FUNDS FOR STARTUPS

Azerbaijan is exploring new avenues for financing innovative entrepreneurship. Alongside the provision of concessional lending through state funds and international grant assistance, mechanisms are being established to support local startups, software and IT companies via private specialised venture funds, and the necessary draft law has been finalised.

As outlined at the Baku ID 2025 forum, three venture funds have been set up in the country, with investment projects now underway for over 30 start-ups. In order to encourage the development of new businesses, plans are in place to increase the number of venture funds, incubators and electronic platforms. This will include new projects with Türkiye and the UAE.

Strengthening the ecosystem

The history of modern venture investing began with the advent of digital technologies and the internet in the late 1980s–1990s. Venture investments (venture — enterprise) refer to financial commitments made into new high-tech businesses or start-ups, which may have uncertain prospects for success. Such investments have the potential to generate rapid returns. However, given the substantial risks involved, a venture fund can also lose its entire investment.

Despite the challenges faced, the global venture market demonstrated resilience, achieving consistent growth in capitalisation. It is important to note that the average investor holding period in venture projects is typically less than five years. In the event of a business achieving success, investment funds generally sell their stakes with significant returns, often amounting to thousands of times their initial investment. This was the case for some co-investors in Zoom, Uber, Slack and Airbnb. For instance, Google received investments of $100,000 from two investors, while the company's current capitalisation exceeds $1 trillion.

"Startups are able to attract a significant share of venture capital worldwide: in 2024 alone the total volume of venture investments in the US amounted to $209 billion, of which $190 billion went to startups," said Farid Osmanov, chair of the Board of the Agency for Innovations and Digital Development (İRİA) under the Ministry of Digital Development and Transport of Azerbaijan. He stated that the country has also recently taken systemic steps to strengthen the startup ecosystem. "There are several important elements in forming an innovation ecosystem in Azerbaijan, and one of them is providing startups with convenient financing tools and easing their access to relevant financial resources. Taking international experience into account, sustainable measures for venture financing and attracting investments are being implemented."

Currently, three venture funds operate in Azerbaijan, and investment projects have been implemented for more than 30 start-ups. The agency is working to increase venture financing for start-ups and the number of funds in the country.

Please note that in 2022, with the participation of İRİA, the PAŞA Holding group and private investors, the venture fund Caucasus Ventures was established, and in 2024 SABAH.fund and INMerge Ventures were launched.

New projects

The effectiveness of work underway in the country is evident in the formation of Azerbaijani venture funds, which have collectively amassed capital exceeding $15 million and invested approximately $2.2 million in start-ups. Local start-ups attracted more than €2.4 million from a range of international investors and organisations between 2022 and 2024.

During the Baku ID 2025 forum, Deputy Minister of Digital Development and Transport Samir Mammadov noted that the development of venture capital mechanisms in Azerbaijan has reached an important stage: "Last October in Baku there was the official opening of the Azerbaijan Innovation Centre within the Innovation Cluster of the Absheron Valley. This significant event for the country's innovation ecosystem is not limited to Baku; the activity is being widely developed in the regions as well."

With İRİA's support, a variety of incubation and acceleration programmes, hackathons and ideathons were organised over a period of three years, supporting more than 600 start-ups. Domestic universities and research centres, as well as local and foreign partners, participated actively in the process. Consequently, local startups have been able to cover diverse areas such as e-commerce, medical and educational technologies, agri-tech, fintech and clean technologies, the Internet of Things (IoT), Big Data processing, artificial intelligence (AI) and the gaming industry.

Concurrently, a pivotal initiative has been initiated: preparations for a regulatory sandbox are underway, and the project has been drafted. This initiative will facilitate the entry of promising companies into the market and allow them to test solutions in a flexible environment.

"We are collaborating with the state to develop a set of regulations. The objective is to devise instruments for developing venture initiatives and to make policy even more innovation-friendly. We are confident that these measures will attract attention to the local market," emphasised F. Osmanov. Please find below the details of the meeting. He noted that the agency is actively working on organising incubation and acceleration programmes. This year, two significant acceleration programmes were initiated. The objective is to promote climate innovations and establish a platform for cooperation among regional countries. The results are impressive: more than 150 applications were received from 14 countries, 56 start-ups were adapted to a B2B format, and 10 start-ups were presented in Baku at COP29.

Azerbaijan is also participating in an international SaaS acceleration programme implemented jointly with the Startup Wise Guys accelerator. This will facilitate greater access to global markets for local start-ups and enhance their competitiveness. As part of the Roadshow project, domestic start-ups participated in international events, which promoted networking and establishing contacts with investors.

Promising directions

New conditions are being created in the country to support innovation and venture projects, and internal discussions on a more effective and transparent regulatory environment for innovative companies have been completed. Taleh Kazimov, Chairman of the Central Bank, has announced that a draft law on venture financing has been developed and submitted for government approval in Azerbaijan.

In this context, it is relevant to mention the activities of the Centre for Analysis and Coordination of the Fourth Industrial Revolution (4SIM) under the Ministry of Economy, which has completed the development of a digital economy strategy to 2030. These goals are also supported by the "Concept for Azerbaijan's Digital Development", which was approved this January by decree of President Ilham Aliyev. The document sets out a range of directions for digitalising public administration, improving the e-government system and other state information resources and systems. These include accelerating the implementation of digital technologies such as Smart City, IoT and AI. It is evident that implementing the plans outlined in the concept will facilitate the involvement of startups in digital projects and establish the foundations for expanding venture financing.

Azerbaijan is actively implementing innovation development policy, supplementing it with new options and extending it to the country's regions. The opening of the Ganja Innovation Centre is scheduled for the end of the year, and a relevant cluster will be established at Nakhchivan State University in the near future. At Baku ID 2025, information was presented on one of Türkiye's most promising government initiatives: the Türkiye Tech Visa programme. This state platform is intended for start-ups, integration engineers, IT specialists and tech entrepreneurs seeking to integrate into Türkiye's dynamic ecosystem. Azerbaijan is regarded as one of the key partners for cooperation with Türkiye Tech Visa.

Among promising undertakings is study of a possible joint research and development centre in artificial intelligence with the United Arab Emirates, as well as a venture fund. IT Park Uzbekistan and the Azerbaijani Sabah.Hub are in active talks on developing an IT hub that will serve as a platform to support joint startups and other innovative projects. This structure is expected to facilitate training and acceleration programmes with experts from both countries, organise joint hackathons, startup weekends and demo days to identify promising projects and promote them to international markets.