Right idea, wrong place? The hurdles facing tech entrepreneurs in pariah states
Operating a tech start-up in a country hit by sanctions or a negative international image is not easy. Attracting investment is harder still. Michal Kaczmarski speaks to those on both sides of the divide.
Budding tech entrepreneurs have no shortage of role models, proving that big ideas can be turned into big money. And the internet has no shortage of inspiring quotes. One circulated widely states: “Chase the vision, not the money; the money will end up following you,” and comes from Tony Hsieh, an American founder of LinkExchange, an advertising network sold to Microsoft for $265m and CEO of Zappos, an online retailer sold to Amazon for $1.2bn.
Eager to replicate Mr Hsieh’s success is Alex Senchenko, a Belarusian entrepreneur who co-founded Zapros.io in 2014. The online booking system has become a leading tool for Belarusian SMEs in just two years, he says.
“Most of our clients are in Belarus, but in 2017 we are planning to expand into the Russian, Polish and German markets,” says Mr Senchenko. And while he certainly does not lack vision, the money is yet to follow. “These are small steps, but we need to grow organically, as our investment ecosystem lacks investors that could boost projects outside of our country,” he adds.
A natural step in this situation might be to look for venture capital (VC) investment abroad, but many tech entrepreneurs in Minsk say no matter how good their vision and products are, foreign investors are unenthusiastic about companies from a country that does not have a favourable image.
Big money, big moves
In contrast, Tytus Cytowski, managing partner at Cytowski & Partners, a law firm with offices in San Francisco, New York and Europe, believes it is highly unlikely that investors would pass up on opportunities from places such as Belarus, Iran or Cuba, despite these countries being known for their strained relations with Western countries.
“Investors look at people and ideas first, and nationality has nothing to do it,” says Mr Cytowski. “I advised multiple eastern European start-ups on closing deals with American investors and the nationality of their founders is never an issue.”
Often, however, the company is required to move to the VC’s country of origin. “Betting on companies registered in another country is seen as too risky. VCs need assurance that, in case of any problems, their investments are safeguarded by the legal system that is familiar to them,” says Mr Cytowski.
A case in point is PandaDoc, a Belarus-founded document automation company, which in 2015 closed a $5m funding round led by Altos Ventures, a Silicon Valley VC. “Although we are now based in the US, we still call Belarus home. We are Belarusian at our core, but in order to secure investments we had to move our headquarters to the US,” says Mikita Mikado, who moved to San Francisco following his company’s move.
“You have to be close to your investors, because it is not only about the money you receive from them, but the guidance and connections as well. It is hard to take full advantage of these things when you are a continent away,” he says, adding that when talking to potential investors or clients, his company’s country of origin is rarely mentioned.
“We operate internationally now, and serve customers all over the world. However, if someone asks, we say that we are from Belarus. To date, nobody has refused to work with us because of that,” says Mr Mikado.
Buzz for newcomers
Sometimes, rather than being an obstacle, coming from a country that is emerging from years of isolation can be an advantage, as Josuhe Pagliery, a Havana-based game developer found out. In October 2016, he set up a fundraising campaign on Indiegogo, a popular crowdfunding platform, aiming to raise $10,000 for Savior, the first independent Cuban video game. Just one month later he closed the campaign, having reached 115% of the initial goal.
“People got excited about the game plot and the opportunity to co-create it with us, but there was also a lot of buzz about this project being from Cuba and that got us a lot of attention,” says Mr Pagliery.
Sissi Rodriguez, an executive director at Roots of Hope, a non-profit organisation aiming to support young Cuban innovators and entrepreneurs, agrees that there has been a spike in interest in projects coming from Cuba, on the back of the US easing its trade and commercial relations with the island nation. “As Cuba opens up, more and more people are interested in opportunities there and Cuban entrepreneurs are increasingly interested in expanding their services internationally,” she says.
Hurdles of different kind
Interest is one thing, but turning this into a business venture is another. And while the US lifted trade restrictions on investing in Cuban companies in sectors such as ICT and agriculture, most sectors are still closed for trade. On top of that, Cuban tech entrepreneurs must contend with infrastructure troubles alien to their counterparts and investors from Western countries.
“Running a tech company – when your internet is limited, forcing you to look for Wi-Fi hotspots in the park – is not easy,” says Mr Pagliery, referring to the fact Cuba’s internet infrastructure is so underdeveloped it has gained a reputation as being one the least connected countries in the Americas.
Problems with internet access are also the reality of running a company in Iran. Here, however, the problem is that access to many Western websites, including Facebook and Twitter, are heavily restricted. “This makes following the best practices and innovation difficult and leaves many Iranian entrepreneurs disconnected from latest trends and best practices in running start-ups,” says Ahmad Piraiee, an Iran-born entrepreneur who, after years spent in Iranian tech sector, decided to operate ITKeyMedia, an online news web service, out of Poland.
“Due to the lack of international communication, knowledge of English is still not a common attribute in the Iranian start-up ecosystem, even among the younger generation,” adds Mr Piraiee.
Faced with such obstacles, and restricted by language barriers and Wi-Fi bars on their laptops, it appears some entrepreneurs, no matter how visionary, might find it hard to follow Mr Hsieh’s advice.
The fDi Report 2016
Most popular content
- fDi American Cities of the Future 2017/18 – New York triumphs again
- fDi’s Global Cities of the Future 2016/17 – the winners
- fDi American Cities of the Future 2017/18 – FDI Strategy winners
- The first resort: how FDI can help the Maldives to preserve its paradise
- Maldives pushes sustainability at home and abroad
Crossborder investment monitor
fDi Markets is the only online database tracking crossborder greenfield investment covering all sectors and countries worldwide. It provides real-time monitoring of investment projects, capital investment and job creation with powerful tools to track and profile companies investing overseas.
Corporate location benchmarking tool
fDi Benchmark is the only online tool to benchmark the competitiveness of countries and cities in over 50 sectors. Its comprehensive location data series covers the main cost and quality competitiveness indicators for over 300 locations around the world.
fDi Intelligence provides customised reports and data research which deliver vital business intelligence to corporations, investment promotion agencies, economic development organisations, consulting firms and research institutions.Find out more.