Legal issues of startup accelerators in Iran – Part Two

TechRasa | Omran Mohammadi:  Accelerators are among business institutions that have involved in law. Most parts of these entities have not been localized in Iran including the legal side. In the first part of this article I took a quick look at the history of Iranian accelerators. In this part, I will analyze some general practices in the Iranian accelerators. 

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

Iranian accelerators didn’t develop from incubators or E-accelerators; they didn’t have a series of tested contracts. What did they do for their legal instruments? They borrowed it. They borrowed these contracts from fully developed accelerators.

History of Accelerators in Iran; key elements and developments 

Based on what I said about the history of Iranian Accelerators in part one: 

  1. Incubators are governmental organizations.
  2. According to the Ministry of Science, there are 57 of these incubators. Approximately every province has one incubator. There is no approved number of active incubators. Records show that 43 of them are active.
  3. Governmental Incubators came into existence in 2006. In 2010, the government undertook funding for Knowledge-Based Companies. This sequence of Acts shows that the private sector was still in doubt to enter this industry, so again government had to get involved. 
  4. Creation of governmental incubators via the Act of “Development Centers and Science and Technology Parks”, resulted in the inability of the private sector to start working with incubators. Despite the decisive impact of these incubators in the maturity of startups, they deflected the natural growth of accelerators which resulted into the current situation.

I should mention that the Knowledge-Based Companies are not equal to startup companies. According to Article number 2 of Regulation for implementation of “Commercialization of Inventions and Innovations and Supporting Knowledge-Based Companies” Act: 

A Knowledge-Based Company is a company that engages in “development and application of invention or innovation” and “commercialization of R&D outcomes in higher technologies with a high added value including designing and production of goods and services”. 

According to this Article: Holding scientific seminars and participating in scientific seminars, library services, training and internship, software-based routine activities, and all other activities that don’t involve in designing products or services, or improving the quality of products and services, are not Knowledge-Based activities. 

Thus not every startup is a Knowledge-Based Company. Knowledge-Based Companies acquired some governmental financial support in 2010 because of their comprehensive interests; both scientific and financial and educational. The market for other startups still was unwelcome.

Despite a few startup companies that survived through the ups and downs in Iran’s economic uncertainty, almost all startups that started before the adoption of the Act of “Development Centers and Science and Technology Parks” in 2006, failed. 

The actual birth of startups returns to a period after the adoption of this Act in 2006. The Duration of this period was three to five years. 

Despite the fact that this Act was not concurrent with the changing structure of accelerators, it created a good environment for startups. Maybe this was just a coincidence or it was the impact of this Act, but by the time that the second Act adopted for financing Knowledge-Based companies in 2010, the first generation of successful startups arose. This was the time that both Accelerators and VCs formed and engendered. 

As it is inferable from this evolution, by the time that the Act for “Commercialization of Inventions and Innovations and Supporting Knowledge-Based Companies” adopted, the market was ready to handle the situation but adoption of this Act excluded a big portion of this industry from the private sector interposition. In this Act, the government promised to support Knowledge-Based companies by: exemption from tax and some other duties, and also financing.

The second privilege diminished the private sector’s chance to participate in this part of the industry. Since this privilege was for companies that engage in “development and application of invention or innovation” and “commercialization of R&D outcomes in higher technologies with high added value”, it is obvious that this part was a really important part of this market. 

At this point, there was no rational reason to establish an incubator. Also, a big part of the market leaned to the governmental loans. Also, at this point it was not important that how much of these loans were actually paid. The idea of low-interest and interest-free loans was enough for these companies to reject the private sector entrepreneurship. What is the outcome of this process? Birth of accelerators that didn’t go through a natural development and since they just landed in an unequal market, they had no option except for borrowing everything from their uncles in the developed countries.

Market Appraisal

Statistics

  • Until 2016 there were only 9 acceleration companies in Iran. 
  • Since 2016, 64 new companies were established as an Accelerator Company.
  • From this overall number of companies (73):
    • 42 companies established in Tehran.
    • 43 companies are Private Joint Stock Company. 
    • 21 companies are Limited Liability Company.
    • 7 companies are Non-Commercial Institutions.
  • Amount of capital:
    • 19 companies established with 1 million Rials (Less than 25 Dollars).
    • 12 companies established with 10 million Rials (Less than 250 Dollars).
    • 18 companies established with 10 million to 100 million Rials.
    • 4 companies established with 100 million to 500 million Rials.
    • 3 companies established with 500 million to 1 milliard Rials.
    • 1 company established with 7 billion Rials.
    • 2 companies established with 1 billion Rials.
  • 15 companies have other companies as shareholders:
    • 3 companies have one company among their shareholders.
    • 5 companies have two companies among their shareholders.
    • 5 companies have three companies among their shareholders.
    • 1 company has four companies among their shareholders.
    • 1 company has five companies among its shareholders.
    • From these 15 companies, 12 companies are in Tehran.
  • Since 2016, 14 existing companies added acceleration activities to their subject matter: 
    • 9 Private Joint Stock Companies.
    • 4 Limited Liability Companies.
    • 1 Public Joint Stock Company.

In this market, accelerators didn’t have the chance to develop in a natural environment but a series of governmental incubators alongside the governmental support for Knowledge-Based Companies isn’t enough. So there is an actual necessity for the existence of Accelerators in Iran.

In a system in which you have a history for an institution, you can always lean on this history to find solutions for new problems. Same is for accelerators and their legal problems. The different path for Iranian accelerators resulted in some legal issues. Now that these institutions are growing rapidly, the lawmaking bodies have to participate but as we saw in this short history, this participation needs more evaluation and in a direction that wouldn’t result in more problems for this newborn industry as they already have enough problems.

In the third part of this article, I will explain some major legal issues in the Iranian Accelerators.

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