Iran had a very strong grassroot movement in 2013. Everything started with community events and Startup Weekends with the cooperation of Iran’s top universities. After that the government came in and supported the entrepreneurial movement which helped Iran to become one of the most fast growing startup nations in the region. Iran has taken major steps into the knowledge economy and it’s not stopping there.
We’ve always talked about the unique opportunity Iran holds and why all eyes are on the Iranian market. Local and international investors are hearing the clocks ticking as they are finding more reasons to invest in this field. With the unique opportunity that comes after sanctions being removed, we are sure to see more activities and actions. However with every unique opportunity comes unique challenges. By analyzing the ecosystem, in this case Iran’s startup ecosystem, and the challenges every startup faces in its different stages of growth, we can divide the challenges to 6 different categories: Market challenges, Capital challenges, Human resource challenges, Knowledge resource challenges, and Governance & Infrastructure challenges.
1. Startups don’t have ambitions to target the international market (though Iran’s market is already large)
Iran alone has a very rich market. Young, highly educated, tech and consumer savvy, and a large enough market for startups to target, in their early stages. However this could also become a swamp where entrepreneurs get stuck into. After all, the best choice is to target the Iranian market first and then expand to other markets in most cases, many Persian entrepreneurs don’t really think about what lies beyond the Iranian market. Iranian entrepreneurs must learn to think internationally as well as starting locally. There are talks that DigiKala is in the planning of expanding to neighboring countries. This could be a good example for Iranian entrepreneurs to think beyond their borders.
2. Sanctions! meaning no easy and direct way to access the international market
As we all might know, sanctions had many direct effects on the Iranian startup scene, surprisingly mostly positive effects than negative. One of the key challenges that has manifested from sanctions, is that it closed the door for Iranian startups from reaching to other international markets and to provide international payment options to their foreign users. Sanctions have left startups with no easy option on the table to reach their international customers. Startups can’t open office outside of Iran easily, they can’t have online transactions to their accounts from outside of Iran, and direct foreign investment for startups is just a simple daydream.
3. Not enough funding in seed-stage startups
Access to capital is always a tricky situation in an emerging market. In these kinds of situation it’s usually the triple F (Friends, Family and Fools) that comes to the aid of entrepreneurs. VCs like Sarava have successfully invested in many early stage startups. Due to the lack of investment firms concentrating on seed stage, Sarava has also invested in more than 10 seed-stage startups. However seed stage startups usually raise from angel funds in their early days, and VC money is not usually the smartest money to take at this stage. The newly formed angel networks in Iran, such as AvaAngels and Karaya will help Iranian startups get better access to capital. However this won’t be enough to answer the needs all around the country. We are hoping to see more firms and VCs concentrating on seed stage as it’s necessity for every startup ecosystem.
Human Resource Challenges
4.Talent exists, But not the ones startups are looking for
Though Iran has a large talent pool, startups still need to dig to find a talent with the startup mentality to join their team. In terms of technical dev force and programmers, it is rare to find people with a unique skill set. Talking more technical, finding a PHP developer is a piece of cake, but if you want Ruby or Scala programers you got to start praying for it. There is an initiative conducted by IEA called CodeKadeh that teaches programming to young students to get them interested in programing and to prevent the country to fall in a crises of not having enough programmers in the country. Moving from hiring and the technical force, talents don’t usually find the potential entrepreneur spirit in themselves and instead prefer to be hired and get their risk-free monthly salary.
5. Not enough lawyers experienced in startup legal structures
6. Huge brain drain rate (talents leaving the country)
Iran is in the top 5 countries with the highest percentage of brain drain. Most of Iran’s top talents either leave for higher education, or get hired by big corporate enterprises from North America, Europe and the Persian Gulf countries with three to five times the salary they could have earned in their home country. This subject has always been a huge issue in Iran. Many of the Persian talents have decided otherwise, and stayed to run a startup of their own. Founders like Farhad Hedayati of Taskulu and Reza Rezaei of Namlik are a few example of entrepreneurs that canceled their flights the last second and decided to stay in Iran and run their startup. However we can only name a handful of these people. There is still a large number of folks leaving the country every year. The Startup revolution in Iran could change this to some height, but aspiring entrepreneurs and talents need more reasons to stay and start their projects in Iran.
Knowledge Resource Challenges
7. Not enough opportunities for private sector involvement in academia
There has been some action from the private sector to help entrepreneurs, a good example is Hamrah-Aval that is starting to fund mobile app projects and boost entrepreneurship through these programs. However there hasn’t been any involvement in academia noticeably. If the private sector gets involved in academia, we could witness a very strong impact in educating talents and promoting entrepreneurship. One of the very successful examples in the region is Özyegin University. This university realized entrepreneurs starting a startup needed some unique support that only the private sector could provide. Özyegin University partnered with Turkcell to accelerate commercialized ideas and technologies, and ultimately promoting entrepreneurship. Iran’s leading universities that had decent entrepreneurs as outputs are Sharif University, Tehran University, Amirkabir University and Ghazvin Azad University. These universities especially need to involve the private sector more, in order to grow more entrepreneurs and provide them the support they need. If they don’t want them leaving for better opportunities abroad.
