The Ministry of High-Tech Industry recently announced a too-good-be-true collaboration with the renowned Plug and Play Tech Center. For those who may not be familiar, Plug and Play invested in startups like Dropbox and PayPal in their early days. Plug and Play will introduce a 14-week program to boost Armenian startups through consulting, business development, innovation support, and tailored mentoring.
According to this research done by EU experts, Armenian startups experience a significantly higher failure rate than similar startups in exemplary ecosystems of East-Central European countries. Conversion from one stage to another lags behind East-Central Europe average from 58,28% to 73,97% in different stages from pre-seed to exit.
In light of this, research done in 2024 shows that accelerator programs play a critical role in enhancing startup performance. The study found that startups participating in accelerator programs were 3.4% more likely to secure venture capital, raising an average of $1.8 million more than their non-participating counterparts. This proves the critical importance of introducing and actively participating in accelerator programs to scale startups in Armenia, making the entrance of Plug and Play a big milestone.
As one of the most well-known accelerators globally, its presence is expected to support Armenian startups and businesses. The 3N team decided to go beyond the mainstream by exploring the experiences of other founders to provide insights into what participants can truly expect from the program.
While opinions may vary, many founders have highlighted several standout advantages that make Plug and Play a valuable resource for startups.
Meanwhile, we want to remind Armenian founders that the deadline to apply for the Plug and Play Accelerator Program in Armenia is October 7, 2024. We encourage you to apply here: https://innovationchallenge.pnp.tc/int-accelerator-armenia/
The first batch of the Accelerator Program will have a special mission to be superheroes and demonstrate to the Government and a broader community of stakeholders that the Accelerator Program is a must if Armenia wants to keep its position in the region as a vibrant startup ecosystem.
Pros
Global Reputation
Plug and Play’s arrival in Armenia brings with it resources and a well-established global reputation as one of the leading accelerators. Its presence has the potential to positively affect Armenia’s startup ecosystem by providing local startups with access to international networks, investors, and markets. The orientation program for Armenia includes introducing startups to a comprehensive suite of services, from legal support to IT perks, preparing them for international competition.
The credibility associated with Plug and Play can serve as an appeal for global attention, increasing Armenia’s visibility on the international stage. Moreover, it could help Armenian startups gain exposure in key regions, accelerating their growth potential and positioning them for success in the global market. This strategic collaboration can also elevate Armenia’s status as an emerging tech hub, making it a more attractive destination for both foreign investment and partnerships.
Non-Dilutive Model
Unlike many traditional accelerators, Plug and Play operates on a non-dilutive model, meaning it doesn’t require startups to give up equity in exchange for participation. This allows founders to maintain full ownership of their companies while still benefiting from the accelerator’s vast resources. Startups gain access to Plug and Play’s corporate connections, expert-led workshops, and personalized mentorship without the financial pressure of diluting their equity. This model is particularly attractive for early-stage startups looking to grow without compromising their ownership while still tapping into invaluable support systems that enable long-term success.
Valuable Network Access
Another advantage that brings the accelerator program with it is an expansive network of partners, seasoned mentors, and high-profile investors. This level of exposure can significantly fast-track growth by opening doors to new markets and investment opportunities that might otherwise be difficult to reach. During the program, with workshops and corporate introductions, startups can collaborate with leading global companies.
Events like pitch polishing and focus weeks offer unique opportunities to build relationships that can fast-track market entry and long-term growth, giving Armenian startups the support to scale internationally. This access positions Armenian startups on a path to greater innovation and competitiveness in the global market.
Customizable Accelerator Model
Plug and Play’s accelerator program is designed in a way that can be easily adapted, allowing startups to join at various stages of their growth journey. Regardless of a startup’s stage of growth, the program customizes its resources and assistance to address particular requirements. Because of its flexibility, it appeals to both established businesses ready to scale and early-stage startups seeking basic direction. For Armenian startups, this customizable approach ensures that each participant can get maximum value, no matter their current stage, promoting long-term success and growth.
Additionally, the 14-week accelerator program is packed with events like workshops, webinars, and networking sessions, which help startups refine their business development strategies and investment pitches. The program also has a demo day, where startups will have the chance to pitch in front of an audience of international investors, corporations, and key figures in Armenia’s innovation ecosystem.
Despite the numerous benefits, it’s important to consider potential difficulties. Understanding these cons provides a more balanced perspective on the program’s implementation and its long-term effects on local startups. Identifying and addressing these potential drawbacks can prepare stakeholders for the successful integration of the accelerator within Armenia’s unique business landscape.
Risks
- Short-Term Focus: The current vision is very short. The current program is for the 1st batch of a 14-week program. However, the success of startups requires a longer time frame. To ensure the continued impact of the program, it should last for a longer period of 5 to 10 years.
- Limited Pipeline of Startups: As the program aims at Armenian startups, there is a risk of not finding enough startups with a strong potential for success. Therefore the program might have a long-term risk of not showing a tangible result.
- Lack of Funding Vehicle: The current program contains only educational, mentorship, and networking components. There is no funding commitment as it is available, for example, for the selected startups in the 500 Global program in Georgia. This will make the Plug and Play program less attractive for the established Armenian startups looking for funding and knowledge to fuel their growth.
- Valuation Risks: Some Armenian angels shared feedback that often, the valuation of Armenian startups is overvalued and closer to the valuation of startups based in Silicon Valley. We even heard feedback that a UK-based startup with solid traction and founders-alums of top Universities (like Oxford) is valued less than an Armenian pre-seed startup with close to 0 traction. This might create a situation where even the availability of a funding vehicle will still make it not attractive for the startups.
