In May, Georgia’s nascent tech scene experienced one of its biggest breakthroughs. Local start-up, Pulsar AI, was acquired by New York’s Spincar, a provider of digital sales solutions for auto retailers. Spincar reportedly paid tens of millions of dollars for its new purchase, describing it as the industry’s most advanced conversational artificial intelligence (AI) platform. Just two years earlier, Pulsar AI had become Georgia’s first tech business to receive foreign early stage investment, raising $1.2m in US venture capital. Now, it is the country’s first international exit.
These values are small by international standards, but the deal has shone a light on the talent surfacing in Tbilisi and is a milestone in the government’s push to develop its early stage tech ecosystem. The driving force is Georgia’s Innovation and Technology Agency (GITA), which has forged ties with major US accelerators. Last year, Silicon Valley’s 500 Startups partnered with GITA and Bank of Georgia to launch the country’s first international accelerator programme, which gave the most promising local tech entrepreneurs 10 weeks of training and mentorship, and up to $50,000 in funding.
“Georgia’s early stage tech ecosystem is being impacted by several public initiatives,” says Pedro Vieira, 500 Startups’s director of operations for start-up programmes in Europe, the Middle East and Africa. “Given its geographical location, local talent, and cost effectiveness, the country’s tech sector has potential for growth in the future.”
Early success stories
Another local venture making waves internationally is Stack, a tab-less internet browser that increases productivity by streamlining the use of multiple applications. Late last year, it raised $850,000 in seed investment from 500 Startups and Dutch venture capital fund Peak Capital. Peak managing partner Stefan Bary says Stack — which has 75,000 users across 180 countries — had a global proposition right from the beginning. “As early stage investors, that always intrigues us,” he says. “Having a software solution that you are already selling around the world means your market is global, and that you have an advantage over other players that tackle a problem country by country.”
Mr Bary says another selling point was Stack’s founders, who Peak connected with immediately. “When we meet a team, naturally, we look at cultural differences,” he says. “Can we co-operate and can we understand each other? I was really positively surprised in that working with this team from Georgia just felt like working with a team from, for instance, the Netherlands or Germany.”
Other early success stories include fashion marketplace Phubber which this year raised $300,000 from one of WhatsApp’s early supporters, and influencer marketing platform Echolize which is backed by Israeli investors. Precision agriculture start-up Agrolabs, which was invited by 500 Startups to participate in its San Francisco accelerator programme, has announced plans to expand into Europe next year.
Mr Bary notes that in early stage innovation ecosystems, examples like Stack can inspire others. “My view is that in any country you need success stories,” he says. “That is the biggest teaser for young people to start companies, by showing they can be entrepreneurs and build something that is global,” he says. “And I think this will be the case with Georgia.”
Since its launch in 2014, GITA has offered training via techparks across the country, increased local start-ups’ international exposure and offered early stage funding. Starting in 2018, it has provided grants up to $200,000 to start-ups with global applicability. The accelerator US Market Access Center reviews the applications and selects the shortlisted start-ups, which then pitch to a committee of international venture capitalists.
A total of La11m ($3.3m) has been disbursed across 200 start-ups, 25 of which have since collectively generated up to La150m in revenue and private investment. “Two years ago we were receiving around 300 applications per year. Now it’s 800–900,” says GITA’s chairman Avtandil Kasradze. The average age of applicants is also increasing. “Professionals who have quit their jobs to found a start-up are becoming part of this innovation ecosystem,” he says.
The most obvious barrier for Georgian start-ups is the absence of local risk capital. But Beka Kvartskhava, founder of events business Touch, which brings international knowledge to local entrepreneurs, sees other challenges. “Georgia is a country of individuals: it is hard to [find] good teams,” he says. “But the new generation and new mindset help us be more optimistic.”
Kutaisi innovation cluster
Another hurdle is the country’s long-standing skills gap. But the newly opened Kutaisi International University (KIU) is striving to close this gap. KIU is focused on science, technology, engineering and mathematics (STEM), and is billed as a key project in building Georgia’s talent pipeline. “In 2012–2014, studies were conducted to determine major constraints to Georgia’s economic growth,” says KIU chancellor Magda Magradze. “They showed Georgia lacked a highly professional STEM workforce, and that this was a challenge in attracting investors and starting new businesses.”
The Technical University of Munich has helped KIU develop its operating model and curricula for its first study programmes. Subsequent courses will also be developed with input from scientific and education centres around the world, with the goal of offering international-quality programmes. KIU can host 10,000 students at full capacity, which it hopes to attract from the Caucasus, Russia and Central Asia, creating the region’s leading technical university.
KIU is working to build a broader business and research cluster, making the city a science and technology hub. “We hope to attract not only Georgian, but also international partners and businesses interested in working with our students through internships and joint projects,” says Ms Magradze. Belgian medtech company Ion Beam Applications has already committed to bringing its proton therapy capabilities, used to treat cancer, to KIU’s medical research centre. It will be the first oncology centre of its kind in Eurasia.
By encouraging collaboration between academia and industry, KIU hopes to become known as an entrepreneurial university. “To date, there has been a mismatch between what higher education institutions offer and what the industry requires in tertiary education graduates,” says Ms Magradze. “By developing an innovation ecosystem, promoting innovation in our students and by showing how universities can work with industry, we hope to help eradicate this gap.”
In association with Invest in Georgia. Writing and editing were carried out independently by fDi Intelligence.