With the lifting of the sanctions, we have witnessed hundreds of millions of Euros of foreign direct investment injected in Iran’s startups.

Why Iran?

Iran with the population of more than 80M is one of the largest in the region, similar to the size of Germany. The population is young, with more than 60% of the population currently under the age of 35, in the beginning of their careers. Additionally, Iranians are highly educated with the highest literacy rate in the MENA region, secondary school participation of 80% and tertiary education participation among the highest in the world, ahead of the UK, France and Germany. Iran’s urbanization rate of 73% is twice that of India (33%), well ahead of Italy (69%) and close to the levels of Germany (75%) and France (80%), a good starting point for rolling out new infrastructure.

Iran’s internet penetration of around 60% is still relatively low compared to Europe but outperforming countries like India (26%) and Egypt (36%). Growth, however, is significant with an annual growth rate of 11% over the last two years. 3G/4G availability of 60% at the end of 2015, a thirty fold increase compared to 2013, can be an indicator of Iran leapfrogging into modern ICT infrastructure. As opposed to internet penetration, mobile penetration is well developed with 142 phones per 100 people. Smartphone penetration in Iran has been growing at significant rates from 50.4% in Q1 of 2016 to 56.4% in Q3, an increase of 12% in just nine months.

Iran’s central location in the middle east, bordering countries with a total population in excess of 400 million, including almost 40 million consuming households who are projected to grow at 5.2% annually until 2025, provides the opportunity for the country to become a regional trading hub.

Despite the effects of sanctions and constrained stock and low level of foreign direct investments, Iran today exports more than Egypt, Pakistan and Morocco combined.

How Did It All Begin?

Iran’s startup ecosystem is still very young. The ecosystem was started to form with startups such as Digikala, the Iranian Amazon, Aparat ( a subsidiary of Saba Idea), the Iranian YouTube, NetBarg the Iranian Groupon and few others just 5 years ago. Even Digikala which began their work on 2006 couldn’t get that much of a traction because of the shortcomings of the internet infrastructure in the country. It was only in August 2014 that MCI received its 3G and 4G license along with Irancell after three years of Rightel’s exclusivity on providing 3G services in the country. Since 2014, the internet penetration has grown massively and people started to rely on their mobile internet connectivity and online businesses started to get some serious traction. Even the term ‘startup’ has entered into the Iranian vocabulary just three years ago, with spreading of success stories and formation of accelerators in the country.

Back then, an NGO named Iran Entrepreneurship Association (IEA), was the main engine behind the community work and started to help the community with workshops, conferences, and gatherings, to connect the startup enthusiasts and build the community. Avatech one of the first accelerators in the country based in Tehran University also had a key role in developing the startup ecosystem in the country by hosting third-party events and workshops. After this period other players also contributed to the ecosystem by doing community work. MAPS an accelerator/incubator, Fanap an ICT arm of Pasargad Financial Group, DMOND Accelerator based in Tehran University and many other entities in Iran played a great role in developing Iran’s startup ecosystem as well. We should not forget the important role of events that have been organized by the community itself such as Hamfekr, Startup Grind, and Startup Weekends. And to wrap this part up, we should mention the key role of Vice-Presidency for Science and Technology which throughout these years helped many entities in startup sector with legislation, financial support of the events and so on.

The First Success Stories

But you don’t hear much about the investments in Iran startup scene. There is a reason behind this. It’s not customary for businesses in Iran to talk about their financial achievements in the country unless they are forced by going public. The reason behind this might be the tradition in Iranian business culture because normally in the past nothing good came out of being transparent and companies got into trouble by announcing these kinds of information. But with the rise of the startups in the country and the nature of these kinds of businesses which is transparency, there will be no way out of this, at some point companies need to come out of their closets and share information about their fundraising and investments. Unfortunately, there is still some resistance toward transparency but with some announcements from big VCs and success stories inside the country, we think this is about to change.

