.

With a deal announced yesterday international investors are poised like coiled springs, ready for the chance to leap into profitable sectors.


Ripe for investment

Iran is the sixth most invested-in country in the world, according to the World Economic Forum, so the wall was never as high as westerners thought, but those investments don’t come easily.

Traditionally the most common sectors for foreign direct investment were oil and gas, vehicle manufacturing, copper mining, petrochemicals, and food and pharmaceuticals. But over the last few years there’s been rising interest in the country’s nascent tech sector.

Back in 2013 Mohsen Malayeri, founder of Iran’s first accelerator, Tehran-based Avatech, posted a blog on Wamda’s community page about how changes were coming for the country’s startup ecosystem.

He said, that in the wake of Hasan Rouhani becoming president, “Iran is poised to take some huge leaps forward. One area where it already has a running start is in tech and startups.”

Indeed, the internet and smartphone penetration in the country is extremely high. According to Internet World Stats there are more than 46 million internet users - that’s almost half of the total number of internet users in the Middle East.

And the market is young - in a population of just over 80 million, two thirds are under 35.

Increased interest

Interest is now translating into action. A number of events outside the country are taking place to formulate relationships and educate investors.

In September a second 'Europe-Iran Forum', organized by UK group BHB Emissary for investors interested in Iran, will meet in Geneva.

BHB’s founding partner Esfandyar Batmanghelidj told Wamda that traditionally investors just looked at the banking and finance sector, but now there is more interest in tech. Their next forum will be hosting a panel dedicated to new investment coming online in Iran.

iBridges in Berlin
A large gathering of Iranians in Berlin. (Image via iBridges)

More recently Berlin played host to what the Financial Times called, “the largest gathering of Iranians outside of Iran in 30 years”. Hosting over 500 tech startups, the event, called iBridges, was designed to create a forum for Iran-based startups and, “their Western contemporaries to exchange knowledge, ideas and experiences,” according to the organizers.

“We’ve got an angel investor from Singapore,” says Farhad Hedayati-Fard, cofounder of Taskulu, project management software for SMEs. He told Wamda that although foreign investors had approached him, he found his experience of gaining foreign investment to be an exception.

“I was talking with friends and they’re saying it’s actually very, very difficult to convince foreign investors to invest on Iranian startups, unless the founders become resident of another country.”

Hedayati-Fard says working with foreigners prior to his startup meant he had actually built up a sturdy network who trusted him and his team. “I hope the nuclear deal that went through today makes things easier,” he tells Wamda.

“There is definitely a growing interest in tech,” says Sanam Mahoozi, PR manager for Turquoise Partners, over a Skype call from Tehran.  “It started even before 2013 [interim agreement on Iran’s nuclear program] but in the past two years we’ve seen a lot more coming.”

Turquoise Partners is a London- and Tehran-based investment firm that focuses primarily on bringing foreign investment to Iran, and has been doing so since 2005. Mahoozi says that the announcement of a cinched deal [July 14] has seen emails from interested investors flooding in.

Other VCs with a focus on Iran include ACL, Argon Capital and Griffon Capital.

Turquoise Partners, who were amongst the seed investors for Tehran-based VC, Sarava, are confident the tech scene will flourish.

Sarava is one of the most well-known on the startup scene. Their portfolio to date includes Digikala (an Iranian version of Amazon) and the accelerator Avatech.

Support on the ground is also on the increase: in one year they have gain the accelerator AvaTech, plus the mentoring and angel investor facilitators MAPS and DMOND GroupAvatech graduated its first batch of startups in April this year.

Investors at an Avatech demo day in April
Investors attending an Avatech demo day in April 2015. (Image via Avatech)

According to Reuters, German internet giants Rocket Internet, are also, unsurprisingly, looking to operate in cahoots with South Africa’s MTN in Iran. Their joint venture is the Middle East Internet Group (MEIG). 

Necessity as the mother of invention

Sanctions on Iran are the short answer to why doing business in Iran is difficult. Since 2002, when Iran’s nuclear program became public, the country has seen multiple sanctions placed on it by the UN, EU and a number of individual countries.

The US prohibit almost all trade with Iran, including in the financial sector.

“Just as Silicon Valley was starting to grow [in the early 2000s], sanctions were ramped up,” says Batmanghelidj.  “Iran became more cut off and the Valley couldn’t get in, at least not in a way that was monetizable.”

On the plus side though, the inability for Iranians to use sites like Amazon, or GooglePlay, or even Facebook and Twitter, has forced them to build a startup scene from the ground up, largely with copycat websites.

Nasser Ghanemzadeh, entrepreneur and founder of Iran’s Techly, a startup-focused blog and community outpost says, “Iran has been a black box for years, people outside don’t know what’s going on and how fast it’s growing.”

He tells Wamda that the speed at which the scene is growing is crazy, and of course, because the country has been effectively cut-off from the world. “Most startups are a clone of US startups,” he says. “We have our own Amazon, YouTube, even our own Uber.”

Alavi, who is now in the process of gathering his first round of funding for his online food delivery platform Reyhoon, points out, though, that these innovations aren’t because Iran is catching up or becoming more talented through using the internet. “The facilities needed to support an ecosystem weren’t there. When I was at school and I created a music website, I was told by the principal to take it down,” he says.

Still some way to go

“Now, if banking restrictions are lifted and people can get money in and out, the flood of investment will be huge,” Turquoise’s Mahoozi said.

Even if sanctions do ease, there are still other challenges facing Iranian entrepreneurs including slow internet, a heavily filtered social media, and operating licenses.

It wasn’t that long ago that Iran was jostling for first place as one of the countries with the slowest internet in the world - it now stands at 157 out of 198 surveyed countries, a small improvement - according to Netindex.com.  

Plus, as Batmanghelidj put it, the tech market is also said to be worth millions rather than billions, and as such isn’t seen as a fundamental piece of the economy. "Iran doesn't have any so-called 'unicorns'," he says. "But it does have all the ingredients."

After a recent trip to Iran, tech entrepreneur and author, Christopher Schroeder told Wamda that as well as restrictive sanctions there is also uncertainty about what will engage startups and entrepreneurs from the bottom up.

“The idea that sanctions are lifted and this becomes Silicon Valley overnight would be silly,” he says. “But the innate capabilities and potential overall in Iran, for Iran and beyond, is significant. There are a lot of 'ifs' in the meantime.”

While some commentators and countries will see a new nuclear deal as a pathway to Middle East unrest, for the startup community it will be helping hand.

Alavi is packing up his life in Canada and focusing on a first round of funding. “I haven’t really thought too far ahead,” he says.

To see more on who's incubating and accelerating in Iran, read this.

Feature image via Pixabay.com

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