The Iranian Modern Business Company (IMBCO) was established 6 years ago which is considered one of the main e-commerce players in Iran’s startup scene having NetBarg, Chilivery and Tik8 in its portfolio.
We went to Tehran’s business district where the IMBCO headquarter is located to sit down with Ali Reza Sadeghian, co-founder and CEO of IMBCO to talk about how everything started and where it’s heading. The 6 floor building that harbored Iran’s famous startups which million of Iranian use, had dozens of young active teammates walking around and working on the well known Iranian startups. From ping pong tables and video games, to whiteboards and meeting rooms, the startup atmosphere was all around the building. The most famous venture of all NetBarg, Middle East’s largest group buying website has always been considered as a success symbol within the Iranian startup community and one of the top valued startups in Iran, which has also become a source of inspiration for aspiring entrepreneurs. Today IMBCO is considered one of the top 3 biggest e-commerce and tech holdings in Iran.
About 6 years ago two cousins who would later became one of the most famous Iranian tech entrepreneurs, started IMBCO with a drive to build a successful e-commerce company. “We started an online store for our family carpet company almost 13 years ago, so that’s how far we go in e-commerce,” said Ali Reza Sadeghian.
It was at the time where both founders were finishing their schools which they decided to look at Iran’s e-commerce industry in depth. Ali Reza Sadeghian was finishing his studies at Colombia Business School in New York. “When we were starting, Groupon was really hot. Although we also had food delivery and online ticketing ideas in our mind, we thought maybe the Groupon model was the best to start off with,” said the co-founder. The founders started writing business plans for their venture and went to their family to raise fund.
The founders went to their family, which come from a famous business family from the ancient city of Yazd, and presented their upcoming venture idea as they would have presented to any other investor. Their family agreed to give them the money they required if they were committed to the business plan they presented. “Fortunately, with a good precision rate we followed the business plan which was a great success, and we broke even in 1.5 years since the first penny was spent. This is sort of a contrary to the public opinion or belief that we come from a rich business family, and we’ve been injecting money all the way in the past 6 years,” said Sadeghian. Interesting enough, this was the only time the company ever raised any funds and all the capital needed for the future ventures came off the revenue generated by NetBarg. “The initial money we got even in dollar terms was less than the money startups are getting now”.
Evolution of Iran’s E-commerce Scene And IMBCO
The company went through a lot of obstacles and faced many challenges back in 2010. E-commerce and online shopping still was not viral enough to be in an Iranian vocabulary back then. Getting customers and merchants in a platform-based model was also not an easy task, especially when the majority of the population and even NetBarg’s direct users thought this business is operated by “a person behind his computer at home”. Almost everyone in the digital and e-commerce scene were going through the same situation as building the e-commerce culture takes time and effort, as it is in any emerging market.
As Sadeghian mentions, they did have many ideas from the start, but took time and discipline to bring each of them to life, and not everything could’ve been planned in advance. Back in 2010 not many e-commerce players were in the market which made market entry and growth hacking even more complicated as the market wasn’t mature enough. As more players came to the boxing ring, eventually the market got more mature.
The CEO of IMBCO mentions it wasn’t considered as the “most decent” business project to start an e-commerce company, but around 2013 a bubble started to form in the market which brought a lot of attention to this industry. Ali Reza Sadeghian added: “I think right now the market is becoming more mature and the bubble is becoming more reasonable, and we’re seeing more serious startups with more experienced founders that are capable of creating great value,” he said. “I think in 2017 we will have stronger startups. And with sanctions being lifted in action, Iranian entrepreneurs can look at the international market, and I think it’s going to be a threshold in the Iranian e-commerce and tech industry,” he added.
IMBCO is currently a holding company with 5 ventures built by the internal teams themselves. Other than that IMBCO also provides support for entrepreneurs whether it’s in terms of investment, mentorship, Company resources, databases and more. The company has 200 people in total working and has offices in many cities across Iran.
IMBCO ventures have some similarities in terms of infrastructure as they mostly have the element of market place and venue-based businesses, creating a large and powerful value chain in the holding. With NetBarg being the first business of all, it has helped other businesses in the holding to grow faster with the resources, database and infrastructure it has possessed. In total, 15,000 merchants in Iran have signed deals with either of these businesses and millions of users have used and are using the platforms as of now.
NetBarg is the first and largest group buying platform in Iran. This 5 year old business has managed to sign deals with over 3000 cafe and restaurants in Tehran alone for its restaurants category, and is operating in dozens of cities throughout the nation. With its thousands of merchants and millions of users this business is considered the largest group buying company in the Middle East.