Today we are going to dig deeper in some big investments that have happened in 2016. The source of this information that we are sharing with you is Sarava and one of its investor’s Pomegranate, through its recent fiscal financial report. Unfortunately, up until this day, we couldn’t get any information from other VCs, startups and financial institutions that are active in this sector. But the information that we are sharing with you today is enough to get a grasp of the whole market. We hope by announcing these investment figures, other VCs and startups in the country would come forward and share their activities with us.

Sarava the Leading VC with a Valuation of €649.4M

Sarava was established in 2011 when there was not much of a hype nor interest in startups, especially in e-commerce, in Iran. Back then there were only a few startups which tried to enter e-commerce and mobile based businesses. But there was no interest in investing in this sector, insufficient internet speed, not enough experience, not enough tailored talents and no previous knowledge amongst the people about how e-commerce could touch their lives.

When the interest on bank deposits in Iran were about 25% to 30% (now it’s 15%), and investments in some industries enjoyed fast guaranteed profits, Sarava entered the market with the hope of starting a new wave of investments to breathe life into the Iranian startup scene. Sarava’s investment focus is in companies operating in the universe of internet, mobile, e-commerce, games, cloud computing, software as a service (SaaS) and core technologies such as nano and bio technologies. Right now Sarava has more than 30 companies in its portfolio. Sarava also supports its start-ups with mentorship and local services such as: strategy, marketing, design, business intelligence, technology, talent recruitment and offers them financial and legal advisory. Sarava and its subsidiary Nouava (startup technology and business consulting practice) employs approximately 75 people spread across portfolio management, investment, corporate finance and operations teams. Sarava’s operations are focused on providing support and knowledge-sharing within the company’s network.

Sarava has many important investments in the country including Digikala the largest e-commerce startup, Cafe Bazaar the largest Android market and its subsidiary Divar, the largest online classifieds company, Avatech the leading startup accelerator, and one of the first digital marketing holdings in Iran including Anetwork, ADRO, RASANEX, ADAD and DMC.

Sarava’s last capital raise of €183M was finalized at the start of 2016. The investment consortium, including Pomegranate, invested approximately this amount as primary equity in Sarava at a pre-money valuation of approximately €244M for the entire company. Foreign investors now have a 45% stake in Sarava (of which approximately 15% belong to Pomegranate), with the remaining approximately 55% being controlled by the founder and original investors. As per December 31, 2016, Sarava is valued at €649.4M based on Pomegranate’s valuation model.

Below is Sarava’s investment timeline:

• 2013: Digikala, Online retail.
• 2014: Cafe Bazaar, Android Application Marketplace; Anetwork, Ad Network; Avatech, startup accelerator.
• 2015: Reyhoon, online food ordering; Zoraq, online hotel and flight reservation; Fidibo, online bookstore; Navar, Audiobook store; Faranesh, Online Video Learning Marketplace; Akhbar Rasmi, news wire distribution platform; Taskulu, cloud-based project management tool; 2nate, a crowdfunding platform; Honari, a platform for handicraft; Jobinja, online job portal; Evand, online event ticketing; Kikojas, an online business directory; Adro, an Ad exchange; Robin, Persian handicrafts marketplace; Shezan, the only Nano, Bio, ICT and Cognitive (NBIC) technology accelerator.
• 2016: Takhfifan, a group buying website; Homapay, online payment platform; Avagames, the first Iranian game accelerator.

Digikala with €92M Investment From Sarava and €757M Valuation

If we wanted to name the most successful startup in Iran, we would certainly name Digikala. People started to understand the term ‘startup’ through Digikala. Digikala was founded in 2006 and started to blossom and grow after Sarava invested in this startup. Digikala is a general e-commerce startup which combined product review and online retail like Amazon. Digikala’s market share is now estimated at 90%. Sarava, as the sole investor, made a subsequent investment of approximately €92.0M in Digikala in 2016 and increased its shares from 51% to 60% (mistakenly reported to 61% in pomegranate’s report). Digikala has been deploying this capital investment on expansion, capacity growth, logistics platform, marketing and new strategic initiatives such as DigiStyle, an online fashion site, a new larger fulfillment center and a marketplace strategy.

