Iran as one of the hottest emerging markets also has many question marks around it. A big one would be how much seed funding are Iranian startups getting?
An interesting market characteristic of an emerging market at its early stages of startup movements is that it takes time for a precise investment value to be set. We all know that you don’t set your startups valuation, the market does. There are key market elements that determine a startups valuation in that specific country or market. Forces such as the balance between supply and demand, size of recent exits and most importantly the investors themselves are responsible for setting a startups valuation.
Looking at the whole region together (MENA, Turkey and Iran), startup accelerators were the key player in growing startups in pre-seed stage. Accelerators were the institutions that had a big role in setting the market valuation for seed stage startups. The funding ecosystem in the whole region still needs more access to seed capital as it still lacks. Most of the high quality startups in the MENA region came from accelerators, and the angels and VCs investing on the startup graduates have set the market valuation. Same goes to Turkey which could be considered few years ahead of Iran in the sense of startup ecosystem maturity.
How much are investors investing in seed stage?
MENA accelerators provide $10k to $50k funding for their startups, where in Iran this number starts with $8k and ends no more than $30k. Many of these startups enter at ideation stage or early prototyping.
But what about seed? The word seed funding has been tossed around in Iran for less than 2 years. We are looking at a young startup ecosystem and a fast growing market. Valuations are changing constantly. Wth the lifting of the sanctions and access to foreign investment, the rule of the investment valuation game will change noticeably. Looking at the past 2 years, seed investments varied between the range of $50k to $150k. This number is much lower compared to other seed funding investment sizes we witness in the MENA region and Turkey. The range of seed funding in the MENA region starts from around $100k to $250k, and in Turkey the number starts with pretty much the same range of $100k-$150k.
Why is the market valuation in Iran lower than the region?
The low operation costs and salaries in Iran have created an interesting investment opportunity for investors outside of the region when comparing to other neighboring countries. Though this doesn’t mean that investments in Iran are risk free comparing to other countries, it does increase the chances of risk taking for investors because of the lower valuation. The 2013 Rial-Dollar crises has caused the local Rial currency drop to one third of its value in the past 3 years due the new waves of sanctions that peaked in 2013. The ultimate result was that the cost of operations became lower when spending from a foreign money source. This however turned out to become a great investment opportunity for foreigners that managed to bypass the sanctions and regulations to invest in Iran.
But how fast is it going to change? The market is untapped and fast growing. It is still early to come up with an index and growth number to determine market valuation for upcoming years. But a change in number is highly unavoidable.