Development of Startup Projects and the Venture Capital Ecosystem in Uzbekistan

On October 14, the President of Uzbekistan, Shavkat Mirziyoyev, signed the Decree PD-357, which approved the “Digital Startups Program”, aimed at providing comprehensive support for startup projects within the digital technologies sector. This is a pivotal step in reinforcing Uzbekistan’s position as a new startup hub in the region. The program establishes the necessary conditions for the growth of innovative enterprises, thereby advancing the country’s digital ecosystem and attracting new investments.

In accordance with the decree, a “Roadmap” for the development of the startup ecosystem for 2024-2026 has been adopted, including mechanisms to support and promote startup growth within the country, the establishment of a venture fund under IT Park Uzbekistan, the formation of a regulatory sandbox for startups, and the creation of a Coordination Council to oversee the development of the startup ecosystem.

Here are the details:

According to the decree, eligible participants in the program are legally registered startups that hold residency status in the Republic of Uzbekistan. Additionally, they must meet the following criteria:

• Operational period between 6 months and 7 years;
• Annual revenue not exceeding 10 billion UZS;
• Possession of documentation verifying the successful completion of an incubation or acceleration program;
• Availability of a business model based on digital technologies with high growth potential and prospects for international market expansion;
• Registration on the startup ecosystem platform.

The program also extends eligibility to venture capital funds dedicated to the development of the startup ecosystem, as well as business entities providing acceleration and incubation services for private investors and startup projects.

The program includes a series of comprehensive measures and support mechanisms aimed at accelerating the growth of digital startups, promoting innovation, and creating favorable conditions for technological entrepreneurship within Uzbekistan.

The support mechanisms include:

• Allocation of investment funds equivalent to those invested by foreign venture capital firms managing assets exceeding $50 million. The allocated funds, however, must not surpass the equivalent of $100,000.
• Coverage of up to 50% of the expenses for participation in leading international acceleration programs that have attracted investments of at least $100 million, as per the list approved by the Ministry of Digital Technologies. These expenses, not exceeding the equivalent of $20,000, must be related to education and certification in entrepreneurship, business, and corporate sectors.
• Coverage of up to 50% of the costs associated with the engagement of mentors and trainers for entities implementing incubation and acceleration programs, provided the costs do not exceed the equivalent of $50,000.
• Coverage of expenses related to patenting and registering intellectual property and trademarks.
• Provision of financial loans for startup projects of up to 300 million UZS, with an interest rate 4 percentage points above the Central Bank’s base rate, through the Venture Fund under the Directorate of IT Park, without the need for collateral.

Moreover, according to the President’s decree, a venture fund will be established as a limited liability company under IT Park Uzbekistan. This fund will provide financial support for startup projects in the digital technology sector, with an authorized capital of $10 million sourced from the funds allocated to the Program.

In line with the decree, the State Assets Management Agency will, within one month, transfer all material and technical assets of the National Venture Fund “UzVC” and the state's share in its charter capital to the Ministry of Economy and Finance at nominal value.

The National Venture Fund “UzVC” is being restructured into a “Fund of Funds”, which will finance venture capital funds. The following key objectives have been set for the “Fund of Funds”:

• Formation of investment portfolios and attraction of domestic and foreign investors;
• Securing grants and co-financing mechanisms from international financial institutions and donor organizations;
• Entrusting its financial resources to foreign and local venture capital funds through a demand-driven mechanism, provided that the allocated resources exceed those provided by the fund.

The Reconstruction and Development Fund will provide an interest-free loan of $50 million to the Ministry of Digital Technologies for a period of five years. This loan is set to be disbursed on January 1, 2025, in accordance with the request from the Ministry of Digital Technologies, with the funds being allocated towards the implementation of the Program and the creation of a venture fund in the digital technology sector.

The Digital Technology Development Fund will be established using proceeds from the sale of shares in startup projects, as well as other legally permitted sources.

Commercial banks and business entities with more than 50% state ownership in their charter capital are permitted to:

• Establish venture funds, engage in venture investments, and allocate their own resources to other venture funds under trust management agreements;
• Create “startup studios”, utilizing vacant real estate and technical assets for startup projects in exchange for equity;
• Provide “startup studios” to IT Park Uzbekistan, its branches, and other entities participating in the startup ecosystem under operational management rights;
• Lease real estate directly to startup projects registered on the startup ecosystem platform, retaining the right to revenue from such leases;
• Purchase a single contract from a startup for the implementation of information systems and software products worth up to 500 million UZS within one fiscal year, provided they hold at least a 5% share in the startup’s charter capital;
• Place direct orders on local digital platforms for freelance services worth no more than 2 million UZS per service, with an annual cap of 200 million UZS, based on a list approved by the Ministry of Digital Technologies.

Additionally, under the decree, a special legal regime, the “Regulatory Sandbox”, will be introduced from January 1, 2025, to January 1, 2027, to support digital startups.

Advertising for startup projects promoted by the Ministry of Digital Technologies and aimed at providing social support, including employment for various segments of the population, is recognized as social information.

The document outlines the establishment of the Coordinating Council for the Development of the Startup Ecosystem, which is tasked with:

• Coordinating the activities within the framework of the Program, overseeing the implementation of action plans, including the creation of “startup studios”, incubators, and acceleration centers, addressing emerging issues, and reviewing reports from ministry and agency heads on these matters;
• Defining the procedures for applying support mechanisms available to Program participants;
• Annually approving “roadmaps” aimed at enhancing the startup ecosystem and developing the venture capital market.

The Coordinating Council will convene quarterly to assess the effectiveness of support measures provided to startup projects.

This Presidential decree will provide Uzbekistan and its highly skilled professionals with greater opportunities to create startups in the field of digital technologies, while also expanding horizons for startup development and attracting new investments. Furthermore, the development of the startup ecosystem will contribute to the creation of high-paying jobs and the strengthening of the country’s digital infrastructure, fostering its overall economic growth.