As we read in Pomegranate report: “Digikala has a fully vertically integrated, wholly-owned logistics setup which is a significant competitive advantage and barrier to entry as Iran’s logistics systems are poor in both public and private sectors. Digikala’s average delivery time is four hours in Tehran and the company also provides next day delivery guarantee in twenty main cities across Iran, enabled by Digikala’s efficient logistics platform and well developed and maintained highway network in Iran,” Digikala is turned into this gigantic logistic company to provide better services for its customers.

Fulfillment Center: In 2016, Digikala invested further in its logistical capabilities including a new fully automated fulfillment center, new distribution centers and logistical infrastructure overall. The new fulfillment center was launched recently and Digikala now has two highly automated fulfillment centers in Tehran and several distribution centers throughout the country. The combined capacity of the two fulfillment centers is estimated to be around 80,000 orders per day when fully operational.

Digistyle: Digikala launched a new vertical, an online fashion store Digistyle, in the fall of 2016 and the preliminary data has been promising with a number of items sold per week increasing more than seven times during the three months ending mid-January 2017. Around 65 different international and well known local brands are currently selling through Digistyle. Debenhams is one of the many exclusive labels being traded, alongside a vast variety of other local labels.

Marketplace: Digikala also implemented a marketplace strategy in the fall of 2016 and the platform has shown expected results in terms of client acceptability. Digikala currently has more than 100 professional third party vendors selling their products through the company’s Marketplace platform. Digikala receives a commission fee from the third party vendors. For example, Alibaba’s business model is solely based on a marketplace strategy and Amazon has also implemented it.

Pomegranate valued Sarava’s current 60% holding in Digikala at approximately €454M, based on a forward-looking EV/Sales multiple valuation model. Based on Pomegranate’s calculation Digikala is now worth €757M.

But let’s give you more detailed and updated statistics on Digikala’s activities based on the information given in the Pomegranate report and other sources:

• Sarava, as the sole investor, made a subsequent investment of approximately €92.0M in Digikala in 2016 and increased its shares from 51% to 60%.
• The company has achieved nearly 100% year-on-year GMV (Gross Merchandise Value) growth CAGR since 2014.
• Digikala ranks as the 3rd and 4th most visited website in Iran according to Alexa and SimilarWeb, respectively.
• Digikala’s market share is now estimated at 90%.
• Digikala’s current offering comprises approximately 60K goods across more than 100 product categories. Out of 60K units, there are more 25K Iranian products on Digikala’s platform.
• Digikala has more than 1.5M daily unique visitors and approximately 3.5M subscribers.
• Digikala has grown from around 800 employees to over 2,000 and has created more than 96,000 indirect jobs in the ecosystem from 2014.
• DigiKala has sold the products of more than 40 disabled people on its platform.
• Digikala has sponsored more than 150 handicraft workshops throughout the year.
• Digikala has sold more than 300,000 goods for charitable purposes.
• Digikala has sold more than 165,000 books just in 2016.
• Digikala has saved the country a projected $2m worth of petrol that would have been otherwise been imported.
• DigiKala has prevented an estimated 6.5m kilograms of Co2 emission.
• Digikala has saved more than 42m kilometers in urban commute.

Cafe Bazaar the Leading Android Application Marketplace with Valuation of €166.5M

Cafe Bazaar, the largest Android application marketplace in Iran, has made a niche market for Iranian Android developers in the past 6 years. Android app market in Iran is growing really fast as the number of smartphones in Iran and internet users are increasing massively each year. The company connects millions of smartphone users, advertisers and application developers through its highly scalable and technology-based platforms such as Bazaar app store and Adad mobile advertising network, which is now 60% owned by PPG.

