An eight-limbed modular robot to help people in emergency situations; a toy for visually-impaired children and their family members to help learn Braille; an app synchronizing your clipboard across multiple devices, and an innovative social network for musicians and their fans.
These are some of the products of promising Azerbaijani startups.
“I decided to start Braille Pad to support blind people so that they could have more access to information. A classmate of mine in university was blind and printing braille books was way too expensive”, says Rashid Aliyev, founder and CEO of Braille Pad.
“As an alternative we first tried
OCR
and voice recognition software, but it wasn’t working well at all. . . and existing braille technology was just too expensive. So I thought, I just have to make something myself that can convert everything from the internet into braille.”
Azerbaijan’s startup scene is small but lively. Several universities in the country have implemented
Fab Labs
and incubators, such as the
Social Innovations Lab at the Qafqaz University
and the
Innovative Business Incubator at the Architecture and Construction University
, where students can work on their ideas and inventions. Many of these startups are socially-oriented, and attempt to give back to society through their innovations.
However, as most things in Azerbaijan, local government in its many manifestations is closely linked to startup initiatives.
“Officials see projects as a way to earn a little bit of cash from them”, startup founder Ali Sarkarov says.
In addition to actual governmental links, telecom operators seem to have a special interest in student startup projects. Azercell and Bakcell even have their own startup labs where they select promising students and other youth to work with them on developing apps and gadgets.
One of these startups is Kvotter: a social network that allows sharing quotes from various books, which participated in Bakcell’s Applab program and went on
to win the internationally-renown and Swiss-based Seedstars local Pitch competition.
These developments are the results of a decision in 2012 by the Azerbaijani government to invest in tech in an attempt to become one of the world’s newest startup nations, exemplified by the ICT fund set up in 2012 and the High Tech park the president initiated as part of the national development program supporting tech and startups.
“They set upon a plan to create a tech sector in Azerbaijan so the country’s economy could continue to grow after Azerbaijan’s oil wealth diminishes. Over the past decade, the Azeri government has shown a willingness to throw billions of dollars at the goal of turning Azerbaijan into a tech hub”, well-known tech publication
VentureBeat
wrote recently.
And, when you take a quick look at
Angellist
, the global expert source on startups, the government’s ambition seems to have been quite successful, with about 100 startups listed and over 7,000 investors.
“Startups are now able to develop from ideas to products. They have more knowledge, are more mature and more informed”, Rashid Aliyev of Braille Pad told MeydanTV.
Ulvi Aslanov, Head of Research and Development, Supporting Startups at High Tech Park Azerbaijan, further explained the development to trend.az.
“Azerbaijan, in recent years, [has] started to lean more towards the knowledge-based economy, and the country’s continuous development of the IT sphere creates favorable conditions for the investors. We have nearly 30 startup ideas being developed in the incubation centers, with more than 20 teams working on them,” he said. “And everyday almost 100 people use our incubation centers and facilities.” (sic)
However, despite some improvements, the startup ecosystem isn’t quite so rosy.
In a recent study based on World Bank data,
Texas–based B2B marketplace Expert Market
concluded that Azerbaijan tops the global list of over 130 countries of ‘most missed opportunities.’
“Despite a quick registration process and inexpensive fees [in Azerbaijan], the volume of new enterprises remains relatively very low”, Bobi Brant, marketplace analyst at Expert Market, said. “One of the major challenges startup founders face is the lack of capital to get their businesses off the ground.”
Nail Valiyev at Khazar Ventures, an early-stage seed investment venture in Azerbaijan, says the reason there are many missed opportunities in Azerbaijan is because of a lack of understanding of what startups are really about.
“Startups are uneducated, investors are uneducated, and this creates problems in raising money in general”, he said. “Moreover, there is no clear legal and taxation system, and investors are discouraged to invest in anything as they are not given any tax reduction incentives”.
Valiyev adds that it is not only raising capital which limits the amount of actual startups being founded. One of the issues he mentions is that the government launched ICT fund, supposedly supporting tech and startups, works in unclear ways, not to mention the fact that the bureaucracy that startups face often leads them to put more time and effort into paperwork than on working on their product.
