Description
Within this detailed outline regarding launching the venture capital industry in iran.
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Launching The Venture Capital Industry in Iran
Javad Mahboubi
Industrial Management Institute of Iran (IMI), Tehran, Iran
J [email protected]
Kamran Bagheri
Innovation Department, Division of Technology and International Affairs, Research
Institute of Petroleum Industry, Tehran, Iran
[email protected]
Abstract
It is argued that suitable funding mechanisms can well accelerate technology
development in national innovation systems. In this regard, venture capital (VC) as
one of the most effective ways of financing technology-based start-ups can contribute
greatly to economical and technological development of nations. However, prosperity
of VC industry does not occur incidentally, esp. in developing countries, rather it
emerges in consequence of intelligent policy-making and formation of suitable
context for making government intervention as effective as possible.
This article firstly reviews the literature of venture capital to identify its key
characteristics. Then it introduces required infrastructures – extracted through
comparative studies of VC industries in several countries - for developing a VC
industry and simultaneously analyses the given infrastructures in Iran. Finally it
suggests some policy implications for improvement of domestic infrastructures and
development of VC industry of Iran.
Keywords: Venture capital (VC), infrastructures, National Innovation System,
entrepreneurship, technology development.
1. Introduction
Nowadays technology development process is pursued as a national requirement of
many countries in a systematic and organized way. Undoubtedly, creating suitable
mechanisms for funding innovative activities is the main factor in accomplishing
technology development goals.
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Financial resources of innovative activities can be provided through different
mechanisms based on local economic structure of nations. Nevertheless, due to the
embedded risks in entrepreneurial projects and innovative activities as well as long-
term horizon of investment return in such activities, conventional financing
mechanisms, esp. bank loans, are not very fit with specific requirements of start-up
companies. Therefore, great importance is attached to venture capital, esp. for hi-tech
industries (Mostahsan and Bagheri, 2003).
In other words, traditional financial mechanisms that are based on short-term loans
cannot be of great help for small stat-ups, which play an important role in
enhancement of innovation and entrepreneurship in a national innovation system.
Hence, development of VC industry can well contribute to the formation and growth
of small start-ups and consequently enhancement of innovation and entrepreneurship
in the national innovation system.
In Iran, not only this important industry has not been formed yet, but also there is little
knowledge about it. So hereafter, the concept of venture capital is explained at first.
However, understanding the VC industry is not sufficient for launching and
developing this industry in a country; rather, we require appropriate infrastructures
and conditions. Therefore, after introducing the concept of VC, we will study the
required infrastructures or factors affecting VC industry and at the same time, analyze
these factors in Iran.
2- Concept of venture capital
VC is a professional activity that is mainly carried out through a venture capital fund.
It is the money offered to small and promising start-ups by professionals who are
affiliated to VC funds. These financial supports are often accompanied with
managerial helps. Professional VC funds are usually financed by pension funds,
foundations, firms, wealthy people, foreign investors or themselves (The ABC’s of
Venture capital). VC funds do not seek continuous revenues from their investments;
rather they usually make profit by selling their equity in different companies
(www.sep.co.uk).
Venture capital is the best way for providing financial requirements of innovative
start-ups, because other financial mechanisms are mainly government-dependent and
due to their nature, they cannot bridge the current gap in funding start-ups. Since there
are some uncertainties in innovative activities, governmental banks and funds are
reluctant to invest in these activities. Thus, entrepreneurs of developed countries
usually refer to venture capital markets to raise their required fund (Hanifi, 2001).
The characteristics of venture capitalists - whether individuals or firms – can be
summarized as follows:
1- They finance small rapidly-growing start-ups or young companies.
2- They make equity investments in companies.
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3- They help develop new products and services.
4- Through their active involvement, they create synergy in their respective
companies.
5- They take further risk in the hope of further profits.
6- They have long-term orientation and usually do not seek short-term revenues
(Mostahsan and Bagheri, 2003).
3- Infrastructures of venture capital industry
VC depends to the factors or infrastructures, which collectively can provide an
appropriate environment for flourishing the VC industry. Therefore, the main solution
for the problems of national innovation systems in the area of venture financing is
identification and improvement of these factors at national level.
A comparative study has been done in order to identify these factors or
infrastructures, i.e. the status and features of VC industry in several countries -
including USA, Germany, UK, China, India, J apan, and South Korea- have been
explored. It was impossible to include Iran in our comparative studies, because there
is no active VC industry in place there.
These studies indicated that venture capitalists’ activities in each country depend to a
series of national factors or infrastructures. In other words, a number of basic and
major preconditions should exist in order to establish a promising VC industry, and
consequently, bridge the existing gap in funding start-ups. If these preconditions are
not met, any initiatives for introducing and developing this industry in a country will
not bear much fruit. After extracting these factors, we studied them in the context of
Iran and identified existing flaws or defects through referring to in-house documents
and sources, as well as, taking advantage of the viewpoints of experts and scholars in
the related fields. Herein, these factors are introduced and at the same time, analysis
results of Iran’s situation are presented.
3.1. Entrepreneurship culture
Development of entrepreneurship in a society is the most important factor for
proliferation of start-ups, and consequently, for increase of demand for VC.
Entrepreneurship as a cultural characteristic of each society stems from the and socio-
economic background of their countries, and changing it is very hard and needs a long
period of time.
Unfortunately, Iran suffers from basic shortcomings in terms of entrepreneurship
culture and this culture has not yet been institutionalized therein. Iranian experts and
managers are more inclined to work in major well-established organizations – that is
accompanied with job security – rather than try to establish their own business that
involves high risk.
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However, the entrepreneurship is not a hereditary characteristic; rather it is an
acquirable skill that can be developed. Since entrepreneurs should enjoy various
qualifications, it is hardly possible to promote the culture of entrepreneurship without
continuous and regular instructions. Nowadays, academic instruction of
entrepreneurship is carried out through different courses in engineering or business
faculties in developed countries. In addition, special faculties for entrepreneurship
have been established all over the world. However, unfortunately, little has been done
in Iran in this respect and there is no systematic or academic instruction of
entrepreneurship therein.
On the other hand, government role in formulating appropriate laws and policies for
publicizing and facilitating entrepreneurship is very important. These laws can be
divided into 3 categories: First, those laws which affect the people who intend to
launch a new business. They may play a preventive role. Second are those laws which
may affect or hinder the business growth. For example, banks are allowed to loan just
to those who can provide a precious security. Third are those laws which may restrain
businessmen from exiting their business. Any obstacle in business exit route can
discourage entrepreneurship (Tadbir J ournal, 1999). Existence of developed capital
market is very important in this regard. This will be discussed later.
3.2. Financial incentives
The government can play an important role in supporting and developing
entrepreneurship and VC industry through its financial encouragement and Support of
venture capitalists and entrepreneurs. Currently, there are relatively good mechanisms
for supporting research projects and activities; however, there is no systematic
mechanism for supporting entrepreneurs and venture capitalists. Financial support in
this regard have mainly focused on job-creation activities rather than
entrepreneurship, e.g. the Iranian exigent employment project, according to which
low-interest were allocated to SMEs in order to employ jobless people.
