Number of companies co-founded by Russians in Armenia increases by 7%: Research by Dsight says local start-ups seek to enter international market

In Armenia, the number of companies co-founded by Russians has increased by 7% (from 16% to 23%), local Armenian startups seek to enter the international market, and the startup ecosystem in Armenia as a whole is a regional catalyst of innovation.

Such a conclusion was made by Dsight, a startup and IT market research company in Eurasia and North Africa, which presented an analysis of the main players of Armenia's venture ecosystem and the opportunities contributing to its development, as well as local startup problems and steps to address them.

According to the analysis, conducted through interviews and open source research, the venture capital market in Armenia started operating in the 2010s, but especially in the last four years there has been a particular resurgence. There are eight venture capital funds and three business angel clubs operating in Armenia.

Angel investors, or business angels, are mostly people who invest in high-risk technology projects in their early, embryonic stages. Venture capitalists, unlike business angels, are mostly professional investors who fund startups or small companies that have had some success, helping them grow further.

The main features of the venture ecosystem in Armenia are:

• Rapid growth of the IT sector;
• The promotion of innovation by the government;
• The shortage of IT professionals;
• The formation of a venture capital market;
• Internationalization of start-ups;
• Great need for "smart money".

The rapid growth of the IT sector

This factor is underpinned by various data:

• Armenia's startup ecosystem is a catalyst for innovation in the region, ranking 60th in the 2022 Global Startup Ecosystem Index, five points higher than last year.
• Armenia is also ranked 16th among Eastern European countries. Yerevan ranks 244th out of 1,000 countries in startup ecosystem development.
• Armenia was ranked 11th in 2022 on the economic freedom index. The overall growth of IT sector in 2011-2021 was 23%. During this period the following steps were implemented: creation of the Ministry of High Technologies, introduction of preferential taxation system for IT companies, etc.
• In the first half of 2022, 2,565 new IT companies were registered in Armenia.
• In 2021, the gross output created by Armenian IT companies amounted to 1 billion USD.
• As of 2021, the IT sector employed 16,000 people.
• Forbes magazine called Armenia a new global technology hub.

Startups seek to enter global markets 

Because of the small local market, Armenian startups have sought internationalization from the very beginning. They view Armenia as a testing ground, but few consider locals as their end consumers. The reason for internationalization is also the lack of highly qualified specialists and resources.

Startups are in dire need of "smart money"

Smart money refers to investments by investors with experience in the field, who can not only finance, but also help startups with advice. Armenian startups, according to the analysis, need exactly that kind of advice and support.

The top five invested startups in Armenia during the first half of 2021-2022 were: Service Titan ($700m), Picsart ($130m), DISQO ($85m), Codesignal ($50m) and Sololearn ($24m). Overall, during this period Armenian startups attracted over $1 billion in cash investments through 26 deals.

In general, the Armenian venture market is assessed as an ecosystem with a small market, players supporting each other, the state supporting startups, and a conservative Central Bank.

Promotion of IT sector through certification

Since 2014, Armenia has had preferential tax treatment for IT companies that receive IT certification. Benefits include: 0% income tax, 0% VAT, 10% income tax, and 5% dividend tax.

In addition, the government implements various investment programs.

Relocation 

According to the newspaper, in 2022, 50,000 IT specialists moved from Russia to Armenia, 40,000 legal entities and individuals opened 100,000 new accounts in Armenian banks. Eight hundred Russian companies and 350 entrepreneurs also moved to Armenia. Thus, in 2022 compared with 2021 the number of companies in Armenia co-founded by people from Russia increased by 7%.