61 startups took part in this challenging and critical work, which involves a variety of initiatives aimed at developing the startup ecosystem. Numerous institutions and organizations are involved in this effort, and a list of these groups is provided below. While the capital city of Baku is the main hub for startups in the country, there is also an emerging startup scene in the regions. Like other parts of the world, male founders make up the majority of startup founders in Azerbaijan, but startups established by women have been found to be more sustainable. Data shows that individuals in the 20-24 age group are particularly interested in launching their own startups.
The startup ecosystem in Azerbaijan is relatively young and still developing, with 2022 marking the year in which the most startups were established. Despite this, these startups span a wide range of sectors, including data, gaming, blockchain, fintech, and more. Successful startups typically have multiple founders, which is a trend that is also evident in Azerbaijan. Funding is the most critical need for startups, and many startups have reported difficulty in securing investment. However, in 2022, a significant amount of investment was made in startups, and founders have invested heavily in their ideas as well.
In many cases, venture capitalists (VCs) are the primary investors in startups, but this is not the case in Azerbaijan, where acceleration centers are the primary source of investment. The right investments can help startups grow and become more sustainable, and Azerbaijani startups also prioritize this aspect of their operations. Acceleration centers are the institutions that invest the most in startups and provide them with the most support.
An Interview was conducted with several startups, including the founders of Epoint, Safavy, Payriff, and E-Legal, Zeynal Karimzade, Konul Guliyeva, Turkan Farzaliyeva, and Samaya Habibova, to hear their thoughts on startups and the ecosystem.
Zeynal Karimzade, who previously worked in the banking industry as the head of POS-terminal and E-commerce business for a prominent corporate bank, experienced a sense of emptiness during the pandemic. Despite having worked in the field for a long time, he observed a lack of resources available to small businesses in the market that could facilitate a quick onboarding process. This realization prompted him to begin researching this idea, which eventually led to the development of a new business venture in 2021. Since entering the market, his company has been able to quickly provide online e-commerce and additional e-commerce services to small and medium enterprises. Currently, 90 percent of his customers are from this demographic, and he plans to expand his services to reach more businesses in the future.
Samaya Habibova, who has many friends living in the United States, often received requests for help with drafting rental agreements for apartments. She tried to explain to them that laws and lawyers specializing in such matters vary from state to state. This is a common issue in many places, where lawyers specialize in specific areas of the law. While searching for a lawyer to draft a contract, she came across a portal that offered online legal services, but only for corporate matters.
This led her to wonder why there was no similar platform in Azerbaijan that could provide accessible legal solutions for issues related to everyday life, corporate matters, and court cases. Why not have a platform with specialized lawyers and auto-generated contracts that could save people time and effort? After consulting with professional lawyers, she and her team decided to create such a platform, which they named E-LEGAL.
Their main objective is to provide services by lawyers who specialize in specific fields of law. This means that a lawyer specializing in administrative law will not handle corporate law, and a lawyer specializing in corporate law will not handle family law. The platform itself will redirect users to the appropriate specialist. Habibova also noticed that people in rural areas had difficulty accessing legal assistance, so E-LEGAL aims to provide a significant advantage to those living outside of the city, as they will be able to access professional lawyers without leaving their homes.
Konul Guliyeva was engaged in the field of education and training. When the pandemic started, she faced difficulties in attending in-person training sessions, and was invited to teach in remote regions. At that time, she realized that if the world was moving towards digitalization, why not make online education accessible in our region? With this in mind, she created the Safavy online education platform under the motto "Make education accessible," and received positive feedback from the beginning.
In 2020, their users were primarily young people aged between 18 and 30. They found that 75% of these young people cannot use foreign online education platforms due to a lack of proficiency in foreign languages. Additionally, the level of foreign language proficiency at the academic level is not very high in our region, resulting in limited access to courses and classes. They believe that they can develop online education resources in our own language, without the need for Russian or English. Their results indicate that we are on the right track.
Turkan Farzaliyeva faced numerous problems with the payment system in her previous startup before PayRiff. One of the most concerning issues was the inability to find a suitable payment system. Initially, they approached banks and it took them around 3-4 months to negotiate, contract, and acquire the necessary technical documents. However, even after receiving APIs, they encountered other problems. For instance, when a customer purchased a product that was out of stock, they had to send an email to the bank and processing center for a partial refund, and the response they received was that it would take 7-14 working days for investigation. This resulted in a decrease in the startup's brand value as it entered the new market.
To address these problems, Turkan started working on a new startup that focuses on providing better customer service and minimizing dependence on human assistance. They have made the entire connection process online and it only takes 1-2 minutes. Additionally, they have developed functionalities in the user panel for full and partial refunds. From day one, they have provided open technical documents and ready-made plugins on their site to help small and medium-sized enterprises. They currently offer around 20 different functionalities for accepting online payments and have created the option to accept payments through cash terminals.
How much was your investment in 2022?