Nevertheless, recently the Iranian Ministry of Science, Research and Technology has
announced the enactment of the law of non-governmental R&D and technology funds
that one of their activities is VC. This is promising news and can be regarded as a
good starting point for VC industry in the country.
3.3. Taxes
The tax laws and policies in a country are considered to be an important factor
affecting the rate of investment and entrepreneurship therein. Many developed
countries have strengthened entrepreneurship, increased the number of local start-ups
and accordingly helped their VC industry in both manufacturing and service sectors
through reducing the capital gain tax. For instance, US reduced the tax on the capital
gains from 49% to 28% in 1978 and then to 20% in 1981. As a result, the volume of
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investment capital increased greatly in US. As a comparison, it is worth to know that
this tax in Europe and Asia amounts to over 60%.
In Iran, the companies are taxed based on their revenues, not their net profits.
According to the new tax law – ratified in Feb. 2001 -, Iranian companies should pay
exactly 25% of their revenues as their tax. However in previous laws, tax rate had
been quite different from company to company and sometimes reached up to 67%.
Hence, the remarkable reduction of tax rates from 67% to 25% can be regarded as an
significant government initiative in encouraging the potential investors to make
investments and establish new firms(Http://www.abdoh.net/dbase/upload/tagdid.htm).
3.4. Intellectual property system
Intellectual properties are the most precious assets of entrepreneurs. Governments
can support the entrepreneurs as well as venture capitalists - who invest in new and
innovative businesses of entrepreneurs - by providing appropriate infrastructures such
as a comprehensive intellectual property system.
The four elements, namely “macro-policies”, “education and research system”,
“industrial system” and “judicial system” of a country are considered as the main
factors for determining the degree of that country’s concern towards entrepreneurship
and intellectual property rights. By studying the status of these factors in terms of
intellectual property, one can comment on the degree of evolution of the intellectual
property system. Considering Iran’s status, we can refer to following points:
1. Good attention has been paid to the issue of intellectual property in Iran;
however due to the lack of a comprehensive system, the intellectual property
has still remained as one of the main problems of the country.
2. Unfortunately, this issue has been dealt with at general level and has not been
materialized in executive policies and regulations. In addition, no specific
policies in support of entrepreneurship have been included in the current 5-
year national development plan of Iran.
3. The industrial sector is the third factor in developing intellectual property and
entrepreneurship. A look at the existing structure and planned priorities of this
sector shows that no serious attention has been paid to intellectual property in
this sector.
4. The judicial system is the fourth factor in developing intellectual property and
entrepreneurship. Iranian IP system is under the control of the judiciary;
However due to the old IP laws, there are severe problems in administration of
this system. In addition, the administrative procedures for patent filing and
trademark registration are centralized in the Capital of the country, namely
Tehran, and development of intellectual property system has not been
considered as one of the urgent priorities of the judicial system.
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According to local researchers or inventors, little support has been given to the
protection of their rights and there is extensive duplication and unauthorized use of
the research findings in Iran. They argue that the local rules and laws on intellectual
property and their implementation as well as related communication mechanisms
should be revised (Senobar, 2001).
3.5. Exit mechanisms
Exit mechanisms or possibility of liquidating the equities in existing firms play a vital
role in attracting venture capitalists in a country. venture capitalists mainly invest in
the seed or early stages of start-ups that incorporates higher risk and at the same time,
higher profits. After passing through the early growth stages of the business and
arriving at a more stable phase with a relatively good and low-risk profit-making, the
venture capitalists tend to sell their stake – whose value has significantly increased –
and invest it in a new business. However liquidating an investment and exiting from a
business is mainly done through IPO
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and this requires appropriate capital markets.
Stock exchange markets play an important role in this regard.
Since it is difficult for start-ups to enter the general stock exchange markets, some
countries have established special exchange markets with easier entrance
requirements for these firms. Some examples are “NASDAQ” in the US, “Neuer” in
Germany, “Techmark” in the UK, “J ASDAQ” in J apan, and “KOSDAQ” in South
Korea.
The main symbol of Iran’s capital market is Tehran Stock Exchange (TSE). However
this market has not been much efficient and has been faced with some legal, structural
and managerial problems or obstacles. The main reasons for inefficiency of Iranian
capital market can be outlined as follows:
• Organizational weakness of TSE and direct interference of government and
public organizations, esp. the Central Bank in this market
• Lack of transparency and information about the member companies of TSE
• Weakness and lack of dynamism in TSE rules and other laws that affect it such
as the stock exchange laws, trade laws, and tax laws.
• Lack of separation of primary and secondary stock markets
• Lack of appropriate laws about IPO and primary markets
• Lack of investment banks
• Shortage of the stock exchange sub-markets (Enayat, 2002)
However, some initiatives have been taken to improve the capital market in Iran,
including:
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Initial Public Offering
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• Reforming the structure of stock markets and establishment of sub-markets to
facilitate the admission of start-ups
• Expanding the capital market geographically, i.e. establishment of stock markets
in major cities of Iran, including Mashhad, Esfahan, Tabriz, and Shiraz (Mir
Motahhari, 2002a & 2002b).
Besides, the designing of domestic capital market law is on the verge of completion.
Continuation of these reforms will depict a good future for this market and facilitate
the business exit process.
6.3. Labor laws
The ability to hire or dismiss people in the countries with inflexible labor laws is quite
limited. In some countries, dismissal of employees is prohibited due to political or
social concerns. Therefore, establishing a new firm in these countries involves a high
risk from labor pint of view.
The labor law has been one of the serious obstacles for entrepreneurship and
investment in Iran. This law has significantly increased the cost and risk of recruiting
the labor force for local employers and investors. It seems that the main object of this
law is the extreme support of labors against the employers and no serious attention
has been paid to other aspects of the issue. As a result, productivity of the labor force
has deteriorated and production costs have significantly increased. In addition, this
law has created some limitations in management of enterprises and has interfered in
some affairs that restrict the managerial scope of employers. Another serious problem
is the fact that this law does not distinguish between manufacturing, agricultural, and
service sectors and pays no attention to the scope and type of activities, the amount of
working capital, the number of employees, and the production volume (Haji Baba,
2002).
3.7. Business laws
Business laws in each country are the basis for business and investment activities in
that country and vigorously affect the kind, range and efficiency of this sort of
activities. The most important laws affecting business and trade activities in Iran are
as follows:
3.7.1. The trade law
The Iranian trade law (ratified in 1932) was a appropriate and advanced law at the
time of its ratification. However, due to the new conditions and emergence of new
trade problems, this law is no longer able to deal with the complex trade issues of the
present time. Hence, it should be revised and complemented.
One of the main deficiencies of trade law is the issue of companies’ merger.
