Legal issues of startup accelerators in Iran – Part One

TechRasa | Omran Mohammadi: An institution is a notion that contains a set of rules, a pattern of behaviors, or a structured mechanism. A legal institution like a “contract” exists in all legal systems but its rules vary from country to country. When borrowing an institution from another system, you have to localize it. For example, it is impossible to borrow a “family law institution” from another legal system and apply it without localizing it. 

The need for localization differs from system to system. For example, the notions and institutions in economics are mostly universal. In social science realm, when the “borrowed institution” engages the Law, you have to look twice to make sure that this is applicable to the local system.

The rapid growth of startup companies has created a good environment for Accelerator companies to grow and develop. Accelerator entities don’t belong to startups era. Also, they didn’t just appear out of nowhere. Besides the long history of these entities in the whole small business world, they have experienced different developments in the startup’s era.

Accelerators are among business institutions that are involved in law. Most parts of these entities have not been localized to Iran including the legal side. 

If you want to know the path for Iranian Accelerators and their current situation; if you consider entering this business in Iran; or if you want to use an accelerator for your startup, this article is for you.

This Article has been written for Techrasa. All statistics cited in this article has been extracted by the writer from the Official Magazine of I.R Iran. Statistics in this article are not official.

History of Accelerators

In a simple view, incubators are ancestors for accelerators. The first generation of accelerators undertook the services that incubators didn’t provide; cyber services. Thus the first type of accelerators were generally an E-accelerator. 

The hierarchy of accelerators is something like this: 1- Incubators, 2- E-accelerators, 3- Accelerators. Accelerators didn’t eliminate incubators but after a few years of their birth, they became the dominant structure.

Iranian accelerators have a different history. Iranian accelerators are not a product of this evolution. They didn’t develop from incubators or E-accelerators.

Impact of History on the Legal Practice

Incubators provide two main services: 1- Mentoring, 2- Work Place. Naturally, their contracts include these two services. The first appearance of acceleration services was an “Acceleration Clause” in incubator’s contracts. According to this clause, incubators provide some extra services for the startup. If these extra services were successful, the incubator was entitled to receive some extra money. 

Accelerators use similar legal instruments as incubators. Accelerators create their legal instruments based on what incubators were using. In the first generation, an acceleration contract was basically an incubation contract with one or two clauses about acceleration. Now, this contract is basically an expanded version of the “Acceleration Clause”. 

Since Iranian accelerators didn’t have that history, they didn’t have a series of tested contracts. What did they do for their legal instruments? They borrowed it. They borrowed these contracts right from fully developed accelerators. What happens if a newborn industry borrows its legal instruments from a fully developed industry with a history inherent to its original economic and legal system? In a nutshell: Failure.

History of Accelerators in Iran

The first incubators in Iran were created in 2006. An Act called “Development Centers and Science and Technology Parks” obligated government (Executive Branch) to create incubators. In this Act, “Development Centers” are incubators. “Science and Technology Parks” are different institutions which work more like a brain trust to manage incubators and connect them to each other, to the market, and to universities. 

According to this Act, these incubators offered services such as: renting a place, laboratory and workshop facilities, financial support, educational services, management services, legal services and marketing.

Since the private sector wasn’t willing to engage in this newborn industry, the government had to participate. At the time of creation of these incubators, these activities already passed toward accelerators. This Act was late and little. Surprisingly, this Act was the only Act in this regard. Now that startups are more serious and accelerators barged into the market with eccentric borrowed structures and contracts, the lawmaking bodies don’t seem to try to regulate this industry.

Four years after above-mentioned Act, another Act adopted to complete the mission. This Act is: “Commercialization of Inventions and Innovations and Supporting Knowledge-Based Companies”.

According to Article number 3 of this Act: Supports available for Knowledge-Based Companies are: 1- Exemption from tax, Customs Fee, Customs Duties, Export Duties, and Export Charges for fifteen years. 2- Financing for production costs and distribution costs wholly or partly through low-interest and interest-free loans.

According to this Act, it is preferable to establish these companies or their executive units in the “Science and Technology Parks” where the incubators were serving the companies.

This history had a significant effect on the accelerator’s contracts and the legal practice, which I’ll explain in the second part of this article while taking a look at the current market situation for accelerators.