4 Megatrends That Support Rising Tech Entrepreneurship in Iran
Before talking about the key megatrends supporting technology entrepreneurship in Iran, I’d like to introduce the “change formula:”
(V x D) + FS > R = C
In this formula, C = change; R = resistance (fear of change); V = vision (a picture of what future looks like); D = dissatisfaction (pain of being on a burning platform); and FS = first steps (courage to take the first steps).
The change formula shows us that change needs to come from within. But at the same time, entrepreneurs look to favorable trends which help change happen faster and more readily. To analyze key “megatrends” in Iran we at Iratel Ventures used modified versions of the National Innovative Capacity and National Innovation System frameworks. Each topic forms the basis of our continuous and improving research.
The 4 key trends shaping entrepreneurship capacity in Iran are:
- Demographics (Culture, Education, Employment)
- Economics (Reconstruction, Reformation, Innovation)
- Communication Technology (Fixed, Mobile, Internet, Unified)
- Capital (Flight, Infrastructure, Exploratory, Venture)
Of particular interest to us is how venture capital will scale tech entrepreneurship among Iranians. An important aspect of this consideration is that pure scientific and technological advances which do not lead to economic applications are not a sustainable option for venture capital.
1. Demographics (Culture, Education, Employment)
Firms in innovative countries are willing to invest heavily in R&D, and have moved beyond extensive use of technology licensing. Companies focus on building their own brands, controlling international distribution, and selling globally, all of which are complementary to innovation-based strategies. Organizationally, firms from innovator countries engage in extensive training of employees, delegate authority down the organization, and make greater use of incentive compensation.
This is the vision for the future. This is the culture we need to establish in Iranian companies. One that is universal and capable of attracting top talent, not just domestically but internationally.
Having said that, Iran has abundant potential talent with 60% of the youth under the age of 30. This represents an amazing workforce but also a challenge. We need to create 1m jobs annually to keep employment under control but are only generating 300k.
This pool of talent is highly educated. According to the World Economic Forum, Iran has the third highest number of graduates in engineering, manufacturing and construction (in absolute and per capita numbers).
If they’re not provided the opportunity to work on what they’re good at, Iranians will seek opportunities overseas. This phenomenon of “brain drain” is exactly what happened during the last two decades. The good news is that many are ready to establish businesses here (if not already) and make a real contribution.
This is the result of many years of good work in education, culture building and wanting to improve our place in the world. We are at the crossroads. We need to use these gifts properly or risk losing the opportunity. These high levels of innovative assets (scientists, engineers, and to some extent research institutions) have so far been hampered by the business environment and the competitive landscape in our country and now is the time to change.
2. Economic (Reconstruction, Reformation, Innovation)
Many policy discussions assume the existence of a sharp tradeoff between goals such as health, environment, safety, and short-term economic growth. However, a healthy rate of innovation increases the likelihood that new technologies will emerge that substantially temper or even eliminate such tradeoffs.
One of the main characteristics of the post-revolution economy in Iran is that growth at any rate may not be the top priority. The macro environment is affected by how economic decisions are made and how different parts of the economy are optimized in light of factors beyond profit.
This coupled with the economic shock due to the revolution, put industrial R&D and innovation at the bottom of the economic agenda. The restructuring of universities and the subsequent war led to further widening of the gap between R&D and industry. The international sanctions and eight years of devastating war further eroded our economic powers and pushed the country to the brink of economic collapse where real per capita income dropped 61% from the high of 1976 to the low of 1988.
The post war period presented an opportunity for ambitious rebuilding. Although there were great advances in this period and infrastructure was the primary beneficiary, there was still a lot of debate hampering growth. Most of the activity came from the public capital, however, private capital was slowly gaining confidence.
During the reformation, we had many social and cultural initiatives, but little in the way of economic reforms. The country was facing internal as well as external pressures especially with record low oil revenues. A bright spot was that private financial institutions and banks were set up and the first steps in turning private capital into a real player were being taken.