Unfortunately, the trade law has not addressed this issue which is one of the main exit
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mechanisms. Therefore, those companies which want to merge, should first dissolve
themselves and then form a new unified company. This can cause numerous problems
for them (Tadbir J ournal, 2001).
VC funds in developed countries are usually limited partnership companies.
Fortunately, the trade law has addressed this sort of companies, i.e. the fourth section
of the first chapter (articles 141-161) of the trade law is dealing with this issue.
Existence of laws related to this sort of companies is very important for establishing
the VC industry.
3.7.2. The law of company establishment
The entrepreneurs and individuals who are interested in production activities are faced
with numerous problems in establishing a company. The main problems are as
follows:
• Continuous change of the requirements and conditions of issuing a license for
establishing a company
• Lack of effective data bases about domestic markets
• Existence of some tough rules or standards
• Inappropriate allocation of governmental facilities for entrepreneurs (They are
granted based on geographical areas without regard to kind of activity or real
need of entrepreneurs).
3.7.3. Export and import laws
The most important problems that the export/import regulations have created for
enterprises, esp. small ones are as follows:
• Instability of the exports/import regulations
• Long bureaucratic procedures for order registration and obtaining the required
currency and trade licenses
• Lack of sufficient expert and well-informed staff in the governmental
organization which deal with export affairs (Lameei, 2002).
Of course in recent years, some significant measures have been taken to facilitate
export, including: stabilizing the currency exchange rate and granting export bonuses
and assurances to the exporters.
3.7.4. Bankruptcy laws
The bankruptcy law can influence the entrepreneurship and investment rate. For
instance, the US bankruptcy law has been designed in a way that bankrupts are given
another opportunity to restart their activities and transfer their assets to a new
business. The experience of managing the imminently bankrupt companies in the US
is considered as a training course for launching a new business.
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The Iran’s bankruptcy law is a subsection of its trade law. This law has been ratified
in 1940; Hence, it is an old law and can not solve many of the related problems that
local companies are currently faced with. This law mainly addresses individuals - not
enterprises – and can not be implemented at the present time. One of the issues that
has been ignored in the existing trade and bankruptcy law is the issue of integrating a
bankrupt company with other companies and resumption of its activities. This law
puts some limitations against the resumption of business activities of the bankrupt
people (Tadbir J ournal, 2001). This can raise serious doubts in venture capitalists –
who are faced with more business risks in comparison with other investors –and
discourage them from involving in venture investments.
3.8. Policy-makers’ understanding of the role and nature of VC
Studying the countries’ successful experiences in addressing their VC industry
indicates that the first initiatives in this regard has been taken after that their
governments and policy-makers understood the important nature and role of this
industry. In other words, whenever government authorities recognize the importance
and vital role of VC industry in its national innovation system and technology
development, they reflect this issue in national plans and macro-policies.
Unfortunately in Iran, not only government authorities, but also business experts and
entrepreneurs are mostly unfamiliar with this issue. In other words, there are few
people in Iran who properly understand the importance and role of VC industry at
national level. In such a situation, no serious effort - at national level - is anticipated
in the near future.
3.9. Experienced and educated managers
The activity of VC funds is a very professional and specialized activity that is
accompanied with many complexities, both in evaluating proposed business plans and
in managing their investments in the recipient companies. Therefore, management of
such funds needs experienced and expert managers. Training such managers requires
academic education as well as business experience in a competitive environment.
Unfortunately, in Iran there is neither systematic and appropriate training courses on
entrepreneurship and VC management, even in the most well-known management/
business/engineering faculties, nor a competitive business environment – as a result of
the government-based economy - to make local managers become professionally
experienced.
3.10. Regulations of banks, insurance firms and pension funds
Financial institutions, esp. banks, insurance companies and pension funds have
fundamental effects on capital market and VC industry. A large portion of the world's
total VC is provided by these institutions (compared with individual investors).
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However, the degree of their participation in VC industry is quite different from
country to country. This is mainly due to the different laws that govern these
institutions in different countries.
The law of interest-free banking transaction (ratified in 1983) is the law governing the
Iranian banking system, according to which banks provide their services to the
investors in the framework of Islamic contracts. These contracts do not directly
prohibit the involvement of banks in risky business activities, but contain some rules
that oblige the banks to support the only economic activities that can make definite
profits. Banks can refer to this as a pretext for justifying their extreme caution and
reluctance against VC. On the other hand, Iranian banks are mostly governmental and
their management is inefficient. Thus, the private sector has not enjoyed the banking
services favorably and most of the services have been directed towards governmental
firms (Behkish, 2001).
Financial services of local banks are highly security-based. Local banks are not able
to properly and thoroughly assess business plans and accordingly try to reduce the risk
of their financial services by demanding heavy securities. As a consequence, many
entrepreneurs and applicants of banking services become deprived of them, because
they can not provide required guaranties (Lameei, 2002).
Insurance market in Iran has been dominated by governmental insurance enterprises.
However, their performance in terms of investment is by no means acceptable.
According to the new insurance enterprises' investment regulation, insurance
enterprises are allowed to invest up to 10% of their working capital in economic
activities. However, some conditions are attached to these investments. For instance,
insurance companies are not allowed to invest in activities whose profits are
anticipated to be less than a definite limit. This may discourage the managers and
makes them show less inclination toward VC activities. On the other hand, due to the
tiny amount of long-term/life insurance policies in the portfolio of insurance
enterprises, they can not involve in long-term investments. Thus the main portion of
their cash assets is deposited in banks and little is directed towards investment
(Peikarjoo, 2002).
Concerning the Iranian pension funds, the main problems that they are faced with in
their investment activities are as follows:
• Shortage of cash assets for investment (due to their high volume of retirement
payments at the moment and lack of investment revenues in consequence of
insufficient or inappropriate investment of their funds in the past)
• Weak management
• Governmental structure (Abdoh Tabrizi, 2002)
3.11. Motivation for higher profit-making
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The success of VC industry is, to a great deal, related to profit-making motives in this
industry; because without such motives, there would be no inclination and
justification for taking higher risks required in this industry. However,
institutionalization and extension of culture and motivation for higher profit-making
needs its own context, namely a powerful private sector. Since Iranian economy is
government-based, this context is not prepared. There are other reasons for Iranians’
low motivation for higher profits, including: the cultural atmosphere prevalent in the
country, local capitalists’ tendency toward risk-free businesses, and existence of
economic inflation and corruption. Due to inflation and economic instability, local
investors can make enormous profits (even over 50% per annum) through investing in
low-risk sectors (such as construction or real estate); hence no rationale or
justification for VC activities, which if successful, can earn the same or even lower
profits.
VC industry contributes to national entrepreneurship growth and technology
development; but this should not lead governments to bring this industry under their
domination and consequently deteriorate the competition and profit-making motives
in this industry, because this has no fruit but failure and collapse of VC industry, as
happened in South Korea in 1990s.