And that includes resources they have to spend on accounting and legal services. Most startups do not apply for the second round of “free money” because it is just not worth it.
“Bureaucracy kills the thrill and passion for entrepreneurs in the country”, Valiyev adds.
Which is why it is no surprise Azerbaijan ranks 93 of 143 in the
global innovation index
.
Low investment opportunities and bureaucracy do not make for a healthy startup ecosystem. But there are other reasons that block Azerbaijani entrepreneurs from founding startups in the country.
The Council of Europe Group of States Against Corruption (GRECO) said in their report on Azerbaijan released in April 2015, that, “Despite some serious efforts undertaken since 2011 to tackle low-level public sector corruption, there is little evidence of it being pursued with determination among the political elite and the upper echelons of the public service”.
Moreover, according to Transparency International’s 2015 Corruption Perceptions Index, Azerbaijan ranked 119 out of 168 countries. In other words, Azerbaijan is one of the most corrupt countries in the world, and doing business in such a country entails major hurdles one has to overcome.
“I want to tell you the truth,” one startup founder, who asked to remain anonymous, told MeydanTV, “but even if you do not quote me by name, I would rather not say why I would prefer to go abroad with my startup. It’s not easy here”, hinting at corruption issues he faces.
VentureBeat, in their article on Azerbaijan’s startup ecosystem, confirms corruption plays a major role in creating hurdles for startups to succeed.
“Much of [the invested] money has been wasted due to corruption and bad decisions due to Azerbaijan’s lack of experience in tech”, but adds that “Azerbaijan is starting to develop the foundation for a viable tech sector.”
But what is perhaps more interesting than the startup ecosystem itself are what may be ulterior motives behind Azerbaijan’s push to becoming a startup nation.
When the Panama Papers were released in 2016, it came to light that Leyla and Arzu Aliyeva, Ilham Aliyev’s daughters, are currently listed as the majority owners of Ataholding via another Panamanian firm, Hughson Management Inc. Ataholding is the mother company of two of Azerbaijan’s largest banks – Atabank and VTB Azerbaijan – and a major technology company, Atatechnology.
Both VTB and Atabank have been heavily investing in the startup ecosystem. However, they often ask for more than 50% equity in return for investments. This means that if a startup makes it off the ground, the investor in question has the right to push for a sale of the company and cash in.
“An investor may push for an exit in developed startup ecosystems as well, but it happens on a mutually-agreed upon liquidation preference deal. In Azerbaijan, it happens with a different logic”, Nail Valiyev told MeydanTV, who said that his company, Capital Khazar Ventures is one of the few if not the only companies that takes less than 20% equity and as a rule only 10% when investing in startups.
Unfortunately, he could not provide us with the exact details of companies that had been bullied into selling by their investors due to secrecy agreements, but said he has often heard of such situations.
By cashing in on a startup’s success and controlling their strategy, large banks and financial institutions, many of which are owned directly or indirectly by their Aliyev family, are able to cash in on a fruitful startup ecosystem.
In addition to the banking sector, the Aliyev family is also connected to Azerbaijan’s largest telecommunications operators – Azercell and Azerfon,
through a trail of owners and offshore registrations
.
Both Azercell and Bakcell have their own startup incubators. But they aren’t incubators in the true sense of the word. According to insider information, startups have to sign a contract in which they give up complete ownership of the product, and are being contracted to develop the product. In other words, they are no longer the owners of the idea and the product, and as a result, ultimately lose it to the president’s family who can benefit from its success instead.
So, while Azerbaijan may be trying to portray itself as a the next Startup Nation in a brace for declining oil revenues, it is clear that the ones who benefit most from successful startups coming from Azerbaijan is the presidential family itself. In doing so, the entrepreneurs who could push Azerbaijan’s economy forward are discouraged from doing so.
***
Editor: This article reflects the opinion of the author and as such may not reflect that of Meydan TV.
Some names have been changed for purposes of anonymity.
Inge Snip covers inspiring initiatives aimed at building communities around social innovation. For the past ten years, she has connected people, projects and organizations, building better communities for the European Parliament, UNDP, and topishare.
