Young business: Startups in Azerbaijan need investment

The startup concept, newfangled for the economy, is often associated with something for young people and experimental.

For a long time, despite the support from government agencies, these projects in Azerbaijan weren’t perceived as part of a serious business. There are very few examples when a startup transformed from an undertaking into a sustainable business. However, since on a global scale such initiatives have fully justified themselves, the Azerbaijani government decided to strengthen state support for their development to give more chances for innovative initiatives to become part of the national economy.

Startups overboard

The word “startup” has several meanings. According to one of them, a startup is any business undertaking. A narrower interpretation of the term assumes that a startup is any young (less than two years old) business project in the IT field. It is the second option that has taken root in Azerbaijan.

Today experts confidently call startups the basis of the economy of the future, where innovative solutions and creative initiatives will come to the fore. The main difference between startups and traditional small and medium-sized businesses is their ambition and desire to open new market niches, technologies, products and services.

According to the 2020 Global Startup Ecosystem Report, Silicon Valley remains the world’s top startup destination, followed by New York and London, and then by Beijing and Boston.

The global startup ecosystem has been actively growing since 2016 and at the beginning of the pandemic had grown to $3 trillion. However, the quarantine restrictions hit the market hard at the first stage - the problems mostly arose with the financing of projects, as many potential investors began to invest very cautiously in new projects.

According to the 2020 Global Startup Ecosystem Report, startups now need help, and if politicians don’t support them, the economic consequences will be hard. The report says that governments around the world help businesses during the pandemic, but pay little attention to startups.

Government programs to help and support startups are usually guided by strict criteria for allocating funds and focus on companies with good profit margins and collateral. But as a result, many startups are left overboard, according to the report.

Meanwhile, it is precisely this kind of capacious and innovative-oriented projects that react most flexibly in a crisis and can quickly fill the gaps that have arisen in the market.

Government support

The startup sector is gaining momentum in Azerbaijan, but so far this has been taking place mainly thanks to state support. Unfortunately, the interest of local investors in such projects is still not high; there are no well-developed venture funds, which play a leading role in the world in financing innovative projects.

Azerbaijani President Ilham Aliyev noted on this occasion: “For example, our policy on startups is undoubtedly positive. However, during the meetings with these talented young people, it turned out that many of them work abroad and come to Azerbaijan on visits. We must create conditions for our talented young people to work in Azerbaijan, fully realize their knowledge here, serve the country's economy and strengthen our nation.”

Today, as part of the Decree of President Ilham Aliyev “On ensuring coordination in the field of innovative development in the Republic of Azerbaijan,” an innovation strategy is being developed that will meet modern challenges.

Judging by the latest steps, the government has taken seriously the development of the startup sector in Azerbaijan. Thus, recently, Economy Minister Mikayil Jabbarov has tweeted that small and medium-sized enterprises (SMEs) which received a startup certificate in Azerbaijan won’t pay income tax and profit tax from innovation activities for three years. This is a fairly effective incentive for proposing new ideas.

Funding opportunities

However, as mentioned above, startups aren’t deprived of state support even today. At this stage, they can receive financing from several funds operating under government agencies, for example, the State Fund for Development of Information Technologies, the Azerbaijan Youth Foundation, the National Fund for Entrepreneurship Support, etc. Many government agencies from time to time announce various grant competitions, the main purpose of which is to identify the best business ideas of creative youth and help in their implementation.

During the pandemic, there were several such initiatives focused on projects that were most relevant during the quarantine restrictions. For example, the same Youth Foundation announced the “Stay at home, implement the idea!” competition, which provides funding for ideas on creating multimedia products and projects in social networks. The Azerbaijani Ministry of Transport, Communications and High Technologies, together with the UN Development Program, launched the website evdeqal.az, where, among other things, it publishes announcements of services of small companies within the framework of pandemic challenges.

Under the new conditions, experts say that startup projects in Azerbaijan are mainly offered in the field of education (online courses), e-commerce and social networks. These are the most resource-intensive projects - no special finance is required for their implementation, and success depends, first of all, on the correct selection of the team.

The Agency for Innovations under the same ministry is also trying hard to attract major players from foreign markets to the Azerbaijani startup ecosystem - namely with its assistance we opened the first joint venture fund worth $5 million.

In addition, at the end of last year, the Agency for Innovation and the leading US venture and acceleration company 500 Startups signed a memorandum of cooperation in the field of entrepreneurship development and an agreement on joint activities. According to the agreement, 500 Startups will provide a number of services aimed specifically at the development of the Azerbaijani startup ecosystem, implement acceleration and investment programs jointly with the Innovation Agency.

Meanwhile, Vusal Gasimli, the executive director of the Center for Analysis of Economic Reforms and Communication, has recently said that www.enterpriseazerbaijan.com website created by the Center as a data bank on investment projects, startups, etc., and the State Employment Agency under the Ministry of Labor and Social Protection provided funds to support startups through a self-employment program.

At the same time, Enterprise Azerbaijan is implementing a joint project with the International Bank of Azerbaijan to provide startups with access to foreign financial markets. Enterprise Azerbaijan manager Parvin Mammadzade said that in the near future there are plans to hold a meeting of potential investors with Azerbaijani startups together with the Azerbaijan Banks Association (ABA) with the aim to finance startup projects.

This is while another problem for startups - sustainability and the possibility of expansion - can be solved if they can catch the spirit of the time and propose projects aimed at long-term market needs.

An extensive program of restoration of the lands liberated from occupation in Karabakh, where Azerbaijan plans to create Smart settlements, can serve as a great stimulus in this regard. There is complete freedom for offers of creative innovative solutions. So now is the time for startups to brainstorm and prepare for a boom in demand in new ideas.

Expert Gulu Nuriyev