3.12. Presence of foreign venture capitalists
Study of the status of VC industry in different countries indicates that the
strengthening and development of this industry has close relationship with foreign
investment. Successful countries in the field of VC are those which have opened their
economy to foreign venture capitalists and have welcomed foreign VC. But those
countries - such as South Korea - which established unusual limitations for foreign
investors under the pretext of supporting the local industries, have either failed or
faced with serious problems concerning the VC. These limitations have also resulted
in the weakening of links with international investment companies or networks as
well as decreasing the access to international markets.
Hardly have any VC fund existed in Iran up to now. On the other hand, these funds
require professional managers that hardly exist in Iran. Therefore, presence of foreign
venture capitalists is necessary for establishment and development of VC industry in
the country as well as transfer of their knowledge and experience to local experts and
investors. It is obvious that presence of foreign venture capitalists is not possible
without providing an appropriate context or environment for FDI
1
in the country.
Fortunately some important measures have been taken to facilitate FDI in Iran,
including: ratification of “foreign investment encouragement and support law”,
eliminating the wide diversity of rates of exchange of foreign currencies (esp. dollar),
and modification of tax law. However, there are still several factors that hinder FDI in
1
Foreign Direct Investment
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Iran, such as: existence of excessive rules and regulations which are restrictive or
inter-conflicting in some cases, arbitrary decision-making, unopened economy,
political obstacles, and negative attitude toward foreign investment (Tadbir J ournal,
2003).
3.13. Development of Hi-tech industries
Experience of developed countries indicates that development of new technologies,
esp. IT, has been accompanied by development of VC industry. Companies in IT or
computer industries, have used VC much more than the companies in other industries.
On one hand, enhancement of VC industry would help the growth of hi-tech
industries and firms. On the other hand, development and expansion of hi-tech
industries would significantly increase the demand for VC.
Unfortunately, Iran suffers severe defects in the field of new and advanced
technologies and due to the lack of appropriate governmental policy-making and
investment as well as weakness of Iranian private sector in this regard, infrastructures
of hi-tech development are not prepared in Iran.
3.14. Investment security
investment security is the prerequisite for any kind of private investment in a country
and VC industry can develop and extend only in secure and stable regions.
Unfortunately, Iran is not in a desirable situation in terms of investment security. The
indicators of this claim are: the high rate of annual capital exit from the country as
well as high premiums demanded by international insurance enterprises for insuring
investments in Iran. At the same time, no sufficient attention has been paid to
investment insurance in Iran and local insurance companies have not seriously entered
this domain yet.
Investment security has economic, commercial, political, judicial and cultural aspects
that should be considered simultaneously in order to devise a comprehensive and
effective solution for improving this issue in the country.
3.15. Networking
Networking among different VC funds and establishment of a comprehensive and
integrated communication system for these funds, can facilitate VC transactions and
help entrepreneurs find suitable sources of VC and obtain their required fund.
Besides, this can create synergy between these funds, improve their performance, and
guide them toward evolution. In many countries, all useful information about both
potential investors and investment opportunities has been gathered in some specific
websites; therefore, their entrepreneurs can easily access the required information.
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In Iran, some efforts have been made – mainly by Technology Cooperation Office
(TCO)
1
– toward establishing a communication network among technology
development funds through a specific website. However, this has been retarded due to
some problems.
4- Concluding remarks
This paper tried to briefly review the supporting infrastructures of VC industry in the
context of Iran. The precise and detailed study of each of these infrastructures could
be carried out through a great research project.
Based on the whole discussion above, we can conclude that Iran suffers serious
shortcomings and problems in terms of almost all mentioned infrastructures.
Certainly, a single organization or even ministry can not solve this problem alone;
rather it needs the cooperation of different government divisions and organizations.
However, coordination and supervision over the implementation of related reforming
policies or decisions should be concentrated in one place. Therefore, it is necessary
that a governmental body or committee be assigned to undertake the policy-making,
strategy formulation, and coordination of efforts concerning VC. Representatives of
related governmental organizations and entities are required to participate in this
committee; thereby related organizations can participate in formulation of VC policies
and decisions of the committee will be the result of consensus among them. Besides,
each representative would be responsible to follow up the implementation of the
committee’s decisions in his/her affiliated organization. This committee should enjoy
two characteristics:
1. It should be an inter-sectional body and not dependant to a specific
organization or ministry.
2. Establishment of such a committee should not lead to domination of the
government over the domestic VC industry. This committee should merely
play the role of a policy-making and monitoring body for this industry. It
should not interfere in business or investment affairs and bring this
competitive industry under its full control. In other words, it should not
monopolize this industry, because moving in this direction will ultimately lead
to the collapse of this useful industry.
References:
Abdoh Tabrizi, (2002). H. Restructuring the Social Security System in Islamic
Republic of Iran. Iranian Capital Journal, 2.
1
Affiliated to Iranian Presidential Entity
14
Behkish, M. M. (2001). Iranian Economy in the Context of Globalization. Nay
Publication, Tehran.
Enayat, S. A. (2002). Problems and Restrictions in Iran’s Capital Markets. Economics
Research Quarterly, 3, J an.-Mar. 2002.
Hanifi, F. (2001). Venture Capital: Structures and Functions. Iranian Bourse Journal,
21.Http://www.abdoh.net/dbase/upload/tagdid.htm
Lameei, B. (2002). Legal Obstacles Against Entrepreneurship Growth in Iranian
Small Manufacturing Enterprises. Iranian Journal of Labor & Society, 45.
Mir Motahhari, S. A. (2002a) Tehran Stock Exchange: Challenges and Hopes. Iranian
Bourse Journal, 30.
Mir Motahhari, S. A. (2002b) Opening of Mashhad Stock Exchange: A Significant
Step towards Expansion of Capital Market in Iran. Iranian Bourse Journal, 31.
Mostahsan, H. and Bagheri S. K. (2003). Analyzing the Iranian Technology
Development Funds From Venture Capital Perspective. The First Conference of
Management of Technology. Power Industry Technology Center (MATN Co.), Tehran.
Peikarjoo, K. (2002). Analyzing the Investment Volume and Efficiency of Public
Insurance Companies and Consequences of their Privatization in Iranian Capital
Market. Iranian Quarterly of Insurance Industry, 4.
See the Scottish Equity Partners Limited Website : www.sep.co.uk
Senobar, M. (2001). Intellectual Property and Entrepreneurship: Concepts and
indicators and Iran’s Status. Conference of entrepreneurship & Hi-tech, Tehran, Oct,
2001.
Tadbir J ournal. (1999). Entrepreneurship Development: Obstacles and Solutions.
Tadbir Journal, 90.
Tadbir J ournal. (2001). The Trade Law and Firms’ Problems in Iran. Tadbir Journal,
112.
Tadbir J ournal. (2003). Foreign Direct Investment in Iran Requires a Change in
Attitudes. Tadbir Journal, 130.
