RESPONSIBLE ENTREPRENEURSHIP VISION DEVELOPMENT AND ETHICS

Impact of risk capital on stimulating innovation: case of Azerbaijan 343
Conclusion and recommendations for Azerbaijan
Based on our analysis, it has been determined that currently risk capital is emerging in
Azerbaijan in the form of seed and pre-seed capital. The next step innovation center, Baku
business factory, High Techno Park, QU Techno Park and other private accelerators are investing
seed stage capital to innovative startups. While this is promising, it is important to focus
on establishing the next stage financing mechanisms. In particular, it is critical to establish
angel investing as the next stage of risk capital for technology-based startups in Azerbaijan.
The field analysis and interviews with aforementioned incubation and acceleration centers
revealed that startups have very limited access to risk capital, both angel and venture
capital funds. A current record-low oil price in the global markets makes it hard for the government
of Azerbaijan to allocate additional investment for the improvement of conducive
financing mechanism of startups. Due to the fact that only few incubation centers provide
seed and pre-seed capital and remaining need for funding is met through personal funding
(as well as friends and family) existing financing gap need to be bridged by state and private
funds and financial intermediaries before startups fall into “valley of death”.
In addition to recommendations aiming to advance risk capital financing, it is worth to
mention the importance of reforms with regard to legal and regulatory framework. Because
developing legal, regulatory and tax framework of startup is as important as financing methods.
US experience in the field of startup financing shows the importance of establishing a
venture capital system as seen by the level of impact of venture capitals on innovative capacity
of businesses. The change to the Employee Retirement Income Security Act in 1979 freed
pension funds to invest in venture capital. This indicates that government can play an important
role in eliminating constraints to formation of venture capital system. A law analogous
to the 1979 law in the US, which allowed pension funds to avail their funds to venture capital
firms, might be considered for Azerbaijan as well.
Furthermore, dissemination of information about incubation and acceleration centers, success
cases and available funding opportunities should be more frequently promoted through
mass media means. Although startup firms, by large have cooperative relationship among each
other, they have little information about current services run by various private and government-backed
incubation centers. The government can also take steps to facilitate closer and
mutually beneficial partnership opportunities for existing accelerators in order to benefit from
the synergy effect.
References
“Azerbaijan – 2020: Look into the future” concept of development. (2012) Press Houses p. 34, Retrieved
from http://www.president.az/files/future_en.pdf.
Baku Business Factory. (2016, March 15). Retrieved from http://bbf.az/en/page/2147483647
Berger, A. N., & Udell, G. F. (1998). The economics of small business finance: The roles of private equity
and debt markets in the financial growth cycle. Journal of Banking & Finance. 22(6), 613-673.
Cole, R. A., & Sokolyk, T. (2014). Debt financing, survival, and growth of start-up firms. Survival, and Growth
of Start-Up Firms. October 6.
Da Rin, M., & Penas, M. F. (2007). The effect of venture capital on innovation strategies (No. w13636).
National Bureau of Economic Research.