Startups in Iran: From Job Creation to Political and Economic Troubles

There are no precise data on Iran's share in the global startup market, but unofficial estimates suggest that investment in startups in Iran ranges from $100 to $200 million. Data from KPMG, one of the most reputable financial services firms in the world, indicates that global investment in startups reached $350 billion in 2023. Saudi Arabia's share of this amount was $1.4 billion, the United Arab Emirates $700 million, and Turkey $3 billion. The lifespan of startups in Iran exceeds a decade; these emerging companies have not all had the same fate, with only a handful achieving significant profitability. One of the most important features of these types of businesses is the use of 'creative ideas'; ideas that sometimes do not align with the economic situation and, in some cases, the political and security conditions of Iran, leading to swift failures. The fate of startups that face restrictions: surrender or emigrate from Iran. The expansion of the startup ecosystem in Iran began during Hassan Rouhani's presidency when banks provided large loans that led to a mushrooming of startups. Although the government had its hidden motivations for this generosity. According to the latest estimates, creating a job in the industrial or cooperative sector requires a minimum investment of 500 million tomans, while the cost of creating a job in startups is significantly lower. Over the past decade, the Islamic Republic's governments have managed to offset much of the impact of sanctions on the decline of the workforce in industrial jobs by supporting internet-based and creative businesses; an approach that has also drawn much criticism. Since many internet businesses, such as ride-hailing services, have significantly increased 'temporary and non-permanent' jobs in Iran, some experts are not optimistic about the activity of startups, at least in the labor market. They view the excessive increase in employment in the service and internet business sectors as a sign of the destruction of production and industry, believing that the government is intentionally supporting these types of businesses to create false statistics in the employment sector. Farshad Momeni, an economics professor at Allameh Tabatabai University, recently criticized the employment situation in the country, stating that 'the population of Snapp and Tap30 (ride-hailing services) drivers in Iran has become nearly 1.5 times that of the workforce in the industrial sector.' Many startups in Iran have emerged based on internet usage. The growing inclination of Iranians towards cyberspace and the increasing use of social networks over the past decade have led to the rapid growth of some startups. Although this dependency on the internet has provided these companies with 'bread and water', it has also become a source of trouble for them. The government's serious will to restrict and block the internet during security conditions has turned into one of the 'systematic risks' for internet businesses. According to NetBlocks, following the widespread internet shutdown in Iran during the protests of 2022, it was estimated that between September 19 and October 1, 2022, businesses incurred an economic loss of $1.5 million per hour, equivalent to 45 billion tomans, which, considering the dollar rate of 29,000 tomans at that time, amounted to about 1 trillion tomans per hour. Internet disruptions have not been the only obstacle for startups in Iran. New businesses in Iran sometimes fall victim to the 'politics' and 'cultural and religious relations' of the government. For example, startups like 'Taqcheh' and 'Azki' faced closure and suspension of activities solely for not complying with the mandatory hijab for female employees. A similar incident occurred with the startup 'Bidood', which operated in urban bike-sharing. Due to 'the municipality's claims for a share and opposition to women's cycling', it completely halted its activities. One of the company's managers recently stated: 'The municipality at the time felt ownership and wanted a share. The Transportation and Traffic Department of Tehran Municipality claimed that it was providing the infrastructure and was naturally seeking its share; thus, gradually, claims for shares and obstacles began. Unfortunately, these claims and obstacles slowed down Bidood, and ultimately, the events of November 2019 forced us to remove the bikes from the city for a while. The opposition to women's use of bicycles was also serious, which harmed the brand.' The increase in banking facilities for the development of startup companies in Iran and the entry of banks into this industry has made offering 'financial services' in a startup format attractive. In recent years, an unexpected number of financial service startups or 'lendtechs' have been established. These companies provide small loans to customers in the 'buy now, pay later' sector and even encourage users to purchase everyday items like dairy products and meat in installments. Startup activities in the financial services sector in Iran are not without controversy. The main reason for the significant growth of lendtechs is that they can charge higher interest rates from applicants compared to banks. Banks, by being strict in providing traditional facilities, have directed demand towards lendtechs, thus creating suitable demand for them. These companies obtain the necessary credit from banks at the government-approved interest rate (about 21 to 23 percent) and offer it to users at an effective rate of up to 80 percent. The effective interest rate includes the loan interest and fees that these companies charge from users. Critics argue that the widespread adoption of the credit payment system without considering the prerequisites and economic reforms in Iran's banking system has increased the risk of default (refusal to pay). The Iranian banking system lacks a clear and transparent algorithm for 'credit rating users', and therefore, defaults and non-repayment of loans by these startups may lead to their bankruptcy. In addition to the problems that the government may directly create for startups through legislation, other economic reasons also contribute to their downfall, including competition from quasi-governmental companies, sanctions, and liquidity shortages. Although the emergence of technology companies in the economy increases productivity, the growth of startups in Iran has been limited to service jobs such as insurance sales, food delivery, and ride-hailing services; a situation that has led to market saturation and pushed many of them towards closure. Alongside all these issues, the interference of security and governmental institutions in startup activities should also be noted, which itself is one of the obstacles to their expansion and empowerment, at least independently; from obtaining contact information and customer addresses to claims for shares from high-demand companies; a process that causes significant portions of the ownership of these startups to be hidden or overtly held by certain elements of the government.