The ABC’s of Venture capital, Entrepreneurs Forum of the Northwest
doc_425318834.pdf
Within this detailed outline regarding launching the venture capital industry in iran.
1
Launching The Venture Capital Industry in Iran
Javad Mahboubi
Industrial Management Institute of Iran (IMI), Tehran, Iran
J [email protected]
Kamran Bagheri
Innovation Department, Division of Technology and International Affairs, Research
Institute of Petroleum Industry, Tehran, Iran
[email protected]
Abstract
It is argued that suitable funding mechanisms can well accelerate technology
development in national innovation systems. In this regard, venture capital (VC) as
one of the most effective ways of financing technology-based start-ups can contribute
greatly to economical and technological development of nations. However, prosperity
of VC industry does not occur incidentally, esp. in developing countries, rather it
emerges in consequence of intelligent policy-making and formation of suitable
context for making government intervention as effective as possible.
This article firstly reviews the literature of venture capital to identify its key
characteristics. Then it introduces required infrastructures – extracted through
comparative studies of VC industries in several countries - for developing a VC
industry and simultaneously analyses the given infrastructures in Iran. Finally it
suggests some policy implications for improvement of domestic infrastructures and
development of VC industry of Iran.
Keywords: Venture capital (VC), infrastructures, National Innovation System,
entrepreneurship, technology development.
1. Introduction
Nowadays technology development process is pursued as a national requirement of
many countries in a systematic and organized way. Undoubtedly, creating suitable
mechanisms for funding innovative activities is the main factor in accomplishing
technology development goals.
2
Financial resources of innovative activities can be provided through different
mechanisms based on local economic structure of nations. Nevertheless, due to the
embedded risks in entrepreneurial projects and innovative activities as well as long-
term horizon of investment return in such activities, conventional financing
mechanisms, esp. bank loans, are not very fit with specific requirements of start-up
companies. Therefore, great importance is attached to venture capital, esp. for hi-tech
industries (Mostahsan and Bagheri, 2003).
In other words, traditional financial mechanisms that are based on short-term loans
cannot be of great help for small stat-ups, which play an important role in
enhancement of innovation and entrepreneurship in a national innovation system.
Hence, development of VC industry can well contribute to the formation and growth
of small start-ups and consequently enhancement of innovation and entrepreneurship
in the national innovation system.
In Iran, not only this important industry has not been formed yet, but also there is little
knowledge about it. So hereafter, the concept of venture capital is explained at first.
However, understanding the VC industry is not sufficient for launching and
developing this industry in a country; rather, we require appropriate infrastructures
and conditions. Therefore, after introducing the concept of VC, we will study the
required infrastructures or factors affecting VC industry and at the same time, analyze
these factors in Iran.
2- Concept of venture capital
VC is a professional activity that is mainly carried out through a venture capital fund.
It is the money offered to small and promising start-ups by professionals who are
affiliated to VC funds. These financial supports are often accompanied with
managerial helps. Professional VC funds are usually financed by pension funds,
foundations, firms, wealthy people, foreign investors or themselves (The ABC’s of
Venture capital). VC funds do not seek continuous revenues from their investments;
rather they usually make profit by selling their equity in different companies
(www.sep.co.uk).
Venture capital is the best way for providing financial requirements of innovative
start-ups, because other financial mechanisms are mainly government-dependent and
due to their nature, they cannot bridge the current gap in funding start-ups. Since there
are some uncertainties in innovative activities, governmental banks and funds are
reluctant to invest in these activities. Thus, entrepreneurs of developed countries
usually refer to venture capital markets to raise their required fund (Hanifi, 2001).
The characteristics of venture capitalists - whether individuals or firms – can be
summarized as follows:
1- They finance small rapidly-growing start-ups or young companies.
2- They make equity investments in companies.
3
3- They help develop new products and services.
4- Through their active involvement, they create synergy in their respective
companies.
5- They take further risk in the hope of further profits.
6- They have long-term orientation and usually do not seek short-term revenues
(Mostahsan and Bagheri, 2003).
3- Infrastructures of venture capital industry
VC depends to the factors or infrastructures, which collectively can provide an
appropriate environment for flourishing the VC industry. Therefore, the main solution
for the problems of national innovation systems in the area of venture financing is
identification and improvement of these factors at national level.
A comparative study has been done in order to identify these factors or
infrastructures, i.e. the status and features of VC industry in several countries -
including USA, Germany, UK, China, India, J apan, and South Korea- have been
explored. It was impossible to include Iran in our comparative studies, because there
is no active VC industry in place there.
These studies indicated that venture capitalists’ activities in each country depend to a
series of national factors or infrastructures. In other words, a number of basic and
major preconditions should exist in order to establish a promising VC industry, and
consequently, bridge the existing gap in funding start-ups. If these preconditions are
not met, any initiatives for introducing and developing this industry in a country will
not bear much fruit. After extracting these factors, we studied them in the context of
Iran and identified existing flaws or defects through referring to in-house documents
and sources, as well as, taking advantage of the viewpoints of experts and scholars in
the related fields. Herein, these factors are introduced and at the same time, analysis
results of Iran’s situation are presented.
3.1. Entrepreneurship culture
Development of entrepreneurship in a society is the most important factor for
proliferation of start-ups, and consequently, for increase of demand for VC.
Entrepreneurship as a cultural characteristic of each society stems from the and socio-
economic background of their countries, and changing it is very hard and needs a long
period of time.
Unfortunately, Iran suffers from basic shortcomings in terms of entrepreneurship
culture and this culture has not yet been institutionalized therein. Iranian experts and
managers are more inclined to work in major well-established organizations – that is
accompanied with job security – rather than try to establish their own business that
involves high risk.
4
However, the entrepreneurship is not a hereditary characteristic; rather it is an
acquirable skill that can be developed. Since entrepreneurs should enjoy various
qualifications, it is hardly possible to promote the culture of entrepreneurship without
continuous and regular instructions. Nowadays, academic instruction of
entrepreneurship is carried out through different courses in engineering or business
faculties in developed countries. In addition, special faculties for entrepreneurship
have been established all over the world. However, unfortunately, little has been done
in Iran in this respect and there is no systematic or academic instruction of
entrepreneurship therein.
On the other hand, government role in formulating appropriate laws and policies for
publicizing and facilitating entrepreneurship is very important. These laws can be
divided into 3 categories: First, those laws which affect the people who intend to
launch a new business. They may play a preventive role. Second are those laws which
may affect or hinder the business growth. For example, banks are allowed to loan just
to those who can provide a precious security. Third are those laws which may restrain
businessmen from exiting their business. Any obstacle in business exit route can
discourage entrepreneurship (Tadbir J ournal, 1999). Existence of developed capital
market is very important in this regard. This will be discussed later.
