Towards the end of 2016, I had the opportunity to come visit Iran’s startup scene for two weeks. It was exciting enough that I, along with my two co-founders left our last company to start Iran’s first real cloud provider.
I wanted to write this article to share some of my learnings so far about Iran and the Iranian startup scene. I think this will be helpful for Iranians who have had startups outside of Iran and are considering coming back to Iran to do a new startup.
A little background about myself, my co-founders and our Iranian startup. My career started in IT Consultancy in London, working on some of the largest UK IT projects. At the same time my brother, Ali was finishing his PhD in Cloud Computing. In 2011, we decided to turn Ali’s PhD project into a startup to create the world’s first cloud cost forecasting simulation engine, PlanForCloud. As PlanForCloud grew, we applied and got through to the interview stages of YCombinator, and within a few weeks, we were acquired by RightScale, a cloud management platform based in California. Alistair was our first employee in PlanForCloud and helped us through expanding the team and our product offering.
We have also been a small part of the UK’s and California’s startup space. Myself, Ali and Alistair have worked in the cloud computing space for 6 years now, and our new startup, AbarCloud is Iran’s first real public cloud.
The Iranian startup scene is relatively new compared to Europe and the United States. This means that the majority of the founder are still learning what a startup is, and putting the theory they have learned via books such as the Lean Startup into practice.
More recently I have seen founders who have had a previous failed startup or have held high positions in longer running startups, starting up a new startup. These are great early signs and indicators that this market will develop.
This creates a great opportunity for founders who have had previous startup experience, albeit in a non-Iranian market, to establish themselves quickly.
It is also interesting to note that limited experience goes past the startups. The angels and VCs are also new to this game and are learning how to invest. There are still some practices such as double-dipping, non-dilution clauses, and very high equity requests that have more or less gone out of UK/US term sheets, but still exist in some Iranian term sheets. These are down to experience, and also due to less competition between investors.
From what I have experienced, there is very little competition in many markets in Iran, and if your product and support are right, capturing a significant proportion of a market is not as hard as the UK/US markets.
There are a few market verticals which do have many players in them, some examples would be online food ordering, ride-hailing apps, e-commerce sites, payment apps. Even these have space to be disrupted and out-innovated, however with other markets available, I’d think carefully before entering saturated verticals.
Investors and exits
Iran is a market in which investors could put their money in banks, and with very little risk yield a 15% to 20% interest on their money; it is worth mentioning that the government has been reducing the interest rates. This makes it hard to convince some investors to invest in the very high-risk field of startups. I should note that my experience has mainly been working with VCs, and less with angel investors in Iran.
There are only a handful of VCs in Iran, with the biggest one in terms of the number of companies funded being Sarava (they have many brands, but the money comes from the same source). Some others include Iratel Ventures, Bareket Ventures and Rahnama. These are the usual investors who you will see at startup events in Tehran. There are also investment arms of Banks (e.g. Fanap) and government-backed investors.
I believe one of the issues is that there has been no serious startup exits to show what the return on investment could be. The IPO market is still a little while off being seen as a real exit path, and big acquisitions are not celebrated, shared and as open as they are in the outside market.
This one should be pretty obvious with doing business in a different country, and Iran is no exception. From company registrations, visas for foreign workers, to employee stock options, there are a new set of rules to learn and adapt to. The best advice I can give here is to network with other startup founders in Iran who have gone through this once before, and can help either connect you to legal advisors, or can share their experience with you.
There is also another legal issue in doing a startup in Iran, in that you cannot safely use US-based software. Recently we have seen Apple removing Iranian apps from the app store and Google blocking business accounts (email, drive etc). You will need to think about workarounds for each one of these services.
Adapting your approach
I have been surprised at how different the Iranian market is when it comes to sales and marketing. You will need to re-test many of your experiences to really see if they work in Iran. As an example, B2B sales is still very much in-person even in the small to medium enterprise segment. Don’t expect to have a high conversion rate with little direct selling. Another good example is cold calling campaigns, which usually have a very low conversion rates in the US/UK. Some of the startups I have talked to in Iran have had very good conversion rates with cold calling.
With these differences in mind, having to re-test many assumptions as well as the power of direct sales, I’d say founders will need to spend a significant amount of their time if not all of their time in Iran. I have not yet spent enough time in Iran to see how this will progress as your startup matures.
Living in Tehran
Living anywhere in the world is going to be a subjective matter, however I’ll share my experience here, hoping it might help some readers. I’ll only cover three main topics:
Systems: There are very few system processes in place in Iran. If you want to achieve something, you have to find your path to that goal, and usually that is via connections and your network. If you want to move back to Iran to do a startup, start establishing your network.
Traffic & pollution: Tehran is a capital city, and as such you should expect traffic and pollution. The only difference being that you need to get used to the way traffic works here, the word manic comes to mind. Tehran can’t be compared to London or LA, it is a different beast!
Tech acceptance: It has been interesting to see how quickly trends start and capture the market here, and more recently I have seen these trends being technology focused. Names like Digikala and Snapp should be pretty familiar to you, but the technology trend is going past software companies and into other markets. A great example is the recently opened Robo-Chef in Tehran, a restaurant taking orders and serving food using belt driven robots.
If you are considering moving back to Iran and starting a startup, I’d encourage a logical approach vs an emotional one. You are about to enter a developing country’s market with different people, experiences, competitors, investors and legal systems. This market is changing very quickly and makes for an extremely exciting space to be involved in, however with this change comes a lot of uncertainty and stress. Manage to ride it out and the opportunity is huge!
My final practical advice; if you want to come back and do a startup or find a startup idea in Iran, fully commit a period of 3 to 6 months in which you move back, don’t do the touristy stuff and put the cholo kabab away, and instead get involved in the startup scene and validate your ideas. At the end, answer at least these two questions:
1 – Do you have an idea that you can execute on, and is needed in the Iranian market.
2 – Do you want to live here for the foreseeable future.
I’d like to thank Ali, Alistair, Hamed Jafari, Hamidreza Ahmadi, and Hadi Farnoud who read and contributed to this article. If you’d like any more specifics, feel free to reach out to me on Twitter @hassankhosseini.