Chilivery was launched over a year ago as one of Iran’s largest online food ordering platforms. Thanks to the millions of users NetBarg has and the very good relationships built with restaurants over the years, Chilivery grew in a very fast pace resulting in surpassing some competitors and competing the market leader which has been in the market for years. Chilivery also provides unique features for users, such as full money back to users on food deliveries that exceed the specified time limit in delivery. This is a feature happening for the first time in Iran. Read more here.
Tik8 is an online ticketing platform for concerts and theaters with unique features. Tik8 is the second business venture that was launched from IMBCO and has become one of the market leaders in a short amount of time.
A spinoff from Chilivery, Saremiz is the B2B model of Chilivery focusing on food delivery for companies and organizations.
Clix is IMBCO’s online affiliate advertising vehicle. This product has been developed to serve advertising needs of IMBCO ventures and it is not meant to give service to other companies outside of IMBCO.
“We know what they buy, we have their telephone numbers and emails, and with this we’re able to connect users and merchants in another product to give them better services,” said the CEO. This asset that NetBarg created over the years was something the founders thought could become even more valuable if they provide more similar services. Over the years, the restaurants on NetBarg requested take aways and online ordering services, and that’s how Chilivery got created and expanded aggressively comparing to the early stages of its competitors because of the asset IMBCO had from before. The same story implies to TIK8 as well, as the theater shows wanted to sell tickets online just the way they were being sold on NetBarg just without the discount.
IMBCO is not just a startup holding company, it also invests on entrepreneurs
IMBCO has become more than a company with various products. The company has achieved valuable experiences and has gathered great knowledge of executing e-commerce businesses in Iran. These experiences and knowledge is what entrepreneurs need more than financial capital in a young market like Iran. Although IMBCO also provides financial capital, workspace and other resources, this particular asset is something not found easily in Iran.
The question is, how does IMBCO invest in startups? How it works, is that if there are smart entrepreneurs with businesses relevant to the IMBCO portfolio, the company is willing to invest in it, and support it in any way it can. “It must be related to our core competency. It could be venue based business models, market places and so on,” said Ali Reza Sadeghian as he was talking about IMBCO’s investment methods.
“How we do it is that we bring in the team, we support them with knowledge and experience we harbor within our organization. From product, legal services, business development, financials are what we can provide them so that the entrepreneur would focus on the core business. We help them launch and then we support them with users and merchant,” said Ali Reza Sadeghian on how they can support entrepreneurs.
We also asked about how they invest and how much equity goes to the investor. “We are definitely not a VC,” he said. “We do not necessarily want major shares, it depends on the business and its dynamics,” he continued on this subject.
Where is IMBCO heading?
IMBCO’s 5 ventures are either market leaders or are second in the market which gives them plenty of room to expand more. We also asked them about their expansion plans to the region and how he sees it. “Not in 2017. Maybe it’s because of our approach. We’ve been investing in ideas that are proven models internationally. Of course we will be pushed to invest in ideas that are not proven internationally at some point. Once we have more aggressive ideas that are not proven internationally, we will definitely do that [expand internationally],” said Ali Reza Sadeghian. For the year 2017 the company will not add any new ventures internally, rather would invest in startups external from the holding if the opportunity presents itself and focuses on growing the current businesses even more.
The subject of fundraising was risen in our talks which the question of investments for IMBCO itself came up as it has only raised one round of investment 6 years ago, and the other subject talked about was exits. Sadeghian explained the challenges facing Iran’s investment scene from foreign or local investors. However he seemed confident on getting a new round of investment for IMBCO as they are currently doing right now.
“We never raised money while we are currently looking at it. We think we have far more opportunities ahead of us that we can financially support ourselves. We’re currently talking with some individuals for a possible fundraising round, however we have never done that in the past. We can support the current businesses right now financially, but there are many opportunities in the market at least for us, that we can really make great investments with some fresh money,” as explained the co-founder of IMBCO.
Ali Reza Sadeghian also explained the difficulties that entrepreneurs are facing especially if they want to target the international market. He also believes that Iran could be a good starting point for entrepreneurs due to the large population of the country. He stated that “Iran is a good place to have a good starting mass, to later scale your business to other countries.”
“But we first need to get connected to the international financial markets, then we need people with experience in running international businesses in order to expand,” stated Ali Reza Sadeghian as he was explaining the challenges ahead.