3.2. Financial incentives
The government can play an important role in supporting and developing
entrepreneurship and VC industry through its financial encouragement and Support of
venture capitalists and entrepreneurs. Currently, there are relatively good mechanisms
for supporting research projects and activities; however, there is no systematic
mechanism for supporting entrepreneurs and venture capitalists. Financial support in
this regard have mainly focused on job-creation activities rather than
entrepreneurship, e.g. the Iranian exigent employment project, according to which
low-interest were allocated to SMEs in order to employ jobless people.
Nevertheless, recently the Iranian Ministry of Science, Research and Technology has
announced the enactment of the law of non-governmental R&D and technology funds
that one of their activities is VC. This is promising news and can be regarded as a
good starting point for VC industry in the country.
3.3. Taxes
The tax laws and policies in a country are considered to be an important factor
affecting the rate of investment and entrepreneurship therein. Many developed
countries have strengthened entrepreneurship, increased the number of local start-ups
and accordingly helped their VC industry in both manufacturing and service sectors
through reducing the capital gain tax. For instance, US reduced the tax on the capital
gains from 49% to 28% in 1978 and then to 20% in 1981. As a result, the volume of
5
investment capital increased greatly in US. As a comparison, it is worth to know that
this tax in Europe and Asia amounts to over 60%.
In Iran, the companies are taxed based on their revenues, not their net profits.
According to the new tax law – ratified in Feb. 2001 -, Iranian companies should pay
exactly 25% of their revenues as their tax. However in previous laws, tax rate had
been quite different from company to company and sometimes reached up to 67%.
Hence, the remarkable reduction of tax rates from 67% to 25% can be regarded as an
significant government initiative in encouraging the potential investors to make
investments and establish new firms(Http://www.abdoh.net/dbase/upload/tagdid.htm).
3.4. Intellectual property system
Intellectual properties are the most precious assets of entrepreneurs. Governments
can support the entrepreneurs as well as venture capitalists - who invest in new and
innovative businesses of entrepreneurs - by providing appropriate infrastructures such
as a comprehensive intellectual property system.
The four elements, namely “macro-policies”, “education and research system”,
“industrial system” and “judicial system” of a country are considered as the main
factors for determining the degree of that country’s concern towards entrepreneurship
and intellectual property rights. By studying the status of these factors in terms of
intellectual property, one can comment on the degree of evolution of the intellectual
property system. Considering Iran’s status, we can refer to following points:
1. Good attention has been paid to the issue of intellectual property in Iran;
however due to the lack of a comprehensive system, the intellectual property
has still remained as one of the main problems of the country.
2. Unfortunately, this issue has been dealt with at general level and has not been
materialized in executive policies and regulations. In addition, no specific
policies in support of entrepreneurship have been included in the current 5-
year national development plan of Iran.
3. The industrial sector is the third factor in developing intellectual property and
entrepreneurship. A look at the existing structure and planned priorities of this
sector shows that no serious attention has been paid to intellectual property in
this sector.
4. The judicial system is the fourth factor in developing intellectual property and
entrepreneurship. Iranian IP system is under the control of the judiciary;
However due to the old IP laws, there are severe problems in administration of
this system. In addition, the administrative procedures for patent filing and
trademark registration are centralized in the Capital of the country, namely
Tehran, and development of intellectual property system has not been
considered as one of the urgent priorities of the judicial system.
6
According to local researchers or inventors, little support has been given to the
protection of their rights and there is extensive duplication and unauthorized use of
the research findings in Iran. They argue that the local rules and laws on intellectual
property and their implementation as well as related communication mechanisms
should be revised (Senobar, 2001).
3.5. Exit mechanisms
Exit mechanisms or possibility of liquidating the equities in existing firms play a vital
role in attracting venture capitalists in a country. venture capitalists mainly invest in
the seed or early stages of start-ups that incorporates higher risk and at the same time,
higher profits. After passing through the early growth stages of the business and
arriving at a more stable phase with a relatively good and low-risk profit-making, the
venture capitalists tend to sell their stake – whose value has significantly increased –
and invest it in a new business. However liquidating an investment and exiting from a
business is mainly done through IPO
1
and this requires appropriate capital markets.
Stock exchange markets play an important role in this regard.
Since it is difficult for start-ups to enter the general stock exchange markets, some
countries have established special exchange markets with easier entrance
requirements for these firms. Some examples are “NASDAQ” in the US, “Neuer” in
Germany, “Techmark” in the UK, “J ASDAQ” in J apan, and “KOSDAQ” in South
Korea.
The main symbol of Iran’s capital market is Tehran Stock Exchange (TSE). However
this market has not been much efficient and has been faced with some legal, structural
and managerial problems or obstacles. The main reasons for inefficiency of Iranian
capital market can be outlined as follows:
• Organizational weakness of TSE and direct interference of government and
public organizations, esp. the Central Bank in this market
• Lack of transparency and information about the member companies of TSE
• Weakness and lack of dynamism in TSE rules and other laws that affect it such
as the stock exchange laws, trade laws, and tax laws.
• Lack of separation of primary and secondary stock markets
• Lack of appropriate laws about IPO and primary markets
• Lack of investment banks
• Shortage of the stock exchange sub-markets (Enayat, 2002)
However, some initiatives have been taken to improve the capital market in Iran,
including:
1
Initial Public Offering
7
• Reforming the structure of stock markets and establishment of sub-markets to
facilitate the admission of start-ups
• Expanding the capital market geographically, i.e. establishment of stock markets
in major cities of Iran, including Mashhad, Esfahan, Tabriz, and Shiraz (Mir
Motahhari, 2002a & 2002b).
Besides, the designing of domestic capital market law is on the verge of completion.
Continuation of these reforms will depict a good future for this market and facilitate
the business exit process.
6.3. Labor laws
The ability to hire or dismiss people in the countries with inflexible labor laws is quite
limited. In some countries, dismissal of employees is prohibited due to political or
social concerns. Therefore, establishing a new firm in these countries involves a high
risk from labor pint of view.
The labor law has been one of the serious obstacles for entrepreneurship and
investment in Iran. This law has significantly increased the cost and risk of recruiting
the labor force for local employers and investors. It seems that the main object of this
law is the extreme support of labors against the employers and no serious attention
has been paid to other aspects of the issue. As a result, productivity of the labor force
has deteriorated and production costs have significantly increased. In addition, this
law has created some limitations in management of enterprises and has interfered in
some affairs that restrict the managerial scope of employers. Another serious problem
is the fact that this law does not distinguish between manufacturing, agricultural, and
service sectors and pays no attention to the scope and type of activities, the amount of
working capital, the number of employees, and the production volume (Haji Baba,
2002).
3.7. Business laws
Business laws in each country are the basis for business and investment activities in
that country and vigorously affect the kind, range and efficiency of this sort of
activities. The most important laws affecting business and trade activities in Iran are
as follows:
3.7.1. The trade law
The Iranian trade law (ratified in 1932) was a appropriate and advanced law at the
time of its ratification. However, due to the new conditions and emergence of new
trade problems, this law is no longer able to deal with the complex trade issues of the
present time. Hence, it should be revised and complemented.
