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The Iranian Startup Market
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December 6, 2017
Written by:
Afshin Ghassemi

Country of international investors and entrepreneurs - Iran

In 2016, once sanctions have been lifted, Iran has become a point of interest for many international investors and entrepreneurs. How could a country, living 10 years in international isolation, become the second largest economy in the MENA (Middle East and North Africa) region? According to estimates, boosted by sanctions relief, GDP is set to grow about 4-5% this year, compared to only 0.4% in 2015.

Being separated from the rest of the world’s economy has pushed Iran and its people towards finding solutions for alternatives to existing international techniques and technologies. Of course, living in isolation produced several problems related to doing business in the country: petrified business principles and cultural prejudices are not things that disappear overnight. The government has a very strong influence on large companies and corporations and therefore, it is hard for the most enthusiastic local entrepreneurs to work in the existing system, in which people are not free in exercising and realizing their ideas freely. However, between 2012 and 2013 the first sparks of a local startup scene in Iran started to appear when the country elected a Twitter-loving President whose administration valued tech and a greater openness towards the world, while at the same time a handful of college students got together for an event called, the “Startup Weekend”. The number of Iranian startups has rocketed since, from almost none at the beginning of this decade to now over 400 in Tehran alone, according to TechRasa, an agency tracking the startup scene in Iran. The absence of international e-commerce websites, not being able to access social media platforms (due to the Islamic Republic’s media censorship), demographic changes, and limited economic opportunities inspired many Iranians to launch their own web- and app-based businesses and corresponding business models.

Following the lifting of the sanctions, academic institutions in Iran sought to support domestic talents that could manage sophisticated technologies previously operated by people educated in the West as millions of bright Iranian youth have left to the U.S., Canada, or Europe for higher education and for jobs. Today, there is a strong trend among young Iranians to study sciences like engineering and computer science in Iran that became incredibly popular. Today, Iran is a leading nation in the percentage of graduate students in science and engineering fields. With a large amount of highly educated young people unable to find jobs in either the government or the private sector, many young Iranians turned to non-traditional outlets for generating an income like starting their own businesses.  It is also worth noting that 70% of Iran's science and engineering students are women, and in community of startups, they’re being increasingly encouraged to play a bigger role. Yet, these startups still only take up a portion of less than 1% of Iran’s oil-dominated economy. If the startup sector continues its growth trend, it may find an answer to the question of the future of the country’s dependency on oil.

Danesh Bonyan

The phrase danesh bonyan (meaning “knowledge-based”) has become a Leitmotif during the presidency of Mohammad Khatami (1997-2005) and has been picked up by the Rouhani administration as part of Iran’s effort to produce a ‘knowledge economy’, after facing the outflow of educated youth from the country in recent decades. Estimates by the Iranian Ministry of Science, Research and Technology indicate that this loss of human capital costs the government double of what it earns by selling oil. It is not surprising then, that President Rouhani’s administration is targeting the youth to create a more welcoming environment for Iranian entrepreneurs. Iran’s reintegration into the global economy certainly helps the government in achieving this goal.

The government has identified technological development as one of its top national priorities, and R&D budgets have been marked for a 400% increase by 2030 (coinciding with 4% of Iran’s GDP). Additionally, the government tries to attract more foreign direct investment by encouraging the formation of new joint ventures between domestic and foreign businesses, with the condition that the foreign partners share all technologies and coinciding knowledge with their Iranian counterparts. Creating a culture that values and appreciates entrepreneurship in addition to the existing inclination towards science, technology, and business will provide vital support for the Iranian startup market environment.

Iranian Startups are Capturing the Local Markets

Iran has more than 50 million internet users out of a population of 80 million, which is almost half the total number of internet users in the entire MENA region. 70% of the population is under 35 and the young generation of internet users is vastly more connected to the outside world than their parents’ generation — despite being raised in the environment during which the sanctions were still in place. Despite the presence of international sanctions, bureaucracy, infrastructural problems (such as the complicated and ineffective tax code), unregulated online payments, as well as the government’s online censorships, some Iranian entrepreneurs have been quite active in conquering the domestic marketplace through innovative ideas. Iran now has a fair number of online companies that serve as local versions for international brands. Like in China, some of this is due to the competition-limiting censorship policies of the government.

