“Value creation” superior than “entrepreneurship”

While the interest coming from bank deposits is higher than 20 percent in Iran, and investment in some industries enjoy fast guaranteed profits, a new wave of investment has been recently created in the country; investment in areas with high level of risk and delay in return on capital. But what has caused this new wave makers (new entrepreneurs) to be indifferent about having a safe investment but instead prefer to confront with unpredicted risks? A passion for entrepreneurship.
Tadbir magazine is talking with Said Rahmani, one of the pioneers in the area of venture capital investment in Iran. He is the founder of “Sarava” Venture Capital Investment.

While the interest coming from bank deposits is higher than 20 percent in Iran, and investment in some industries enjoy fast guaranteed profits, a new wave of investment has been recently created in the country; investment in areas with high level of risk and delay in return on capital. But what has caused this new wave makers (new entrepreneurs) to be indifferent about having a safe investment but instead prefer to confront with unpredicted risks? A passion for entrepreneurship.

Tadbir magazine is talking with Said Rahmani, one of the pioneers in the area of venture capital investment in Iran. He is the founder of “Sarava” Venture Capital Investment. In addition, he is one of the co-founders of “Avatech” accelerator which supports different start-ups. Mr. Rahmani believes that although this kind of investment is VC in nature, it seeks for a great goal including creating the value, increasing self-confidence among young entrepreneurs, and improving the lifestyle in the society.

Tadbir: At the beginning of the interview, would you please briefly explain about the nature of venture capitals and the way they invest on start-ups.

Here I should explain a little more about something. Although in Iran and the world the “Venture Capital” is an accepted term, in my view, this word is unable to fully clarify the nature of this kind of investment, and it causes and increases more concern among entrepreneurs. Investing on start-ups is not a short-term process but a long-term one. It is venturesome, indeed. However, it should be noted that being venturesome is not the only feature of VC investments. Some people define this kind of investment as “investment entrepreneurship.” However, the way they name this process is not necessarily correct, because, approximately all investment models lead to business. Since this kind of investment aims to expand the entrepreneurship and value creation both for the entrepreneurs and the society, I prefer to use the term “value creating entrepreneurship” instead of venture capital. When I am talking about value, it is not something just related to material values, but it includes values including those of cultural, social, and even the self confidence that this kind of invest aims to create in an entrepreneur.

This renaming is important and valuable and should be prioritized because we cannot call every kind of investment as value creating investment. Some kinds of investments, such as foreign investments can be regarded as venturesome, and despite the fact that they are untrepreneurship, hey cannot neccessarily be regarded as value creator, I mean, they may devalue the culture and decrease the self confidence among entrepreneur, his/her team and the society.

 

Tadbir: In Iran, sometimes, it seems that the role different players have in start-up ecosystem are mixed. For example, the accelerators do the same job the incubators do, and vice versa. Sometimes the value creating investors enter the early stages of growing of an idea. Do you agree with this?

Yes, I do. Same as every other area, we are witnessing an interference among the roles. However, in my view, this interference has not paused the development process of start-ups in Iran.

In Iran, IT has gone through four decades and today it enters the fifth. In the 1970s, the hardware giants, such as IBM, entered Iran and brought with themselves the technology, experts and expertise the country was in need. In the 1980s, with a rise in the number of software companies in the world, some entrepreneurs had started attempts in Iran and did significant practices in the area of software development. In the 1990s, more attention was paid to the development of IT infrastructure. During the same period, great companies were established in Iran, some of them are continuing their operation nowadays. In the 2000s, as internet started growing, new start-up companies working in the area of IT found a new opportunity to make their skills, etc., up-to-date. These start-ups, including those such as the news wires and websites, were mostly active in creating content. During the same decade, the incubators were given existence. Most of these start-ups were governmental and their main mission was to meet the demands of the government. Now, in the 2000s, the key players in the new start-up companies’ ecosystem were on their way to stablish new investment companies. Therefore, it is natural that these companies still did not know the exact borders within which they can operate. This has created a brief interference among the roles every start-up takes, and this is going to be wiped out in near future.

 

Tadbir: In which stages of running a start-up does an investor enter?

Based on the current start-up ecosystem in Iran, I designed a model which is in the shape of a hopper. On the top of this hopper are those institutions and communities that are interested in developing innovation in the country. Next are those centers in which the idea of establishing a start-up will be shaped. These centers make the entrepreneurs familiar with concepts and methods in entrepreneurship as well as team making. Right after this, the accelerators start their operation. Every entrepreneur has a four- to six-month time to form his/her own desired team of experts, work on their ideas, and make them cultivated. After the start-ups enter the growth phase, the incubators start supporting them. Every start-up will stay about 18 months in an incubator. In case of success, they will enter the development phase. Therefore, it means that a start-up needs to rise fund in three stages; it should ask for the fund before entering the accelerator; it will do the same request before entering an incubator; and finally, before entering the development phase, the start-up again asks for another fund. The value creating companies, based on the policies they have taken, may enter in each of the three phases and they do not necessarily work with those start-ups that are in the development phase. However, the most ideal decision for these companies is not to enter the first and second phases. Before entering the accelerators, financing will mostly be done through individual investors or by business angels.