One of the main deficiencies of trade law is the issue of companies’ merger.
Unfortunately, the trade law has not addressed this issue which is one of the main exit
8
mechanisms. Therefore, those companies which want to merge, should first dissolve
themselves and then form a new unified company. This can cause numerous problems
for them (Tadbir J ournal, 2001).
VC funds in developed countries are usually limited partnership companies.
Fortunately, the trade law has addressed this sort of companies, i.e. the fourth section
of the first chapter (articles 141-161) of the trade law is dealing with this issue.
Existence of laws related to this sort of companies is very important for establishing
the VC industry.
3.7.2. The law of company establishment
The entrepreneurs and individuals who are interested in production activities are faced
with numerous problems in establishing a company. The main problems are as
follows:
• Continuous change of the requirements and conditions of issuing a license for
establishing a company
• Lack of effective data bases about domestic markets
• Existence of some tough rules or standards
• Inappropriate allocation of governmental facilities for entrepreneurs (They are
granted based on geographical areas without regard to kind of activity or real
need of entrepreneurs).
3.7.3. Export and import laws
The most important problems that the export/import regulations have created for
enterprises, esp. small ones are as follows:
• Instability of the exports/import regulations
• Long bureaucratic procedures for order registration and obtaining the required
currency and trade licenses
• Lack of sufficient expert and well-informed staff in the governmental
organization which deal with export affairs (Lameei, 2002).
Of course in recent years, some significant measures have been taken to facilitate
export, including: stabilizing the currency exchange rate and granting export bonuses
and assurances to the exporters.
3.7.4. Bankruptcy laws
The bankruptcy law can influence the entrepreneurship and investment rate. For
instance, the US bankruptcy law has been designed in a way that bankrupts are given
another opportunity to restart their activities and transfer their assets to a new
business. The experience of managing the imminently bankrupt companies in the US
is considered as a training course for launching a new business.
9
The Iran’s bankruptcy law is a subsection of its trade law. This law has been ratified
in 1940; Hence, it is an old law and can not solve many of the related problems that
local companies are currently faced with. This law mainly addresses individuals - not
enterprises – and can not be implemented at the present time. One of the issues that
has been ignored in the existing trade and bankruptcy law is the issue of integrating a
bankrupt company with other companies and resumption of its activities. This law
puts some limitations against the resumption of business activities of the bankrupt
people (Tadbir J ournal, 2001). This can raise serious doubts in venture capitalists –
who are faced with more business risks in comparison with other investors –and
discourage them from involving in venture investments.
3.8. Policy-makers’ understanding of the role and nature of VC
Studying the countries’ successful experiences in addressing their VC industry
indicates that the first initiatives in this regard has been taken after that their
governments and policy-makers understood the important nature and role of this
industry. In other words, whenever government authorities recognize the importance
and vital role of VC industry in its national innovation system and technology
development, they reflect this issue in national plans and macro-policies.
Unfortunately in Iran, not only government authorities, but also business experts and
entrepreneurs are mostly unfamiliar with this issue. In other words, there are few
people in Iran who properly understand the importance and role of VC industry at
national level. In such a situation, no serious effort - at national level - is anticipated
in the near future.
3.9. Experienced and educated managers
The activity of VC funds is a very professional and specialized activity that is
accompanied with many complexities, both in evaluating proposed business plans and
in managing their investments in the recipient companies. Therefore, management of
such funds needs experienced and expert managers. Training such managers requires
academic education as well as business experience in a competitive environment.
Unfortunately, in Iran there is neither systematic and appropriate training courses on
entrepreneurship and VC management, even in the most well-known management/
business/engineering faculties, nor a competitive business environment – as a result of
the government-based economy - to make local managers become professionally
experienced.
3.10. Regulations of banks, insurance firms and pension funds
Financial institutions, esp. banks, insurance companies and pension funds have
fundamental effects on capital market and VC industry. A large portion of the world's
total VC is provided by these institutions (compared with individual investors).
10
However, the degree of their participation in VC industry is quite different from
country to country. This is mainly due to the different laws that govern these
institutions in different countries.
The law of interest-free banking transaction (ratified in 1983) is the law governing the
Iranian banking system, according to which banks provide their services to the
investors in the framework of Islamic contracts. These contracts do not directly
prohibit the involvement of banks in risky business activities, but contain some rules
that oblige the banks to support the only economic activities that can make definite
profits. Banks can refer to this as a pretext for justifying their extreme caution and
reluctance against VC. On the other hand, Iranian banks are mostly governmental and
their management is inefficient. Thus, the private sector has not enjoyed the banking
services favorably and most of the services have been directed towards governmental
firms (Behkish, 2001).
Financial services of local banks are highly security-based. Local banks are not able
to properly and thoroughly assess business plans and accordingly try to reduce the risk
of their financial services by demanding heavy securities. As a consequence, many
entrepreneurs and applicants of banking services become deprived of them, because
they can not provide required guaranties (Lameei, 2002).
Insurance market in Iran has been dominated by governmental insurance enterprises.
However, their performance in terms of investment is by no means acceptable.
According to the new insurance enterprises' investment regulation, insurance
enterprises are allowed to invest up to 10% of their working capital in economic
activities. However, some conditions are attached to these investments. For instance,
insurance companies are not allowed to invest in activities whose profits are
anticipated to be less than a definite limit. This may discourage the managers and
makes them show less inclination toward VC activities. On the other hand, due to the
tiny amount of long-term/life insurance policies in the portfolio of insurance
enterprises, they can not involve in long-term investments. Thus the main portion of
their cash assets is deposited in banks and little is directed towards investment
(Peikarjoo, 2002).
Concerning the Iranian pension funds, the main problems that they are faced with in
their investment activities are as follows:
• Shortage of cash assets for investment (due to their high volume of retirement
payments at the moment and lack of investment revenues in consequence of
insufficient or inappropriate investment of their funds in the past)
• Weak management
• Governmental structure (Abdoh Tabrizi, 2002)
3.11. Motivation for higher profit-making
11
The success of VC industry is, to a great deal, related to profit-making motives in this
industry; because without such motives, there would be no inclination and
justification for taking higher risks required in this industry. However,
institutionalization and extension of culture and motivation for higher profit-making
needs its own context, namely a powerful private sector. Since Iranian economy is
government-based, this context is not prepared. There are other reasons for Iranians’
low motivation for higher profits, including: the cultural atmosphere prevalent in the
country, local capitalists’ tendency toward risk-free businesses, and existence of
economic inflation and corruption. Due to inflation and economic instability, local
investors can make enormous profits (even over 50% per annum) through investing in
low-risk sectors (such as construction or real estate); hence no rationale or
justification for VC activities, which if successful, can earn the same or even lower
profits.
VC industry contributes to national entrepreneurship growth and technology
development; but this should not lead governments to bring this industry under their
domination and consequently deteriorate the competition and profit-making motives
in this industry, because this has no fruit but failure and collapse of VC industry, as
happened in South Korea in 1990s.