Sarava owns 20% of Cafe Bazaar as per December 31, 2016. Cafe Bazaar kept its market share at around 85% in 2016 despite the fact that Google Play is accessible from Iran. The most important and largest category in Cafe Bazaar Android App marketplace is the games category, which accounts for approximately 80% of the company’s revenue. Cafe Bazaar gets 30% commission on each downloaded game on its platform. In addition to games, Cafe Bazaar also offers subscription content such as newspapers.

Cafe Bazaar also owns Divar, Iran’s largest mobile classifieds company. Divar in Farsi means wall. Divar offers a platform where consumers can buy and sell products and services. Divar has been the first platform to introduce in-app messaging to facilitate transactions. Divar has recently started monetizing its platform.

Cafe Bazaar’s most significant values lie within the fact that it has access to around 85% of the local Android users, high market reach at launch, easy access to payments through local banks, special recognition for Persian apps and high review activity with over 15,000 daily reviews and 6.6 million reviews received in total.

Here are some key attributes and statistics of Cafe Bazaar from Pomegranate’s Annual Report:

• Developers have made more than 80 billion Tomans (nearly $21M) in last 5 years by selling their apps and its content through Bazaar’s platform.
• Cafe Bazaar owns more than 85% of the android market.
• 40% of Iran’s population are using Cafe Bazaar.
• Cafe Bazaar’s app has been installed on more than 32M smartphones.
• Cafe Bazaar has more than 24M monthly active users.
• There are more than 100K Iranian apps on Cafe Bazaar Android market.
• More than 17K active developers are using Cafe Bazaar platform for distributing their apps.
• More than 150 engineers work at Cafe Bazaar.
• Cafe Bazaar uses 10% of Iran’s internet traffic.
• Cafe Bazaar has access to around 85% of the local Android users.
• Games account for approximately 80% of the company’s revenue.
• 45K monetizing applications.
• Average time spent on Cafe Bazaar is over 500K hours daily.

Avatech One of the Leading Startup Accelerators With Valuation of More Than €10M

The hype of getting into an accelerator really got pumping after Avatech, one of the first accelerators, launched in Tehran in 2014. Avatech is a host to many startup related events in Tehran. From the beginning, Avatech also positioned itself as a startup hub in the community by contributing to the community. Avatech’s program split into two programs: the Acceleration Program and Pre-acceleration Program.

The Acceleration Program is a four months program running two times per year. This program is made for teams that have a working product (MVP) with most of the key features, with a growing customer base generating revenue with a complete team.

Last year, Avatech introduced a Pre-acceleration Program named Avacamp. Avacamp is a two-month free program that provides workspace, mentorship and training to startups. The program is developed for boosting startups by helping them validate their business model, gain customer insight, understand their market and go to market strategy, optimize their product and build up their team. This program is designed to host businesses before the company selects them to the full program after a few months. At the end of the acceleration period, Avatech typically aims to own around 8%-15% of the participating startup. Avatech’s network is one of Sarava’s channels for sourcing early stage startups in Iran, which has the policy only to co-invest with other investors. As the startups mature, Sarava might do additional follow- on investments in the companies. Over the last two years, 40 startups have graduated from Avatech.

Based on Pomegranate’s valuation Avatech worths €10M, where Sarava owns 35% of the company.

Some key statistics on Avatech:

• More than 20 people are working in Avatech.
• More than 36 startups graduated from Avatech.
• More than 370 jobs created through Avatech programs.
• More than 80 mentors participated Avatech programs.
• More than 600 teams applied for the most recent cycle (cycle 5) of Avatech.