 

Tadbir: You are among the first people who direct the venture capital idea toward new start-up companies, those that are active in IT section. Why do you choose this area? Why should an investor accept all the risks and enter a dark, unknown realm, instead of using his/her capital in industries with guaranteed profit?

I personally experienced how to run start-ups in the US and the UK. In addition, I once was working in world’s greatest investment companies. During the same period, due to having a feeling of belonging and commitments to my country, the idea of founding a VC investment in IT section shaped in my mind. About five years ago, when I arrived here, no VC Company was existed in Iran. The worst thing was that, the culture of running such an investment was very weak. In that time, the investors had clearly said, “why should we use our capital in a place where no bright future is perceivable?” I remember a meeting with the deputy of one of the Iranian banks, in which he suggested me that in case of any companionship with him, I should accept three conditions: first, I myself should participate in the investment, second, I should reside in Iran, and third, I should give him my passport, and I accept!

Those people who enter the value creating investment are entrepreneurs themselves. If the first priority of an individual or a company is to have the greatest return on income in a very short period of time, it is better for them not to enter this area; because being in love with entrepreneurship and being interested in helping others in cultivating their ideas are among the key conditions every entrepreneur should cultivate them in his/her mind. Thinking about profit and the return of income shuold not be the first priority. It is obvious that every investor is concerned with the return on income. However, regarding a value creating entrepreneur, this case should not be his/her first priority.

When I, myself, started working, I knew that, financially, this cannot be the most profitable investment. However, I was sure that, for the purpose of creating value, this can be the best investment. So, in order to enter this area, you need a specific logic different from that that is common in the market. In addition, when you have some successful experiences in this area, the tendency to help others, if they possess required capabilities, for the purpose of entering them into this domain will be increased. The development of this phenomenon both in the US and other countries has been done through the same policy. In these countries, the successful VC entrepreneurs have helped other individuals and companies enter this area. Fortunately, in Iran, this maturity has been created among all the key players who are active in start-up section.

 

Tadbir: How do you assess the future of this business, I mean, Venture Capital?

Due to the successes that some investment companies have achieved, a new wave has been created for establishing new investment companies in Iran. The current tendency toward establishing investment companies is a blessed phenomenon. But, we should not forget that if some unqualified companies, those that do not possess required knowledge, enter this area, and then face with failures, the current tendency regarding this issue will be decreased. I suggest those who are active in startup-related areas abandon emotional decisions and try to acquire the knowledge and expert they need in this domain. The VC is naturally time-consuming and you need about seven years to observe the outcome of your investment. Therefore, if the investor has not have enough patience, it is better for him/her not to enter in this realm.

Also, in case of removal of sanctions against Iran and experiencing a post-sanction period, the situation that these days we are witnessing, it is probable that foreign investors enter Iran, soon. Here we should carefully observe the positive and negative aspects of foreign investment in Iran. Opportunistic foreign investment, which only seeks to omit Iranian brands and start-ups, is not beneficial for the market and we should be careful not be trapped in such an investment.

 

Tadbir: What are your criteria for choosing a start-up for investment purpose?

In addition to presenting an innovative idea and having the potentials to be accepted in the market, we consider three more criteria in choosing a start-up: having a team is our first criteria. It means that we are looking to find out that have the founders of the start-up been successful in forming a powerful team with related expertise? If a start-up has this capacity, it can be sure that its current status is very close to the criteria the investors are looking for. Our second criteria is again the team. The team also shapes our third criteria. Interestingly, most of the Iranian start-ups established and directed by a team comprising of a family members.

 

Have you had an unsuccessful investment?

As I mentioned, this kind of investment is a long-term one in nature. It means that, you need to wait for seven years to observe the outcome of your investment. No investment on Iranian start-ups that are currently active in the IT area has reached or passed the seven-year period. Therefore, we cannot judge about the success or the failure of these start-ups. By the way, as I told you, being venturesome and being long-term shape the real nature of this kind of investment. In addition, willingness to help other entrepreneurs, promoting the spirit of entrepreneurship and improving social life should be among the key priorities the investor must focus on. Therefore, if those people who want to invest on start-ups do not accept these two essential factors, it is better for them not to enter this area.



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