Venture capital came to Uzbekistan

In April, the Uzbek startup IMAN, operating on the principles of Islamic finance, attracted investment from the international fund and 500 Global accelerator.

This deal well reflects the trend that is currently happening in the country – local startups have finally waited for venture capital money.

How was it before?

There have always been investors in Uzbekistan, but they were business angels – entrepreneurs who gave money if they liked the idea and the person behind it.

It often happened that the owners of large companies that are not related to IT, invested in the projects of their employees who decided to start their own business.

For example, this is how MyTaxi appeared, which has now grown into one of the largest taxi aggregators.

There were no institutional investors in the country for a number of reasons, which can be divided into three parts.

First, the market. In fact, it did not exist, because there was no culture of attracting money to startups.

Secondly, legislation. Even if an interesting startup appeared on the market and there were companies willing to invest in it, it was problematic to do so.

The legal framework did not contain the concept of venture capital investment, and the process itself, when one company invests in another, was not regulated in any way.

Third, the investment climate. It left much to be desired, so foreign investors did not go to Uzbekistan.

These and other barriers (slow and expensive Internet, currency restrictions, lack of government support) made it difficult for startuppers to find funding, which is why projects grew slowly and often died.

What has changed?

The year 2017 has come.

Currency liberalization was carried out in Uzbekistan, after which the republic reappeared on international business maps.

Foreign entrepreneurs, companies and money flocked to the country, because it became more interesting to invest and make a profit.

In the same year, the position of the state changed. If before that the Internet was viewed as a threat, now technology has begun to be encouraged.

One of the first steps was the creation of the Mirzo Ulugbek Innovations Center, which specialized in supporting start-ups. In the future, this business was continued and scaled up by IT Park.

At the same time, large-scale work was carried out to establish relations with foreign companies, improve the image of Uzbekistan, improve the standard of living in the country, and popularize IT specialties.

It remained to create a legal framework, which was done in 2018, when a Presidential Decree was issued that regulated the mechanisms for financing IT companies.

Following this, foreign and local funds began to appear, accelerators opened, the first deals were concluded, but the “boom” came only a few years later.

“Venture” 2022

Despite the fact that the market was formed, the legal framework appeared and the investment climate improved, there were still few transactions in Uzbekistan.

This can be explained by the fact that the first years were spent on a “run-in”. Startups needed time to create MVP, funds needed time to study new conditions.

In 2022, these two parallels finally crossed. In 12 months, institutional investors funded more than 20 startups, which was an absolute record.

Among the projects that have raised money are Jett, ArzonApteka, Sello, Allgood, Multicard, Ox Resto, Sug'urta Bozor, Yoto, Multibank, Pro Tok.

If you look in the context of industries, you can see many business automation systems (restaurants, shops), various marketplaces (educational, grocery) and fintech (payments, e-com, stock market).

Funds are usually invested in the early stages. In exchange for money, they ask for a share in the amount of 5% to 25%, depending on the company's valuation and the amount of investment.

The investment amounts are relatively small (from $50,000 and more), but this is because the market is not yet particularly developed, money is still very expensive.

Despite the fact that the investment culture in Uzbekistan is just emerging, by 2023 there were already 10 venture funds in the country:

• Semurg Ventures
• Altergate
• Uzcard Ventures
• UzVC
• RB ASIA
• YELLOWROCKETS.VC
• Sturgeon Capital
• Fort Ross Ventures
• Aloqa Ventures
• MOST Ventures

These are mainly private companies with foreign roots and projects of state organizations.

In addition to financing start-ups, funds also take part in the development of the market.

For example, in 2022, IT Park, Aloqabank and Aloqaventures launched a corporate accelerator.

In fact, this is a program for the development of IT entrepreneurship, a platform for pilot launches of new services and products.

These and other initiatives are necessary because a venture can only be successful if there is an ecosystem.

The year 2022 has shown that Uzbekistan is now closer than ever to this.

Information about the article’s author:

Timurmalik Elmuradov — analyst, R&D specialist, Msc of the Research University Higher School of Economics.

Author of "Skartaris Peak (https://t.me/skartariss)" - the leading Telegram channel about business, market and technology in Uzbekistan.

He was responsible for development at the “Univer Club Family” group of companies (Russia), online publication Daryo.uz. Co-founder and former CEO of Spot.uz.