An ecosystem of support for technology-based startups is emerging in Georgia, but there is still considerable room for development, refinement, and adaptation, according to a new report by the Asian Development Bank (ADB).
As in many other countries, fintech and e-commerce dominate the landscape, while startups with high development impact—those focused on education (edtech), health (healthtech), agriculture (agritech), and the environment (greentech)—are emerging more slowly, according to the report, Georgia’s Emerging Ecosystem for Technology Startups, released this week.
These four sectors are especially important because of their potential to contribute to human capital development, agriculture productivity, and climate change mitigation. However, they tend to attract less attention and investment for several reasons. Rather than services, they often offer products, which must be manufactured and require advanced manufacturing capability. In addition, product development takes time and requires specific expertise, while venture capital seeks short gestation periods and quick returns.
Financing for startups remains nascent in Georgia. Grants are provided through a government program and are an important source of startup finance at the very early stages. However, as startups grow, they need to graduate to equity finance. Angel investors are emerging, but the number of deals remains limited. Venture capital is in its infancy.
Nonfinancial support is also emerging. Along with the grant program, the government provides digital training and infrastructure (i.e., technology parks). International organizations and private companies also offer business development support for young entrepreneurs and startups. In the country, a virtual economic zone has been created for information technology enterprises with zero corporate (profit) tax or value-added tax, and special conditions are offered for technology-based companies working for international clients. However, these benefits are not generally utilized by startups.
The study argues that startups in Georgia need to engage more in true innovation.
“Research and development of new technologies need to be strengthened so that startups can commercialize new ideas,” said ADB Principal Economist Paul Vandenberg, the report’s co-author. “There is also a need for them to undertake market research, so they know the products or services for which there is likely to be demand.”
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.