- Lack of Involvement of Local Industry: While the Armenian high-tech industry has been growing for decades, the rest of the economy lacks digitization. Most of the innovation created by Armenian startups aims at global markets as the local market is small and local entrepreneurs are not embracing innovation en masse due to various reasons (from limited financial capacity to lack of human resources and lack of knowledge and skills to deploy the innovation effectively). For example, in Georgia, the program by 500 Global is implemented in partnership with one of the leading Georgian banks. In Armenia, the startup ecosystem remains “invisible” to large businesses. This can limit the potential to test products and generate early traction and scale for Armenian startups.
Questions to the Government
Armenian Diaspora
Armenian Diaspora has a strong presence in the main startup hubs such as Silicon Valley, Boston, New York, and others. Historically, the Armenian Diaspora has helped the founders from the homeland to connect seamlessly with the key decision-makers for investment, business development, and many other purposes.
The Armenian Diaspora maintains a deep and special connection to its homeland. Being an Armenian founder plays the role of the warmest intro, and they can access almost any influential Diaspora Armenian in tech and innovation – from Nina Atchadjian to Noubar Afeyan, from Avi Tevanian to Alexis Ohanian and to many other professionals. Just to imagine the potential of the Armenian Diaspora – the investment funds led by Noubar Afeyan and Nina Atchadjian announced the recent closing of $3.6 bln and $2.3 bln funds, respectively.
The effectiveness of any international acceleration program can be significantly increased through the strategic and structured involvement of the Armenian Diaspora from the key startup hubs in such kinds of activities. That will be a win-win strategy for all parties involved – Plug and Play, Startups, and Diaspora – who will create extra synergies through collaboration within the scope of the program.
In this context, it is exciting to see the Plug and Play team was involved in Neruzh 5.0 Diaspora Tech Startup Program implementation. This initiative holds great promise as a pivotal step toward utilizing the potential of our Diaspora more effectively and productively.
Unclear Strategic Goals
While Plug and Play is known for its extensive experience in supporting startups and its expertise in open innovation, the current program looks too generic.
On the other hand, given the limited resources of Armenia, it looks like we need to do our homework to identify a niche approach and focus our efforts on the sectors where Armenian startups can effectively compete on a global stage and position Armenia in the global value chains.
So the question to the Government and namely to the Ministry of High-Tech Industry is the lack of a strategic approach. As a reminder, the industry has been waiting for the strategy from the Ministry of HTI since 2019. We had COVID and war, but these factors are no excuse for not having a strategy for the high-tech industry that was announced as a priority for several decades.
Transparency and Managing Expectations
Oftentimes, we act like the hero of Hazaran Nightingale (Հազարան Բլբուլ), that was afraid to invest capital in anything and returned back with nothing.
Unlike the hero of the fairy tale, we need to have the courage to invest heavily in continuously reforming the Armenian startup ecosystem. We need to be ready to make risky investments and have losses if any of the investments don’t work out. This is the price of quick development.
However, we need to carefully manage the expectations of a broader public and clearly define the long-term and short-term goals of this initiative. It is clear that the public will be asking MHTI questions to justify investing 290M AMD to establish Plug and Play’s program in Armenia.
We urge the ministry to be transparent from the beginning. If the goals, objectives, targets, and KPIs of the program are not clearly formulated and communicated, we see a risk of too high of a public expectation that will not be adequate to the goals of the program. That might put under risk the continuity of the program which is important for the Armenian startup ecosystem.
Organizational Memory
Since 2018 the Ministry of HTI has been led by 5 ministers – Hakob Arshakyan, Hayk Chobanyan, Vahagn Khachaturyan, Robert Khachatryan, and currently, Mkhitar Hayrapetyan. On average, each minister served for around a year. As in many other Government bodies, the MHTI also lacks organizational memory. Every time a new minister is appointed, the ecosystem players have to re-establish relations with the new leadership teams for planned and ongoing programs.
We are delighted to see that the initiative to bring a global acceleration program to Armenia was continued by the new leadership team. However, there are no guarantees that the transformation will work smoothly next time. We expect the government to establish procedures that will ensure preserving the organizational memory of the governmental bodies. It will save the enormous effort of the ecosystem players that they have to spend every time a leadership team is changed in any governmental body.
For this particular case, preserving the organizational memory will ensure that Plug and Play will feel comfortable in investing their time and resources in building a compelling accelerator program and not worry about the continuity of the program if there are leadership changes at MHTI.
Conclusion
Plug and Play brings undeniable advantages for startups, especially through its expansive global network, mentorship, and flexibility. For Armenian startups, the opportunity to connect with international investors and corporations could be transformative for both individual ventures and the broader tech ecosystem in Armenia. We definitely need to go ahead with the program to pilot it and define the invisible pitfalls.
The potential impact is significant, but it requires a strategic approach to ensure that the long-term benefits outweigh the immediate demands and limitations. This balance between opportunity and challenge should be considered by the Government.
Another message that we try to convey is that ecosystem players have a special mission here. We need to be proactive and transparent with the ministry and Plug and Play team openly communicating our opinions.
It is our shared responsibility to help the ministry to successfully implement the program. We need to accept some level of uncertainty in the program and communicate it to the public to manage their expectations of the program.
At the end of the day, the presence of a global acceleration program like Plug and Play in Armenia is of benefit to the whole ecosystem and each of us. So let’s act quickly and proactively, helping the team at the ministry and the Plug and Play to act as effectively as possible.