For example, the Iranian start-up world’s equivalent of Amazon, Digikala is now the nation’s leading online retailer. The firm was launched in 2005 by twin brothers who experienced themselves the challenge of buying electronic devices online in Iran. As eBay and Amazon are banned from operating in Iran, Hamid and Said Mohammadi decided to launch a website that would introduce e-commerce to Iran’s population. Digikala was the first online retailer to publish detailed specifications and customer reviews in Farsi for high-value electronics. Starting from selling and personally delivering electronic goods to customers from a small office in Tehran, the brothers today head the largest e-commerce platform in the Middle East.

Another example of a local startup that mimics a popular brand that exists in other countries is the Iranian start up Cafe Bazaar - an app store for Android with over 30 million users that provides an alternative to the Google Play Store. There is also an alternative to Google’s sister company YouTube called Aparat, which users visit 150 million times a month and watch over four million videos on a daily basis on. Its founder, Mohammad-Javad Shakouri Moghaddam, is also the CEO of Aparat’s parent company Sabaldea, which is behind a number of other successful startup projects in Iran, including Cloob.com, a Persian-language social-networking site with over 3 million active users, or Mihanblog.com, a free blog hosting service. Shakouri Moghaddam’s company started with only three people 10 years ago and it is now almost a local giant in the startup scene. Recently, Aparat has introduced a new service called Filimo, the Iranian version of Netflix, which is currently still available free of charge. The censorship of YouTube has greatly contributed to the success of Aparat in Iran, says Shakouri Moghaddam, but he hopes to keep many of its users even if the Youtube ban is lifted.

There are countless more startups, for example:

Hamijoo.com

Hamijoo.com is an online crowdfunding company helps Iranian art and film projects to find an alternative way to support and finance local art and culture

Takhfifan

Takhfifan is an alternative to Groupon, whose founder Nazanin Daneshvar, left a lucrative job in Germany to start his company and today employs over 60 people in Iran. His website offers discounts for restaurants, coffee shops, theatres, concerts and many other businesses.

Mamanpaz

Mamanpaz was founded by Tabassom Latifi, a 29-year-old woman, who previously worked for a corporate bank. The Tehran-based online food delivery service offers dishes cooked by hobby chefs. Today, she has around 200 customers a day, whom she can offer low prices of around 4 Euros per meal. The project helps especially housewives and single mothers to earn their own income.

The Investment Community in Iran is Getting Ready

A great number of foreign investors showed interest in the Iranian startup market, former investment banker Mr. Kamangar helped the online retailer Digikala last year when it sold a stake of its business to an undisclosed Swedish investment fund in a transaction that valued the company at $150 million. Tehran-based VC fund Sarava Pars, which was an early investor in Digikala bought into Café Bazaar and is now trying to raise $100 million from European and Asian investors to buy into more Iranian startups, with deals up to $300,000. The country has rapidly developed an assortment of investors, VCs, and accelerators, pretty much from scratch – and it doesn’t seem to be slowing down anytime soon.

The number of startup accelerators in Iran and investment funds are opening for business at an incredible pace. Furhtermore, events like Startup Weekend, as well as organizations like HamfekrStartup Spark, and the Google-powered Startup Grind, have all launched programs in Iran to take advantage of what is yet to come. The Iran Entrepreneurship Association and other local NGOs are also actively encouraging entrepreneurship among Iran’s youth. In addition to running awareness campaigns, these NGOs are supporting policy development that provide greater social safety-nets to entrepreneurs from middle and low-income families in case their ventures fail. Additionally, there has been a modest rise in privately-run organizations working to encourage and influence public opinion on entrepreneurship. While the startup scene in Iran is very much centered around Tehran, the entire country is starting to take advantage of its young and educated population to come up with.

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