June 5, 2015 / 2:00 PM / 3 years ago

Iranian entrepreneurs thirst for foreign funding, expertise

BERLIN (Reuters) - Tohid Tasoujian is a co-founder of online fashion store Taxi Moda and one of a growing breed of Internet entrepreneurs in sanctions-hit Iran.

He set out his stall this week at a conference of more than 80 Iranian start-ups in Berlin, the biggest event of its kind outside Iran, as the country gears up for a possible easing of sanctions imposed because of its nuclear program.

A graphic designer, Tasoujian went back to school three years ago to study for an MBA at the University of Tehran. When he graduated, ecommerce was on the rise, and he persuaded a friend to found the digital shopping platform with him.

“I liked graphic design but I thought: ‘We can do more,'” the 38-year-old told Reuters.

The desire to do more is gripping an increasing number of young, tech-savvy Iranians, who have used their country’s isolation under U.S. and EU sanctions as well as domestic censorship of foreign rivals to develop home-grown versions of Amazon, eBay or YouTube.

A support system of mentors, seed funders and venture-capital funds has begun to take shape, but financing can still be hard to find and, while Iran produces many top-class computer engineers, business experience is still scarce.

“Access to finance for start-ups is still at a very nascent stage,” Mohsen Malayeri, co-founder of the Iran Entrepreneurship Association, told Reuters at the iBridge conference.

“We have talented engineers but understanding market dynamics is different.”

Some Iranian start-ups have flourished with backing from Sarava, Iran’s first venture-capital fund, which has invested in online retailer Digikala and Google Android app store Cafe Bazaar, two of Iran’s best-known Internet companies.

Digikala went on to attract a $10 million investment from a European fund last year, making headlines as this valued the company at $150 million, while Cafe Bazaar’s co-founder Hessam Armandehi is a poster child for Iran’s high-tech scene.

“We tried to create a Silicon-Valley culture inside Iran. It’s a hard thing to create. It’s very different from the mindset of investors and the government there,” said 29-year-old Armandehi, who has founded two other start-ups.

Cafe Bazaar, which offers mostly Iranian apps for social media, messaging and other uses, is already used by 21 million of Iran’s estimated 30 million smartphone owners and is growing at a rate of about 35 percent every quarter, Armandehi said.

His example has given hope to other entrepreneurs that they need not leave Iran to find success in the United States or Europe - as many continue to do in a brain drain that has been going on for decades.

That is also the hope of the conference’s organizers, a community of expatriate Iranians that started in Silicon Valley, home to many prominent entrepreneurs of Iranian origin including former eBay chairman Pierre Omidyar and ex-Yahoo technology chief Farzad Nazem.

TIPPING POINT

“We said maybe we should hold a conference because whenever Iran is mentioned in the media it’s always bad news,” said iBridges core member Kamran Elahian, co-founder of multiple start-ups including Cirrus Logic and now primarily a venture capitalist and philanthropist.

The first iBridge conference was held at the University of California, Berkeley, last year and just 20 Iranians managed to get visas. A key reason for holding the next one in Berlin was the German government’s willingness to give 300 visas, he said.

Silicon Valley angel investor Dave McClure, a friend of Alahian‘s, was a star attraction at the Berlin conference and found himself surrounded by dozens of hopefuls frantically pitching their companies.

McClure, though, said he had no imminent plans to invest in Iran, although its 81 million-strong population dominated by well-educated people under 35 made it an intriguing prospect.

“I‘m here to meet people who are interesting and smart,” he told Reuters. “We will do some investment in Iran as soon as the U.S. lets us.”

That cautious approach is echoed by most, but not all, foreign investors.

The European fund that bought the Digikala stake - which has not gone public about its investment - got a license from its home government because the business was not in a sanctioned industry. But the process was difficult, said Griffon Capital co-founder Xanyar Kamangar, who advised on the deal.

And Germany’s Rocket Internet, which is building a global ecommerce empire by replicating proven Internet businesses in emerging and frontier markets, is poised to enter Iran through a joint venture with South Africa’s MTN.

The venture, Middle East Internet Group (MEIG), was founded in 2013 and has operations in six countries in the region, mainly in the Gulf. Telecoms operator MTN is a minority shareholder in Iranian carrier Irancell.

MEIG however is not operating in Iran yet, a Rocket spokesman said.

Any lifting of sanctions is to be welcomed but will be a mixed blessing for Iran’s still-fragile high-tech scene, said Malayeri, who runs a start-up accelerator firm alongside his work at the Iran Entrepreneurship Association.

Asked whether the industry was resilient enough to withstand an influx of companies such as Rocket, he said: “Not yet.”

“This year will be a tipping point,” Malayeri said. “We either win or we lose the whole thing.”

Additional reporting by Sam Wilkin in Dubai; Editing by Giles Elgood

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