Fundraising and investment are always a typical issue in startup ecosystems. This subject is a also one of the fundamental elements for growth of an emerging startup ecosystem, alongside human capital and a ready infrastructure. No startup ecosystem is problem free, fortunately every problem has a solution. We take a brief look at the state of fundraising and potential solutions for fundraising in Iran startup ecosystem.
What is the current state of startup fundraising and its problems?
Because of the financial sanctions on Iran, raising a round of investment from abroad has never been an option. Thanks to newly launched venture capital firms and investment holdings opened in the past 3 to 4 years, new opportunities and options became present for entrepreneurs to choose from. Growing angel investment activities also gives a ray of joy to the new generation of entrepreneurs with the arrival of angel networks, traditional investors that are starting to understand tech, and few foreign angel investors interested in Iran. Accelerators and incubators also began operating which were useful in providing seed and pre-seed capital to startups, as well as training and education for startup teams. Old school tech companies and IT giant firms are also seen in action from time to times in investing and supporting startups relevant to their value chain.
Options on accessing seed capital is still not in the best possible shape. Because of the rising number of startups, low competitive landscape and few number of investors comparing to the high number of startups, investors usually have the upper hand in emerging markets which makes it hard for entrepreneurs to get a good deal that would be in their company interest. There is also no local platform to publicly announce that a startups is raising, which makes word of mouth and networking in events the most powerful tool.
Questions and Answers
The question is: Is the state of capital access enough to answer the current rising demand? Is there enough seed capital in the market as it is the most needed investment stage currently? How supportive are the VCs in helping entrepreneurs raising startups from the ground? How can entrepreneurs get better in contact with investors with smart money that are also looking for more deal flow? How can startups get exposed to investor eyes?
Crowdfunding is one of the new methods of fundraising that hasn’t been around for a long time. Current existing crowdfunding platforms in Iran are not meant for startups to raise fund. One incident of startup crowdfunding was seen through a Kickstarter-like method of pre-selling an upcoming product, coming from a gadget IoT startup in a local crowdfunding platform. It is also a big fact that the regulation infrastructure for crowdfunding startups is still not in place, and crowdfunding platforms could face serious legal issues if not structured properly. As of 2016, more people in Iran are getting engaged with technologies and online services which has let into more public education on tech companies and startups. With proper media coverages, we could see ordinary citizens investing in startups through a crowdfunding platform in the near future.
2. Pitch Fest Events
Startup competitions and pitch fests are one of the best places and opportunities for startups to get exposed to VCs and angels. In a young startup ecosystem like Iran’s, investors are also looking for more quality deals to invest in. Startup pitch fests usually get 100s of applications from startups to attend the event and a dozen are usually handpicked to go on stage and pitch to the crowd. This also acts as a quality filter for investors to find the best deals in town in only few hours, and a chance to approach the team directly at the event.
3. More Seed Funds
We anticipate to see hundreds to thousands of seed stage startups emerging in the years to come. The need for more access to seed capital is being currently felt in Iran’s startup ecosystem. More angel and VC funds should be available to supply the current need. More funds also means more competition between investors, which would lead to better deals for entrepreneurs.
4. Public database of investment firms and startups
We’ve noticed talented teams that wanted to raise and were having a hard time finding the right investor. A database of investors and startup will help entrepreneurs to find their investors and vice versa. Such platform is also a good place to get exposed in public.
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