Zeynal Karimzade: I founded the startup entirely on my own and made the initial investments. While I can't disclose the exact amount, I can share that in 2022, when we were in the production phase, we secured a $170,000 investment in one round and had several sponsors who also provided funding. By the end of 2022, we were able to cover our operating expenses without relying on investments. Our startup is currently only operating in Azerbaijan, but we are actively seeking new markets to expand into. In fact, our plan for 2023 is to enter at least one new market.
Samaya Habibova: I am fully committed to E-LEGAL. In my experience, startups that dedicate at least five hours a day, mostly at the expense of their personal life, have a higher chance of success. This isn't just a desire, it's a goal. We did not seek investment last year as I believed it was premature. I want to understand the full value of the startup in Azerbaijan before seeking investment. Therefore, we did not receive any investment in 2022. However, we are considering seeking investment in 2023 as we have already digitized all our products (200+ legal services) and developed our strategy.
Konul Guliyeva: The financial aspect is a key area of focus for our startup. We did not receive any external funding until 2020. After developing our minimum viable product, we started allocating funds towards sales and projects. However, in 2022, our strategy shifted to attracting a large amount of investment and expanding into foreign markets. We quickly realized that investors were not showing much interest in the EdTech field in Azerbaijan.
As a result, we decided to invest small amounts of our own cash in 2022. We believe that our greatest investment has been in human capital. Personally, I left my corporate job to focus on the startup.
Turkan Farzaliyeva: We didn't have the option to bootstrap our fintech startup. It's generally challenging for founders in this industry to bootstrap. Luckily, we were able to secure investment right from the idea stage. While I didn't contribute financially, I dedicated all my time to the project. I'm solely focused on Payriff and have stepped away from my previous experience in business and marketing. I believe that full commitment to a startup is key to success, and we've assembled an in-house team of programmers with over twenty employees.
What are the government agencies that support your startup the most?
Zeynal Karimzade: We have been collaborating with KOBIA on various projects for a long time, engaging in discussions and attending meetings. Although we have not received any substantial support from any state institution, we maintain constant communication with the Ministry of Economy and KOBIA as part of the ecosystem.
We came in second place in Take Off and have a close working relationship with the Ministry of Digital Development and Transport, as well as the Innovation and Digital Development Agency within it. While we exchange ideas with these organizations, we have not always received financial or tangible support for our projects.
Samaya Habibova: In May 2022, we were granted a Startup Certificate by KOBIA as the first online legal service provider in Azerbaijan, which entitles us to a tax exemption for three years.
We have partnered with E-GOV to integrate ASAN Login, which has enabled us to provide our clients with a secure system. Thanks to the Innovation Center at ASAN Service, we have access to an office.
While we have received this support so far, I believe that E-LEGAL will receive even greater support as a groundbreaking platform in the field of law in Azerbaijan. This year, we have high hopes.
Konul Guliyeva: I would like to highlight the support we have received from KOBIA, especially from state institutions. Receiving a startup certificate is very beneficial for us. Every form of support we receive is valuable for us and other startups, and the tax exemption for a startup with sales and operations is a form of support in itself. We ranked 6th out of 50 startups in Take Off and have been provided with support mechanisms, although we are still waiting for their implementation. We also receive support from the INNOLAND Incubation and Acceleration Center, where we are a resident. We have access to mentors, experts available 24/7, and networking opportunities. We have also participated in events hosted by the Innovation and Digital Development Agency, which is important for us in terms of networking and exposure to potential investors.
Turkan Farzaliyeva: The primary support we have received is the startup certificate from KOBIA. However, we hope for an increase in privileges, not only with regard to income tax exemption but also in other taxes. Paying taxes is difficult for startups, especially when they have more than 20 employees, as DSMF taxes are high. We have also received support from ASAN Imza and ASAN Login, and we have been integrated into ASAN Imza from the beginning.
What are the problems you face during your activity?
Zeynal Karimzade: One of the main issues we encounter in our business is the underdeveloped state of e-commerce in Azerbaijan. This is due to a number of factors, such as the reluctance of individual entrepreneurs and companies to participate in e-commerce and receive payments through card-to-card transactions. We have raised this issue with the Central Bank and requested that they supervise the banks to improve this process. Another issue is related to VAT refunds, which currently cannot be connected to e-commerce due to the use of physical tokens. We are awaiting electronic keys to address this problem.
In many countries, fintech companies are given certain privileges, particularly related to VAT. However, in Azerbaijan, companies like ours are forced to pay VAT after their turnover exceeds a certain threshold, while banks are exempt from VAT for providing similar financial services. This leads to banks being more competitive than fintechs, as the VAT-free rates they offer to customers make their services more attractive. We believe that fintechs like ours should also be exempt from VAT, as is the case in many other countries, such as Georgia. This would help us to compete on a more level playing field with banks.
Turkan Farzaliyeva: We face many challenges in our business, and we hope that improvements to laws and regulations by the Central Bank will benefit companies like ours. Our main concern is that these improvements are implemented quickly.
According to the 2022 Ecosystem Report, the startup industry has demonstrated consistent growth over the years, and is expected to continue to thrive in the future. We express our gratitude to all the startups who contributed to the development of the report, and extend our well wishes for their continued success.
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