As Sadeghian says, International investors are a bit reluctant to invest in Iran due to the political situation in the US. He sees this as one of the big sources of conservativeness within some foreign investors looking at the Iranian tech and e-commerce industry. Though there has been many foreign investments in Iran on startups which many have not announced publicly. “For now it’s a bit hard to raise internationally, though of course the interest for us still remains.”
Sadeghian mentioned two great benefits of foreign investment from an entrepreneur’s perspective, and the differences it holds with local investors. “Risk Appetite” was the first keyword he mentioned as foreign investors have the lead in this. Iranian investors tend to be much more conservative in mindset and more traditional when it comes to investments. He also mentioned it’s reasonable because local investors can invest their money in a place with less risk and reasonable returns. However in risky businesses such as startups and its high rate of failure, expectations on the quick return are also high. “It is also related to the bank interest rate we have here, because the interest rate is more than 20% in the country, investors compare that to what they are investing in and what returns they can get” he said. “However foreign investors that have experience in investing in North America or western Europe and don’t have high interest rates inside their countries, are much more interested in Iranian startups,” he added.
The second point he made when it came to the benefits of foreign investors was the transfer of technology and knowledge to reach organizational and market maturity faster. Though Sadeghian believes we are doing well technology-wise, it’s the more diverse knowledge in the industry that is needed.
From his words we knew he was also very interested for an exit as almost all entrepreneurs at this stage are, however there were some challenges he saw when it came to this subject. He mentioned that for local players it is hard to acquire an online business, as it doesn’t posses tangible assets. The challenges Ali Reza Sadeghian sees for foreign exits are similar to foreign investments. This again relates to conservativeness of foreign investors, however he does mention that there has been small to medium size exits in the industry that hasn’t been announced publicly and also some big partial exits. “I think later in 2017 we will see some interesting M&As happening, and I think the political risk will fade away bringing foreigners in the game more and more,” he stated.
Last words and some advice
We asked some questions from Ali Reza Sadeghian that many in Iran had it too. One of the questions many had within the startup community in Iran was that why don’t we see IMBCO active in PR? The answer was more interesting than the question itself. He says it all goes back to their roots, Yazd. Yazd is one of Iran’s ancient cities which has many notable businessmen in its hall of fames. According to Sadeghian, people of Yazd have an interesting belief: “Don’t talk loud about your work, don’t advertise.”. “A big part of it is our culture, that is why we tend to advertise ourselves less, though we have done much better then our competitors,” he said. “Yazdis tend to be more introvert in the business area and they would tell you to do your own job and not advertise, which is in contrast to what you do in e-commerce,” he continued. That is the reason he explains that answers to why they always try to focus on their business core a lot than external PR affairs.
A rumor within the NetBarg team was raised that “He never sleeps”, indicating how dedicated he is to his passion which is e-commerce. Although he disagrees about the sleeping part saying: “I actually sleep a lot”. NetBarg also seems to have a great company culture. “. We always wanted to do what we love and so do our teammates. That is why we had the best retention in employees. Around 15-20% of the people working with us, have been with us for the past 3-4 years. And this is a company that has been growing in terms of human resources with average 50% per year,“ he said. He also mentioned that if you randomly ask one of our teammates in the office about the venture he’s working on, you would realize regardless of them having shares, they will see the business as their own.
We asked Ali Reza Sadghian for some valuable advice he would give to entrepreneurs and investors. “Understand the business first and don’t jump in it out of excitement. From a very rational point of view, it’s always harder than you think. When you understand it, start with full power,” he said when we asked him to state an advice to Iranian entrepreneurs.
When it came to investors, he advices Iranian investors to not look at startups as they would look at traditional businesses. “The mindset is very different. You either have to understand the mindset and benchmark with international companies, or trust someone who knows it.” he said on this subject. He also gave an example on setting valuations, where traditional businesses evaluate businesses based on EBITDA which won’t make sense with startups. Sadeghian’s advice to foreign investors was also interesting: “If you have the right approach and right risk taking appetite, you’re going to win big time. If you don’t see the country by yourself and meet the right people, the risk is high, but if you do the reward is also very high.
IMBCO had a successful 6 year history in Iran’s tech and startup landscape and has been considered as one of the key elements of Iran’s startup landscape growth in educating the market and building the Iranian startup ecosystem as we see today. With the current growth rate of IMBCO, it seems that there are many other big news coming out of this company very soon.