Showing by name, Iran Alternative Investment is simply a getaway for conventional investment schemes. If listed equities, bonds (Sukuks) and bank deposits are considered as conventional in Iranian investment ecosystem, then ripping the way off for other instruments shall be named alternative.
Traditionally, international investors have always had their eye on Iranian greenfield investment schemes in form of private equity. After some time, the opportunities in the Iranian capital and debt markets caught their eyes, however, the difficulties of getting deep in said pools captured the agility those investors sought. Now a new window is open with enormous potentials there and that is the venture capital sector of the Iranian economy.
Considering its semi-traditional markets, the concept of Iran Alternative Investment in its general sense is mostly new. Although there were schemes carried out before, that can be seen as an alternative investment, however, the professional practices do not have a long history.
There are four major categories when it comes to Iran Alternative Investment, whether talking about Iran or elsewhere:
- Venture Capital
- Private Equity
- Real State
- Commodities (not the listed ones on mercantile exchanges)
Real estate has always been among the top choices of Iranians for their conventional investment let alone the alternative way. Since the property was the safe haven for quite a time amid the nation and there were no downfalls with investors returns, real estate has its roots in Iran Alternative Investment mentality. A couple of incidences in the housing market along with developments of “financial security” knowledge in society made policymakers think harder about other alternatives to present to the nation.
Ratification of the capital market act was the ignition Iranian market needed to develop other types of alternative investment instruments and made the bed for other bylaws derived from the mother legislation which allowed alternative instruments to find their way into Iranian market in a legit way.
Venture Capital funds in Iran:
History of Iranian venture capital funds dates back to July 2010 when the parliament passed a bill titled supporting knowledge-based companies and organizations. On December 16, 2009, the ratification of new financial instruments and institutions paved the way for what we have here today. Finally, on June 2016 ratifying the official instructions of establishing VC funds started a new chapter in Iran Alternative Investment schemes. Said funds aimed to help Iranian startups and newly born companies to survive and grow in the “not so much matured” financial environment of Iran.
The general structure of Iranian VC funds has lots of similarities to international alternative investment schemes especially contrary to European Union instruments (e.g. UCITS). There shall be a general partner (GP), a registered financial entity, whom shall act as the fund manager and carries the interest and management fees. Other limited partners (LP) are required to have investment commitments for a specific period of time. Finally, an investment committee, consisting of members appointed by GP and other LPs, is to oversight the decision-making processes. Other supplementary entities are to service the fund as well in administrative and auditing processes.
It is safe to divide Iranian VC funds into two groups of Listed and unlisted. As of today, there are 5 listed VC funds registered in Iran Fara Bourse. The below list demonstrate the details:
In order to establish a venture capital investment fund, there are clear instructions to follow. First, one must make an official application to SEO appealing the primary consent of their VC committee for forming an investment fund. The applicant shall provide its completed application along with following documents to IFB admission office:
- Application for SEO’s primary consent;
- Articles of association and Prospectus of the fund;
- Information on each of the funds’ components;
- Other required documents asked by IFB;
The application must be clear on investment plan details along with all the fees and costs associated to the fund investors.
There are some provisions to meet before establishing a VC fund in Iran that all shall be addressed on the fund’s AoA. The below list has the headlines:
- Activity period of VC funds is set to be 7 years;
- At least 3 individual or institutional persons must sit as founders and bring a minimum of 5% of the fund’s assets;
- The minimum initial (pre-IPO) assets shall be no less than IRR 10 bn (USD 236.80 k) in any events;
- Iranian VC funds are allowed to invest in any assets that are not publically offered;
- Listed equities and rights on Iran Fara Bourse SMEs market are investment allowed only if it is in line funds prospectus;
- Fund Manager can purchase any listed debt securities from the outlying cash in fund’s portfolio;
Bottom line, Iran venture capital atmosphere has lots of potentials since the entrance of big international Startups and unicorns is somehow restricted. Therefore, domestic players are to localize already existing ideas or even innovate something totally brand new. The fast growth of related entities like accelerators, VC consultants and mentors are facts for the hidden capacity of this market.
Moreover, the official inauguration of equity crowdfunding made the bed even more favourable to sophisticated investors, angels and VC funds mostly due to the fact that a wide range of Iranian investors is immature inexperience, hence for some time it will be just them to participate in the said scheme.
In following parts, we are about to explore deeper in Iran Alternative Investment schemes with a specific focus on the startups and VC projects.