RESPONSIBLE ENTREPRENEURSHIP VISION DEVELOPMENT AND ETHICS

Impact of risk capital on stimulating innovation:
case of Azerbaijan
Odiljon ABDURAZZAKOV 1 , Jafarov NASIB 2 1,2
Qafqaz University, Baku, Azerbaijan
1
oabdurazzak@qu.edu.az
Abstract: This paper analyzes the impact of risk capital on innovative potential of businesses. It discusses
types of risk capital including angel investments and venture capital. It presents the current risk capital
landscape in Azerbaijan and develops recommendations on improving the financial infrastructure for
startups in the country. Given that diversification of the national economy is a priority for Azerbaijan which
is heavily dependent on natural resources, the government of Azerbaijan is striving to develop innovation
based start-ups. Despite the high entrepreneurial spirit among founders of startups in Azerbaijan and the emerging
ecosystem which is reflected by the small number of techno-parks as well as venture capital firms established
recently, there is a need to improve the financial infrastructure with a specific focus on the availability
and accessibility of risk capital.
Key words: risk capital, innovation, startups, venture capitals, angel investors.
Introduction
Azerbaijan has experienced a fast growing economy over the past decade. This growth
corresponded to an increase in the share of oil industry in the national economy, which
increased almost two fold from 31.7% to 61.8% between 2000 and 2007 (Kuriakose, 2013;
Hasanov, 2013). The economic growth fueled by the boom of the oil sector led to significant
increases in government spending on infrastructure, education, healthcare and other important
sectors. However, the government has started taking measures to develop non-oil sectors
to ensure the sustainable growth of the national economy.
Developing innovative entrepreneurship is a crucial component of developing non-oil sector
is stimulating and supporting innovative entrepreneurship as outlined in the Development
Concept of Azerbaijan Republic approved by the President in 2012, “Azerbaijan 2020: Look
Into The Future”. Similar to Azerbaijan, other emerging economies in the post soviet region
also view economic growth based on innovation as crucial for sustainable growth in the 21 st
century. In light of this, governments of Caucasus and Central Asian countries have adopted
state programs on stimulating innovation among small and medium businesses. The resource