8. Limited university curriculum in startups and tech entrepreneurship
In 2009 Tehran University opened its entrepreneurship faculty and provided a major in the same name. However does this really train entrepreneurs? Do you need to study entrepreneurship or can you have diverse skills, learn the mentality of entrepreneurship and the core knowledge an entrepreneur needs to have?
University of Tehran’s entrepreneurship major has many common curriculum as the Business Administration major, though it doesn’t provide the necessary educational content an entrepreneur needs. An “Entrepreneurship 101” class exist in most universities in Iran, but it usually focuses on how to start a company, how to register it and to give shares. Universities must have educational content and curriculum for startups and promote tech entrepreneurship more. Unfortunately students usually won’t hear the term “Startup” as an opportunity for them.
9. Not enough investment in R&D
One of the key problems in the R&D field is that there isn’t enough funding to initiate R&D projects. To take Finland as an example, which is ranked first for its development and funding of technology and innovation, the Finnish government has funded many public and private players in this field. This has boosted Finland knowledge economy and has benefited from it across the year. In the recent years, Iran had a good rank in the region in innovation and technology, especially in the Nano and pharmaceuticals. But in order to boost it, more funding is needed in this sector in order to help entrepreneurs in the high-tech sector if we are thinking of having high-tech products as an output.
10. Slow internet speed
Internet is the “essence of life” for a startup, as some like to call it. When we look at the global ranking of internet speed, Iran can be seen in the bottom 50 countries. Although the country has one of the highest rates of internet penetration in the region and the largest number of internet users in the middle east. The internet speed is very low and relatively expensive. Improving the country’s overall bandwidth and internet speed will most certainly help startups in many different ways. Improving this will also help new markets like HD video and audio streaming, on-demand TV and online gaming, where entrepreneurs can enter.
11. Lack of proper legal framework, for startup registrations and investments
The speed that the startup ecosystem is growing is multiple times faster than the speed of law and regulation development. A startup is registered the same way as any other company. After registration you might need to get permits to operate from 3 to 4 departments. There is also no proper legal framework for VCs, angel investment and angel networks. VCs are registered as a typical investment holding company. This will change the functionality of a VC and would also have them spend big cash on legal actions just to find loopholes to proceed in their investments. Legal frameworks such as Shareholder Rights, Vesting and Stock Options, NDA etc. do not exist in the form we typically see in other developed countries.
12.Long and lengthy process of company registration
If all your documents are ready (which some of them takes weeks to get), your company will get registered between 3 to 4 weeks. There were cases that took 8 to 10 weeks. This will cause various problems for startups. No registered company means no investment before you have something on paper. In addition to that no registered company means no permits and allowance to provide services. Comparing to other countries that takes hours rather than weeks, Iran is not placed in a good rank when talking about corporate regulations registrations.
13.Limited payment options
Though Iran has a very strong internal banking system, many payment options do not exist. To give an example, if you want to subscribe to a service or a product, you may have to pay your monthly fee manually or pay 12 months in advance. Because there is no options for companies to have automatic monthly subscription fee withdrawal from the bank. One of the other big issues in Iran is that Iranians don’t have access to credit cards and all transactions are done by local debit cards. We anticipate that the banking system will revolutionize once the international sanctions on CBI (Central bank of Iran) and other Iranian banks get lifted.
14. No proper policy and regulation structure to ease the way of entrepreneurs and encourage them
Though Rohani’s Government has associated a budget to promote entrepreneurship, and the technology arm of the office of presidency has done a great job at this, still there is a need of regulations and policy changes that would ease the way of an entrepreneur. Providing lower taxation or even a “tax free” regulations for the first year for a newly formed startup is a good example in this case. Easing the regulations and removing the obstacle for an entrepreneur would definitely give more reasons for others to be more encouraged to entrepreneurship.
15. 24 months mandatory military service for men, and yes that includes entrepreneurs!
Imagine you’re an entrepreneur just starting your startup. You have formed a team, you have launched your startup, you’ve entered the market, you have gotten some good numbers and growth rates, and then a letter comes by your door saying you have to go away for 2 months on your mandatory military training and spend 19-22 months more as soldier. The faith of that startup would be unknown. A campaign has been started to ask officials to help entrepreneurs to keep working on their startup and serve their country in a different way. Lately the parliament agreed to a regulation, where a company that is registered as a “science and knowledge oriented company” would get an option to cancel the military service and work on their science oriented company instead, for a maximum of two founder/employee each year. However getting your startup registered as knowledge oriented would take up to 1 year to register and would need an intense amount of paperwork to prove that you’re creating knowledge and giving a scientific value to the nation.
Despite all these challenges mentioned above, Iran startup ecosystem is still one of the most fast growing ecosystems in the region. Identifying the challenges is a first step to removing them. Many of these challenges also exist/existed in other ecosystems and were solved and removed one by one. These obstacles are not a “Sword in the Stone” situation. They are completely solvable, as for many other challenges that have already been part of history. Many of the current problems listed above are already in the process of being removed. By looking at other ecosystems and how they overcame their challenges, Iranians would get the inspiration and the knowledge they need to overcome all the current and potential challenges that lies ahead.
Tell us what you think, or perhaps tell us your idea on how you would solve some of these challenges in your local ecosystem.