Next came a period of further shocks and economic isolation marked by inward looking policies that focused on tax and subsidies, rather than growth. With little incentives to stay and international pressures, foreign investors left. However, private capital was booming in many consumer related industries and there was a big disconnect between public and private economies putting further social pressure on the country. The spring was being compressed even further.
In the new post-sanctions phase, the economy is at the top of an agenda marked by an outward looking vision to reconnect with global trade and to emphasize “knowledge based” companies. One can only hope for a bright future where economic policy will act as a tail-wind for innovation.
3. Communication Technology (Fixed, Mobile, Internet, Unified)
Communication technology has had a tremendous effect of shifting an inward looking local innovation to an outward global one.
In parallel with everything that was going on in our country, the world was entering the information age at great speeds, embracing a global many-to-many communication platform called the internet.
With the convergence and unification of voice, video and all other types of communication using smartphones, the possibilities of building bigger, more open and more useful services are multiplied by an order of magnitude. Given the right circumstances, these technologies will connect us to a global audience at the push of a command and make building of previously unimaginable businesses possible. Imagine you’d told someone 40 years ago that they’ll be able to communicate with 5m people simultaneously and get responses from them in real time!
Iran was no exception in adapting this tremendous communication technology. Iran was an early adopter of the GSM standard resulting in a jump to the digital world. By the late 90s, Iran was the largest country in the ME in terms of mobile phone volumes and by mid 2010s, Iran had he highest internet population and the second highest number of smartphones in the region.
The internet and communication evolution is only marching on, with an ever increasing number of things coming online, we will have a unified system gathering, analyzing, optimizing and automating many things we do in our daily lives.
4. Capital (Flight, Infrastructure, Exploratory, Venture)
The availability of venture capital reflects the importance of risk capital in translating basic research into commercializable innovation.
Venture Capital is considered as the main financial driver of entrepreneurship that can ignite innovative streams due to its high risk tolerance and expectation factor.
In the years before the revolution and the first 10 years following the revolution, the country saw huge capital outflows and frozen assets due to political issues. During the infrastructure building phase, capital, mostly public, was being allocated to rebuilding efforts. Infrastructure investments in the major industries as well as newer ones (e.g. telecoms) was picking up. At the same time, the country’s private capital was still far from having any influence. Private capital had limited access to opportunity and was primarily locked in real estate and trade.
However, a period of economic reform began to unlock the potential in local industries. Privatization gathered pace and private financial institutions were set up and private capital started feeling more opportunistic. This helped shape the nucleus of the private capital which would take at least a decade to grow and become an important player. During the later reformation years, capital started exploring adjacent and relevant markets outside Iran. However, with the new rounds of sanctions this exploratory phase came to an abrupt halt and returns were diminished.
This growth opened the way for the emergence of a new trend, the rise of venture capital. Venture capital knows that the only way to build meaningful and sustainable returns is by building products and services that will go beyond the local constraints and have the potential to have a global footprint. Both public and private capital moved towards venture applications. Public capital was becoming more structured as seen in the establishment of aSovereign Wealth Fund in Iran with local as well as global aspirations. Private capital had long been stuck in bank deposits. But lowered interest rates have begun to influence depositors to seek our investments that can contribute to economic production.
It is this kind of capital that can move fast, add value on an operational level and bring new ways of connecting with a global audience. This is the only way we can build an innovative platform for global Iranians. Once capital gets moving, its momentum will impact the other trends and positively compound their progress.
As direct beneficiaries of many (if not all) of these trends, it is our duty to be the change we want to see in our community. This is why we think that supporting entrepreneurship is the biggest contribution we can currently make. It allows us to take a long term view and patiently build a strong foundation towards an innovation driven economy for a more prosperous Iran.
If you’d like to accompany us in this incredible journey, feel free to leave a comment or get in touch via LinkedIn, Twitter or email.
This is the fourth in a series of posts about global growth and our professional services which was originally posted as an insight piece on Bourse & Bazaar.
Thanks to Fardad Zand, Mahyar Khattak and Dr. Golnaz Borghei for their contribution.