Pulse and Pixel Group with Valuation of €40M

Pulse and Pixel Group or PPG is a media holding company which consolidates several online advertising labels, such as Anetwork, ADRO, RASANEX, ADAD and DMC. PPG hosts leading content, technology, data, mobile and digital consultancy businesses. PPG clients are the brands that want to market their product in the country. WPP, the world’s leading and largest communications services group, signed an affiliation agreement with PPG at the end of 2016, providing the latter with access to valuable knowledge and connections in marketing communications.

In Pomegranate’s valuation report PPG’s value was mistakenly reported at €14M, which is corrected here to €40M.

Sheypoor a €34.2M Company

Sheypoor is another online classifieds company that was established in 2012. Sheypoor provides a platform which users can buy and sell products free of charge. You can also browse through advertisements on Sheypoor’s website or its app. Sheypoor is Pomegranate’s second largest (after Sarava) portfolio holding. Pomegranate made its first investment of €0.5M in Sheypoor in 2014 and since then has consistently increased its exposure in the company. Sheypoor’s number of total users and page views have more than doubled in the second half of 2016 through spending money on advertisements. As part of Sheypoor’s latest funding round at the end of 2016, Pomegranate made a follow-on investment in the company totaling €6,4M and increased its ownership to 44.1% from previous 26.7% according to Pomegranate’s Annual Report. Sheypoor has been spending this money on TV, online and offline Ads to double the number of their users and listings. Sheypoor also increased the speed of its website to provide faster services for its users.

Sheypoor is yet to generate revenue however the company could start monetizing through selling value added services and subscription packages once liquidity and Sheypoor’s market position allows it. The market share of Sheypoor is still unknown but the popularity of Divar (Cafe Bazaar’s subsidiary) is way more than Sheypoor without spending any money on advertisement.

Sheypoor’s statistics from Pomegranate’s Annual Report include the following:

• 600K active ads.
• 20K new ads per day.
• 12M sessions per month on web.
• 220M monthly page views on web.
• 1.1M users per month in the mobile app.

Carvanro a €2.6M Ride-sharing Company

According to Pomegranate’s Annual report, Carvanro is the first online ride-sharing platform in Iran. Carvanro was founded by Rouzbeh H. Pasha, Daniel Stocks and Filip Premberg in 2015. The company was launched in 2016 and has 65K unique visitors ever since. The company has also 111% increase in its registered users per month since it launched.

Transportation is a large vertical globally, and Iran is an untapped market in this sector. Carvanro lets people who are commuting between cities share their ride with a fee. The company is the first company in this sector to enter the market so it has some advantage in comparison to other possible rivals in near future. Carvanro also aims to scale up and enter other emerging markets in the future. The company had started advertising in 2016 and had a marketing road trip as well.

According to Pomegranate, In January 2016, Pomegranate acquired 25% of the shares in the newly established Iranian online-based car and ridesharing company Carvanro. The total investment amounted to €458K.

As per December 2016, the Company’s investment in Carvanro is valued according to an on-going transaction in the company at €2.6M pre-money valuations where Pomegranate and a new investor will invest an additional €945K in the company. Pomegranate is committed to inject a total of €768K (and €177K the new investor) divided into two tranches. The first tranche, corresponding to 50% of the total investment was paid at the time of closing. The second tranche will be paid in July 2017, upon the Company reaching a set of specific agreed KPIs. Post completion Pomegranate’s ownership in Carvanro will amount to 40.01%.

Important note

We should mention that there have been many other investments in the country in the past year but unfortunately these companies haven’t shared their data with us. We hope by publishing this article they would come forward and help the country to implement transparency in near future.

*All valuation references in this article are from Annual Report 2016, Pomegranate Investment AB (publ), Corporate ID number 556967-7247

We Thank Adro our sponsor for this article

Adro is Iran’s first Ad exchange for programmatic ad space buying with more than 9 billion ad requests per month. Their Real-Time Bidding (RTB) platform has increasingly benefited the advertising industry by auctions that enable ad networks to sell their banner inventory in Iran’s desktop and mobile applications.

Read Iran’s first AdTech overview report from this link.