Gev Balyan
Armenia was once the center of IT innovation for the USSR. A
turbulent history has stifled the economy, but things are starting to
look up for the Caucasus republic. A highly-skilled, post-soviet
engineering workforce and a diaspora of advocates, combined with new
government initiatives, are igniting renewed growth in Armenia’s IT
sector. These businesses are creating new technologies — from
award-winning mobile apps to world-first presentation tools — recognized
across the globe and many startups are making their way to the US.
The Armenian tech industry is growing at an annual rate of 20 percent, greatly exceeding the country’s two percent economic growth. Annual tech revenues
from some 400 IT companies make up $475 million and by 2018, it is
estimated this industry will be the dominant sector driving new wealth
for the economy.
So, how is the Armenian tech scene growing? What is the
country doing to drive international investment and which startups are
making the biggest waves in the global tech scene?
Reigniting IT innovation
In the days of the Soviet Union, Armenia designed and manufactured 40 percent of the mainframe computers
for the military. The Yerevan Computer Research Institute, a secret
building in the capital city, employed 5,000 highly skilled workers, but
later fell to ruin. This is just a small portion of the “several
hundred thousand specialists” that worked behind the scenes at the heart
of IT innovation, according to the Union of Information Technology Enterprises in Yerevan.
This
history, combined with Soviet academia’s celebration for the sciences
and great Armenian determination, have provided the foundation to
kick-start a resurgence of tech innovation. As tech revenues continue to
rise, the largest foreign investment, according to the Armenian government, is going into “telecommunications, mining, energy, air transportation and financial sectors.”
Online gaming and sports betting software company
BetConstruct, an investor in my company ucraft, launched in Yerevan in
2003 and today has offices worldwide. BetConstruct’s founder and CEO
Vahe Baloulian told me, “When we launched, the technology sector in
Armenia consisted mainly of software houses serving the nascent
industries and the government and some offshoots of foreign technology
companies, looking for more affordable resources. The successes of these
prompted local entrepreneurs to set up development firms that would
attract outsourced work.”
He described how improvements in infrastructure mean
opening business in Armenia today is far easier, “The old communication
monopoly has been abolished, and competing providers have made the
Internet a lot more affordable and accessible.”
Many of the largest IT companies operating in Armenia, such as Microsoft, Google and Oracle,
are internationally headquartered with development teams based in the
country. The government encourages expansion from these corporates with
the implementation of its “open door” policy, designed to encourage foreign business owners and investment, with legal regimes that protect foreign capital.
In 2012, Intel announced the launch of a new research center
during the ArmTech Congress. US Ambassador to Armenia John Heffern
reported the potential for IT growth, “The creative mind is the key to
the future of Armenia. The U.S. Department of Commerce has issued a
report based on UNESCO data, according to which Armenia is the first
among CIS member states with the number of inventions per capita,” he
said.
The multinational joined global names such as Synopsys, D-Link and “virtualization giant” VMWare after its acquisition of IT startup Integrien — each running operations from the country and taking action to rouse a new generation of tech innovation.
Synopsys, the largest global company in electronic design automation (EDA), with an annual revenue of over $2 billion
USD, launched offices in Armenia in 2004. Today it is one of the
largest IT companies in the country, with over 650 employees. It is also
heavily involved in schemes to support rising talent. Synopsys collaborates with Armenia’s Polytechnic University to provide educational programs for students, and also hiring a large number of graduates.
These initiatives work to support Armenia’s youth through
education and increasing work availability for skilled Armenians. But
large corporates are not the only option, a burgeoning startup scene
enabled by new government tax reduction schemes is changing the face of
Yerevan and attracting global attention.
New legislation empowers entrepreneurs in Yerevan
Yerevan is one of the oldest cities in the world. However, this
ancient transit hub has renewed energy as the center of Armenia’s
startup scene.
Recent legislation
has made founding, operating and growing a tech startup in Armenia much
simpler. After lobbying from the Union of Information Technology
Enterprises (UITE), Armenian headquartered startups, tech centers,
incubators and accelerations with fewer than 30 employees, now benefit
from tax privileges.
Yerevan is also home to two free economic zones (FEZ) where
businesses that meet certain startup requirements can operate without
paying VAT, profit, property and income tax, also escaping export customs duty charges.
One of these is found in the area of the RAO Mars Closed Joint-Stock
Company and Yerevan Research Institute of Mathematical Machines, and is
designed to enable, manufacture and export of new technologies.