3.12. Presence of foreign venture capitalists
Study of the status of VC industry in different countries indicates that the
strengthening and development of this industry has close relationship with foreign
investment. Successful countries in the field of VC are those which have opened their
economy to foreign venture capitalists and have welcomed foreign VC. But those
countries - such as South Korea - which established unusual limitations for foreign
investors under the pretext of supporting the local industries, have either failed or
faced with serious problems concerning the VC. These limitations have also resulted
in the weakening of links with international investment companies or networks as
well as decreasing the access to international markets.
Hardly have any VC fund existed in Iran up to now. On the other hand, these funds
require professional managers that hardly exist in Iran. Therefore, presence of foreign
venture capitalists is necessary for establishment and development of VC industry in
the country as well as transfer of their knowledge and experience to local experts and
investors. It is obvious that presence of foreign venture capitalists is not possible
without providing an appropriate context or environment for FDI
1
in the country.
Fortunately some important measures have been taken to facilitate FDI in Iran,
including: ratification of “foreign investment encouragement and support law”,
eliminating the wide diversity of rates of exchange of foreign currencies (esp. dollar),
and modification of tax law. However, there are still several factors that hinder FDI in
1
Foreign Direct Investment
12
Iran, such as: existence of excessive rules and regulations which are restrictive or
inter-conflicting in some cases, arbitrary decision-making, unopened economy,
political obstacles, and negative attitude toward foreign investment (Tadbir J ournal,
2003).
3.13. Development of Hi-tech industries
Experience of developed countries indicates that development of new technologies,
esp. IT, has been accompanied by development of VC industry. Companies in IT or
computer industries, have used VC much more than the companies in other industries.
On one hand, enhancement of VC industry would help the growth of hi-tech
industries and firms. On the other hand, development and expansion of hi-tech
industries would significantly increase the demand for VC.
Unfortunately, Iran suffers severe defects in the field of new and advanced
technologies and due to the lack of appropriate governmental policy-making and
investment as well as weakness of Iranian private sector in this regard, infrastructures
of hi-tech development are not prepared in Iran.
3.14. Investment security
investment security is the prerequisite for any kind of private investment in a country
and VC industry can develop and extend only in secure and stable regions.
Unfortunately, Iran is not in a desirable situation in terms of investment security. The
indicators of this claim are: the high rate of annual capital exit from the country as
well as high premiums demanded by international insurance enterprises for insuring
investments in Iran. At the same time, no sufficient attention has been paid to
investment insurance in Iran and local insurance companies have not seriously entered
this domain yet.
Investment security has economic, commercial, political, judicial and cultural aspects
that should be considered simultaneously in order to devise a comprehensive and
effective solution for improving this issue in the country.
3.15. Networking
Networking among different VC funds and establishment of a comprehensive and
integrated communication system for these funds, can facilitate VC transactions and
help entrepreneurs find suitable sources of VC and obtain their required fund.
Besides, this can create synergy between these funds, improve their performance, and
guide them toward evolution. In many countries, all useful information about both
potential investors and investment opportunities has been gathered in some specific
websites; therefore, their entrepreneurs can easily access the required information.
13
In Iran, some efforts have been made – mainly by Technology Cooperation Office
(TCO)
1
– toward establishing a communication network among technology
development funds through a specific website. However, this has been retarded due to
some problems.
4- Concluding remarks
This paper tried to briefly review the supporting infrastructures of VC industry in the
context of Iran. The precise and detailed study of each of these infrastructures could
be carried out through a great research project.
Based on the whole discussion above, we can conclude that Iran suffers serious
shortcomings and problems in terms of almost all mentioned infrastructures.
Certainly, a single organization or even ministry can not solve this problem alone;
rather it needs the cooperation of different government divisions and organizations.
However, coordination and supervision over the implementation of related reforming
policies or decisions should be concentrated in one place. Therefore, it is necessary
that a governmental body or committee be assigned to undertake the policy-making,
strategy formulation, and coordination of efforts concerning VC. Representatives of
related governmental organizations and entities are required to participate in this
committee; thereby related organizations can participate in formulation of VC policies
and decisions of the committee will be the result of consensus among them. Besides,
each representative would be responsible to follow up the implementation of the
committee’s decisions in his/her affiliated organization. This committee should enjoy
two characteristics:
1. It should be an inter-sectional body and not dependant to a specific
organization or ministry.
2. Establishment of such a committee should not lead to domination of the
government over the domestic VC industry. This committee should merely
play the role of a policy-making and monitoring body for this industry. It
should not interfere in business or investment affairs and bring this
competitive industry under its full control. In other words, it should not
monopolize this industry, because moving in this direction will ultimately lead
to the collapse of this useful industry.
References:
Abdoh Tabrizi, (2002). H. Restructuring the Social Security System in Islamic
Republic of Iran. Iranian Capital Journal, 2.
1
Affiliated to Iranian Presidential Entity
14
Behkish, M. M. (2001). Iranian Economy in the Context of Globalization. Nay
Publication, Tehran.
Enayat, S. A. (2002). Problems and Restrictions in Iran’s Capital Markets. Economics
Research Quarterly, 3, J an.-Mar. 2002.
Hanifi, F. (2001). Venture Capital: Structures and Functions. Iranian Bourse Journal,
21.Http://www.abdoh.net/dbase/upload/tagdid.htm
Lameei, B. (2002). Legal Obstacles Against Entrepreneurship Growth in Iranian
Small Manufacturing Enterprises. Iranian Journal of Labor & Society, 45.
Mir Motahhari, S. A. (2002a) Tehran Stock Exchange: Challenges and Hopes. Iranian
Bourse Journal, 30.
Mir Motahhari, S. A. (2002b) Opening of Mashhad Stock Exchange: A Significant
Step towards Expansion of Capital Market in Iran. Iranian Bourse Journal, 31.
Mostahsan, H. and Bagheri S. K. (2003). Analyzing the Iranian Technology
Development Funds From Venture Capital Perspective. The First Conference of
Management of Technology. Power Industry Technology Center (MATN Co.), Tehran.
Peikarjoo, K. (2002). Analyzing the Investment Volume and Efficiency of Public
Insurance Companies and Consequences of their Privatization in Iranian Capital
Market. Iranian Quarterly of Insurance Industry, 4.
See the Scottish Equity Partners Limited Website : www.sep.co.uk
Senobar, M. (2001). Intellectual Property and Entrepreneurship: Concepts and
indicators and Iran’s Status. Conference of entrepreneurship & Hi-tech, Tehran, Oct,
2001.
Tadbir J ournal. (1999). Entrepreneurship Development: Obstacles and Solutions.
Tadbir Journal, 90.
Tadbir J ournal. (2001). The Trade Law and Firms’ Problems in Iran. Tadbir Journal,
112.
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The ABC’s of Venture capital, Entrepreneurs Forum of the Northwest
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