Electron Government Education and Training Center, DIODE - strategic research network The role of multi-stakeholders’ intervention in the sustainability of digital start-ups CASE OF AZERBAIJAN Rauf Jabarov Director, Electron Government Education and Training Center, under the Ministry of Transport, Communication and High Technologies of Azerbaijan Republic Oxford, 09 October 2017

Content 1. 2. 3. 4. 5. Start-up ecosystem in Azerbaijan Start-ups sustainability Multi-stakeholders’ intervention Supports for start-ups Problems and challenges 5. DIODE - strategic research network

Azerbaijan and startup ecosystem DIODE - strategic research network

Azerbaijan and startup ecosystem Describe Startup ecosystem in Azerbaijan: How many do startups exist? How many of them are successful? Economy trouble affect on startup environment DIODE - strategic research network

The goal of this talk How can digital start-ups contribute to economy if they are not sustainable business? What are the reasons of startups’ unsustainability, in other words, why are they not enough successful in developing countries? We started research to understand why Azerbaijan startup ecosystem did not provide successful disruptive startups. Even small number of startups (les than 500) cannot represent success stories DIODE - strategic research network

Research focus To what extent Azerbaijan startup ecosystem is a supportive system for startups? Analyzing all supportive stakeholders from startup environment by looking at the intervention of the support process. Then we started to think what is a reason of non-successful start-up environment. What do not stakeholders from ecosystem do in right way? Firstly, We have to understand stakeholders. In terms of ecosystem impact rate, it is the best way to look at their supportive intervention with start-ups. multi-stakeholder cooperation and connectiveness is crucial in terms of providing set of connected supports. Alike non of stakeholders can satisfy all needs of startups. DIODE - strategic research network

Analytical framework - DIODE - strategic research network

Analytical framework "If we do not know what start-up needs, then we do not know how to support them” - DIODE - strategic research network

Political institutions Economic institutions Stakeholders form startup environment Political institutions Government NGOs Industry associations/unions Technological institutions venture funds, business angels (VC) Colleges/universities/R&D centers Techno parks, business incubators, accelerators Utilities Economic institutions Banks/finance institution Supplier Customer Competitor Shareholder Distributor/Dealer/Partner Social institutions Household Family/friends Community Community-based organizations   - DIODE - strategic research network

Multi-stakeholders support Support forms: Legal/institutional; financial/economic; human/social; Technology/infrastructure Method of support: Policy, institutional development, innovation infrastructure (e.g., techno parks, business incubators, accelerators); venture investment; resource provision (e.g., human, skills, information, consultancy, coaching, mentoring) DIODE - strategic research network

Legal/institutional support Opportunities Single tax - 4% rate for early stage start-ups Single online window or one-stop shop for acquiring license or permit Challenges Real provisions No regulation on innovation No regulation for venture Lack of Intellectual property protection high rate tax for later stage (20% profit tax) No institutional intermediaries – lack of embeddedness Simplified tax regime through all country for SMEs Free tax zone in techno parks Simplified system of business registration, business licensing and permits The findings justify that tax support or any other legislative stimulation leads to sustainability, though they are minor in the early stages and not an influence on primary success because an STARTUP in its early stages does not deal with tax struggling or the barriers DIODE - strategic research network

Financial / economic support Opportunities Grants for early stage 77 start-ups received more than $1M in total from 2013 till now from state funds Challenges Real provisions High interest rate No specified bank loans for SMEs No VCs in the market Weak access to VCs in abroad Lack of later stage funding Lack of stock market Small market size National Fund for Entrepreneurship Support provides bank loans with low interest rate (though the number of digital start-ups is few) Science Development Fund and State Fund for Development of IT provide grants for digital start-ups DIODE - strategic research network

Human / social support Opportunities Graduates from IT schools 10 start-up competitions each year Mentoring support in 6 University based incubators Coaching in 3 acceleration programs Challenges Real provisions Lack of IT skills Lack of qualified engineers No sufficient support by Competitions Incompetency start-up teams Lack of entrepreneurship mind Lack mentoring and coaching ADA university, State Oil and Industry University, Engineering University and Technical University recently established IT and engineering schools. Government, NGO and private companies (Telecom) arranged start-up competitions Universities and private companies established business incubation and acceleration programs Lack of IT skilled qualified specialists DIODE - strategic research network

Technology / Infrastructure support Opportunities 3 state owned techno parks 6 university based business incubators Free access to ICT infrastructure Challenges Real provisions No technology transfer centers Lack of resources in R&D centers No spin-offs and spill-overs No access to R&D results No access to big data Government accepts techno parks as a main infrastructure support for digital start-ups Techno parks and business incubators provides discounted services, free access to ICT, fiscal benefits Lack of IT skilled qualified specialists DIODE - strategic research network

Challenges DIODE - strategic research network

Challenges – intervention gap Insufficient support (stakeholder side problems) Unsatisfied needs (start-up side problems) Inconsistency of legislation system Poor STI policy Lack of institutionalization and poor stakeholders coordination does not lead to successful multi-stakeholder approach State and private venture investment instruments not adopted for large, later stage, risky investments Non existence approach to build spin-offs and/or spill-overs Techno park/incubation infrastructure do not carry out all required support forms lack of capabilities and initial resources Poor readiness level to achieve business success in short period of time Incompetence financial illiteracy to rise investments from global and local VCs Few number of globally targeted disruptive ventures (e.g. lack of vision) Weakness of entrepreneurship mind, venture management experience In case of developing countries, the outcomes of various interventions provided by multi-stakeholders which had a limited positive effect, cannot satisfy all needs of digital start-ups. The challenges as well as the problems were identified that gave rise to the needs of digital start-ups not being satisfied, which is to be referred as a formation of an intervention gap between digital start-ups’ needs and multi-stakeholders’ support. DIODE - strategic research network

Weakness of multi-stakeholder approach

Thanks for attention r.cabarov@mincom.gov.az DIODE - strategic research network Thanks for attention r.cabarov@mincom.gov.az www.linkedin.com/in/rauf-jabarov/