How Startup Ecosystem is Changing Iran’s Economics Dynamics

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In the past month my colleague Yasaman Dadfar and I did our usual seasonal startup ecosystem review for Iran at SWPars Ventures which led to this article. This article refers to the current startup situation of Iran, nearly 2 months before the 2017 presidential elections.

According to the sixth development program and mutation in policy of investment, especially in (ICT) field, conditions for foreign investment has been facilitated by the ecosystem. Iran conditions are convenient for foreign investment, because of the large number of young workforce, educated, abundant resources in Iran and high costs of energy sources in other countries.

Entrepreneurial success in any society depends on several factors such as environment, opportunity and culture. The statistics show the impact of weak culture scores in this region on performance. Nonetheless, the support and investment environment in tech startups is on the rise in the MENA region and emerging markets.

The Seedstars Index (SSI) to measure the quality, maturity and future potential of some ecosystems in 2015. The three pillars have been measured across over 15 underlying factors, hundreds of on-the ground interviews as well as the qualitative research and quantitative research were conducted in each country. Scores range from 0-100 (0 worst, 100 best). The index score to indicate how much the entrepreneurship ecosystem is over or underperforming compared to the general economy.


The index score to indicate how much the entrepreneurship ecosystem is over or underperforming compared to the general economy.

The entry of foreign investors not only produce wealth, technical knowledge and transfer of technologies, but also the positive enjoyment of cultural assets in other countries.

As you see in the diagram, only one country in MENA is an out performance, while 4 are under performance and 1 is in line with the expectations which is Iran. If we compare Iran with the Egypt which is the only country in MENA is an out performance. It is easy to understand the most opportunities in tech startups is gathered in Iran.

During the decade long implementation of sanctions on Iran to cripple the $400 billion economy on multiple levels, Iranian startups have had to operate without access to foreign markets, finances, and social media channels. Many used this to their advantage by creating their localized versions of international startups and building startups according to local needs, including the Amazon-inspired marketplace Digikala — now valued at up to $500 million, the Groupon-like Takhfifan, leading Android app store Café Bazaar, audio and video streaming services Aparat (YouTube) and Navaak (Spotify), Esam (similar to Ebay), social network Cloob, and Hamijoo (Kickstarter). Among successful startups we can indicate to Snapp in Iran and Careem in Emirates which both are working in the transportation field.  

 

Careem's current position is Snapp's near future

Careem is a multinational transportation network company operating an app-based car booking service company based in Dubai. As of March 2016, Careem is available in 11 countries and over 40 cities in the Middle East, North Africa and South Asia (MENASA) region. Careem has secured funding of 421.7 million U.S. Dollars to date  with a start seed funding of 1.7 million U.S. Dollars in a round led by STC Ventures in 2013. This was followed over a year later with funding of 10 million U.S. Dollars led by Al Tayyar Travel Group and STC Ventures. In November 2015, Careem announced a Series C investment of US$60 million led by The Abraaj Group.

Snapp on the other hand, is a ride-hauling company from TehranIran. Snapp launched in February 2014 under the name Taxi Yab. Users can request a taxi cab via the iOS or Android app and via their website. Currently Snapp only operates in Tehran, although they are looking to expand to new cities, and may even seek to expand internationally. TechCrunch announced on October 9, 2016 that it had received a $20 million investment in a Series A round led by MTN Group, a South-African multinational. Shahram Shahkar, the CEO of the company said that the company now employs 10,000 drivers, but did not disclose any revenue numbers. Snapp is one of several startups that have been making rapid progress by foreign investors. According to the statistics, we can say the current position of Careem is very close for Snapp,in the other world we can say today of Careem will be tomorrow of Snapp.

 

NOW is the time

Iran has one of the world's largest oil reserves. But unlike its neighbors, Iran also has a quite diverse and balanced economy. For this reason, the country has the largest gross domestic product (GDP) 3 in the Middle East, behind Turkey and Saudi Arabia, but before the "rich countries" such as Emirates and Qatar. With the lifting of sanctions, Iran on attracting foreign direct investment (FDI) in non-oil industries is the key.

Inline with the sixth development plan, the government is trying to promote entrepreneurship and technology arm with the budget assigned to presidential office. Although there is a need for simplifying regulations and removing several barriers in terms of certifications, taxes, etc., I think now is the time for foreign investors to do their research and bring their smart money to Iran.

Based on the system dynamics theory, an organization that plans to introduce an innovative product, may need to understand market dynamics in order to design and produce marketing plans.

A causal loop diagram is a simple map of a system with all its constituent components and their interactions. The above diagram shows a causal loop diagram reveals the structure of a system. By understanding the structure of a system, it becomes possible to ascertain a system's behavior over a certain time period. Both feedback loops act simultaneously, but at different times they may have different strengths. Thus, one would expect growing sales in the initial years, and then declining in the later years.

Same pattern applies to Iran startup ecosystem having one of the highest growth rates in the world during 2014 and experiencing change difficulties in it's clash with other old yet powerful economic ecosystems in the country. One example is taxi drivers reacting to online ride sharing services. And the result is beautiful leading taxi drivers and agencies to offer better services, and some thinking of opening and online service themselves.

 

It's a good time to think about Iran

The Iran entrepreneurship ecosystem is still one of the most fast growing ecosystems in the region. To reach an average 8 percent economic growth during the next five-year period, the Iranian administration is shifting from a bank-based financial system into a more market-based one (for instance switching the trend of financing away from banks towards securities market). This would create greater plenty of opportunities and special incentives to entice overseas investments.

Iran’s primary and secondary capital market indices (TEDPIX and IFX respectively), have always reflected the country’s economic situation, clearly. During the past six months, despite some specific occasions when some emotional responses have influenced the market’s behavior, the general trend of the market has been rational. 

The current population of Iran is around 80 million and 53 million of which are below the age of 35 while the country has the second largest internet user base in the Middle East and Africa, 55 million are Internet users. Iran has the highest number of educated individuals in the MENA region as well as the highest mobile penetration rate in the region at 120%.

On the other hand smartphone volume grows rapidly in Iran. Total retail volume of smartphones in Iran was 2.4 million units in 2014. The market is expected to grow to 3.7 million units by 2018 as a result of the government continuously granting additional 3G and 4G licenses.

Iran has the rank of 96 in terms of NRI. NRI index measures the capacity of countries in usages of ICT for competitiveness and welfare of their people.


Iran has the rank of 96 in terms of NRI

Putting all information together it seems that in terms of opportunity, as one of the largest emerging markets in the world, Iran's startup scene is promising. Yet, the market needs and shows some of the greatest opportunities to more smart money accompanying with international entrepreneurship experience and innovation. It is time for smart investors to start getting involved with Iran startup scene through strategic partnerships with Iran's private sector.