Today, you really can launch a startup for a very low cost —
and the effects of this are a growing startup ecosystem, and a culture
of excitement. Armenian businesses are gaining traction and experiencing
global recognition. Companies such as PicsArt, Triada Studios, Plexonic
and BetConstruct are making waves in the tech industry, showing the
enormous potential Armenia has as a center of innovation.
Yerevan-based Triada Studio is the creator of puzzle app Shadowmatic, the winner of the prestigious Apple Design Award and App Store Best of 2015. Triada Studios launched in 1993 as a computer graphics and animation studio. Cofounder and CEO Ara Aghamyan described the “huge intellectual potential” in Armenia.
Aghamyan claims the biggest challenge that the Armenian tech-scene
faces today is the exodus of talent, as a large number of startups end
up moving to the U.S. to raise capital and reach greater audiences. “We
can only overcome this by creating an ecosystem that will not only make
people stay in the country, but also attract great minds from all over
the world,” he told me.
The move to Silicon Valley
Nigel Sharp is the former technical project manager for Armenia’s
TUMO Center for Creative Technologies and founder of Armenia-based
startup Lionsharp, creator of Voiceboard, “the world’s first gesture and voice controlled presentation solution.” Sharp told PSFK
that a poor track record of foreign investment “plagued with corruption
and losses” has created a barrier to foreign investment.
This distrust combined with the challenges of networking,
common in any emerging startup hub, prevents many businesses from
putting their creations in front of a global audience. This is made more
difficult by limited access to entrepreneurial education, language
differences and the need to travel. As a result, Armenian startups are
moving to the U.S. to gain support, funding and improve their growth
prospects.
In April, photo-editing app PicsArt raised an additional $20M
in VC, bringing its total funding to $45M and enabling the Armenia-born
startup to grow its presence in China and Japan. In 2015, PicsArt’s CEO
Hovhannes Avoyan relocated to join the company’s Chief Revenue Officer
in San Francisco, helping to further solidify PicsArt’s recognition in
the U.S. tech scene. PicsArt was later that year included on Forbes’s
list of ”Hottest Startups of 2015”.
Influencers in the tech world are making efforts to
strengthen ties between Armenia and the US. In March Triada Studios’ Ara
Aghamyan wrote to President Obama
explaining the tech community’s role in developing US-Armenian
commerce. He drew attention to the issue of double taxation that deters
foreign investment and restricts growth for businesses that are based in
Armenia.
Shadowmatic is not the first to take a stand. PicsArt,
Microsoft, FedEX, NASDAQ, Marriott, Grant Thorton and more have all gone
on record in support of better economic relations to empower growth
within the country.
US advocates of Armenian tech growth
Armenia’s enormous diaspora
means that there are actually more Armenians living outside of the
country: There are between seven to 10 million Armenians concentrated in
Russia, the US and France, in contrast to just three million within the
country. Second generations Armenians today also add to this global
network actively working to support Armenia’s future growth.
Co-founder of Inet Technologies, Sam Simonian and his wife Sylva founded TUMO Center for Creative Technologies;
a free digital learning center in Yerevan, that provides classes for
around 5,000 12-18 year olds working with new technologies. Armenia
boasts a number of innovative centers such as TUMO, launched as a result
of international advocates, and big partnerships.
Former Twitter VP, Uber
executive Raffi Krikorian, sits on the board at TUMO, and is active
when it comes to supporting new startups, “Honestly, if you are
Armenian, I will probably want to help you” he said in an interview with Repat Armenia.
In 2011, Microsoft launched the Microsoft Innovation Center Armenia
in partnership with the U.S. Agency for International Development
(USAID) and Enterprise Incubator Foundation (EIF). The center aims to
enable IT growth by supporting students and startups. It offers programs
such as coding bootcamps, training courses and workshops and startup
acceleration schemes that include early-seed investment, helping to
power a growing startup ecosystem.
Entrepreneurs also benefit from a new emergence of
enterprises such as the Center for Entrepreneurship and Executive
Development (CEED) which this year launched the Armenia – US IT Acceleration Program with the EIF, the Government of Armenia and the World Bank, helping to connect new startups with global markets.
As with any emerging industry Armenia’s startup scene
struggles with limited cash flow and a need to respond quickly to
changing tech. New businesses such as Armenia’s first virtual networking
and startup accelerator, HIVE and the country’s first technology-focused VC firm, Granatus Ventures,
help startups to get off the ground. However, in order to compete on a
larger-scale, these businesses need to attract larger audiences and
global investment.
But the wheels are in motion, today it is far easier than
ever before. As more business leaders draw attention to both the
barriers that Armenia faces, but also the potential of this emerging
industry, we can expect continued growth from this ancient center of
innovation.
thenextweb.com, March 17, 2017
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