Multi-Stakeholder Intervention for Sustainable Digital Start-ups in Azerbaijan

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 DIODE - strategic research network

Azerbaijan and startup ecosystem DIODE - strategic research network

Azerbaijan and startup ecosystem 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? 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. DIODE - strategic research network

Analytical framework Supports Needs Multi- Intervention startups Stakeholders Sustainability Factors: Forms of Support: Financial/ Economic - Credibility - Liquidity - Finance accession Legal/ Institutional - Regulation - Legitimacy Legal/Institutional Financial/ Economic Human/Social Technology/ Infrastructure Effect Technology/ Infrastructure - Innovativeness - Availability - Accessibility Human/ Social - HR capability - HR competency 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

Stakeholders form startup environment Political institutions Technological institutions Government venture funds, business angels (VC) NGOs Colleges/universities/R&D centers Industry associations/unions Techno parks, business incubators, accelerators Utilities Economic institutions Social institutions Banks/finance institution Household Supplier Family/friends Customer Community Competitor Community-based organizations Shareholder Distributor/Dealer/Partner 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 Challenges Real provisions Opportunities Single tax - 4% rate for early stage start-ups No regulation on innovation Simplified tax regime through all country for SMEs No regulation for venture Single online window or one- stop shop for acquiring license or permit Free tax zone in techno parks Lack of Intellectual property protection Simplified system of business registration, business licensing and permits high rate tax for later stage (20% profit tax) No institutional intermediaries lack of embeddedness DIODE - strategic research network

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

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

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

Challenges Intervention Gap Insufficient Support Unsatisfied Needs Forms of Support: Start-ups Required Resources: Legal/institutional Financial/economic Human/social Technology/ infrastructure Legal, Institutional, Financial; HR; Technology & Infrastructure Readiness Vision Capability Embedded ness Readiness Vision Capability Embedded ness Multi- intervention Start-ups Stakeholders Supports Needs Sustainability factors: Financial/ economic - Credibility - Liquidity - Finance accession Legal/ Institutional - Regulation - Legitimacy Effect on Multi- Stakeholders Intervention effect Technology/ infrastructure - Innovativeness - Availability - Accessibility Human/ social - HR capability - HR competency DIODE - strategic research network

Challenges intervention gap Insufficient support (stakeholder side problems) Unsatisfied needs (start-up side problems) lack of capabilities and initial resources Inconsistency of legislation system Poor STI policy Poor readiness level to achieve business success in short period of time Lack of institutionalization and poor stakeholders coordination does not lead to successful multi-stakeholder approach Incompetence financial illiteracy to rise investments from global and local VCs Few number of globally targeted disruptive ventures (e.g. lack of vision) State and private venture investment instruments not adopted for large, later stage, risky investments Weakness of entrepreneurship mind, venture management experience Non existence approach to build spin-offs and/or spill-overs Techno park/incubation infrastructure do not carry out all required support forms DIODE - strategic research network

Weakness of multi-stakeholder approach HIGH ICT State Private Universities Ministry Government State Universities Techno park IT fund Big ICT companies University technopark Incubation Centers Incubation Centers INTEREST VCs Start- ups Start-up community Science Fund NFES MEI NGOs Investment companies unions Indigenous MNEs Stokeholders Association Banks LOW HIGH POWER strong intervention medium intervention weak or no intervention

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