Startup Revolution
Exploring Armenia’s unique entrepreneurial ecosystem
“Even plumbers need software.”
It’s March of 2019, and I’m reading an LA Times clipping my grandpa has handed me. The topic? A startup—named ServiceTitan—that had just reached a billion-dollar valuation. It was a unicorn built by Armenian founders. I was in awe.
Forbes published a bird’s-eye view of Armenia’s startup ecosystem at the beginning of 2020. But having read about ServiceTitan’s journey and its two Los Angeles-based founders, I really couldn’t help but wonder what kind of resources existed for Armenian startups. I decided to take a closer look.
Let's talk about the small, landlocked state of Armenia and its surprisingly robust state of entrepreneurship.
First, some background information.
As part of the Soviet Union, Armenia was a hub of technological innovation and was often referred to as the USSR’s own Silicon Valley. Following its independence in 1991, it maintained that status when top semiconductor players like Virage Logic (now Synopsis) launched major research and development offices in Armenia.
Why did Armenia stand out in particular? For one, its education rate was exceptionally high, and top talent existed in the country’s universities. Companies would recruit straight from school faculty, and students would often follow their teachers into the industry.
Armenia also has a unique advantage: its diaspora. The spread of Armenian descendants across the world has built a broad personal and professional network. Many diasporan Armenians returned (and continue to return) to Armenia to build businesses and expand American-based companies.
Moving towards the present, the rise of software startups in Armenia was enabled by the many talented engineering outsource teams in the country. In fact, some of the earliest Armenian companies were specifically built to help these teams function. Sourcio and Monitis (both founded in 2005) were created to help outsource talent and monitor services, respectively. Other companies slowly followed.
“When we began, I didn’t know the word ‘startup’ existed.”
Although Meruzhan Danielyan, the CEO of Teamable, officially co-founded his company in 2013, he had been working on it since 2011.
“It started as a side project—we wanted to help companies form dream teams.”
Teamable built a platform to help businesses track employee referrals (hence its reputation as a “Tinder for hiring”).
While Teamable now boasts a number of high profile clients (including Lyft, Spotify, and Canva), the early years weren’t as easy. Like many of Armenia’s startups, the company maintains two offices: one in the Bay Area for business management and sales operations, and another in Armenia for engineering.
“Staying in Armenia wasn’t a feasible option for a few reasons. First, most of our potential market was in America. Second, few people in Armenia had actual experience selling products to businesses.”
Elaborating on the second point, a reminder: in the Soviet Union, business-to-business sales were essentially non-existent.
This brings us to some of the problems founders face in Armenia. There’s the time zone difference (Armenia’s time zone is eleven hours ahead of California). Language barriers exist, often making it difficult to form sales teams. Investors and partners are often skeptical to work with companies not incorporated in the United States.
Above all else, however, the lack of market accessibility in Armenia can block startups from achieving their full potential. A great example of this is gg, an Armenian app-based car service founded in 2014.
gg—which has a model somewhat similar to Uber and Lyft—dominated the Armenian market and expanded to the neighboring country of Georgia. However, the lack of immediate access to other markets imposed a ceiling on gg’s growth: after all, Armenia has a population of only three million people.
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Faced with even a few of these challenges, most people in Armenia would think twice before launching a startup. It certainly doesn’t sound like the ideal place to build a company.
Enter the venture capitalists.
In 2014, a VC named Nina Achadjian recognized that Armenia’s venture capital landscape was practically non-existent. In response, she founded HIVE Ventures to enable access to capital and connect Armenians to Silicon Valley. Now, as a partner at Index Ventures, she also helps Armenian founders raise their Series A rounds and beyond.
HIVE Ventures is one of three venture capital groups providing seed funding to companies in Armenia (the others: Granatus and SmartGateVC). Together, they’ve been developing resources to help bolster Armenian startups.
For the past four years, HIVE has run the annual HIVE Tech Summit, bringing top tech minds to Armenia to share their valuable insights.
“People are interested in leveraging technological talent in unique places while also teaching entrepreneurs.
So, they come to Armenia.”
When Alex Kablanian joined HIVE Ventures, ServiceTitan was one of the firm’s earliest investments. To initially identify promising companies to invest in, they would host pitch competitions. It’s not essential now, since they receive lots of inbound messages from new Armenian founders.
What about accelerators? With programs like Y Combinator and Techstars out of reach, Armenia has established its own incubator programs.
SmartGateVC, another venture capital firm, was founded in 2017 to offer seed-stage funding ($15–100k) to Armenian companies. Boasting fund investors like Tim Draper, they maintain two of the most established accelerator programs in Armenia: Armenia Startup Academy and Hero House. The latter is an actual incubator, whereas Armenia Startup Academy provides entrepreneurship education. Neither program takes equity from founders, but SmartGateVC does offer convertible investments to participants.
Most notably, SmartGateVC is trying to tackle the problem of market expansion for companies in Armenia by establishing a branch of Hero House in Los Angeles. While its original opening date has been delayed due to COVID-19, the incubator program will allow Armenian investors to coordinate with founders at local universities like UCLA and USC while also enabling entrepreneurs in Armenia and Europe to expand their startups.
To encourage tech advancements, the Armenian government even announced tax incentives for companies. Startups in Armenia pay no income tax and are only subjected to a 10% payroll tax for employees.
All these programs and resources have certainly made a difference: according to meettal (a sourcing agency based in Armenia) over 500 Armenian-founded startups exist and they’ve collectively raised over $550 million of funding in public investments alone.
What, then, does the future of Armenia’s entrepreneurship look like?
Here are a few predictions.
Unlike many companies in the U.S. that have to outsource their engineers, talent in Armenia isn’t in short supply, especially with institutions like TUMO offering a comprehensive tech education to students of all ages. The availability of top tech talent is apparent in companies like Krisp, where seven founders—six of them with PhDs—engineered artificial intelligence to solve the complex problem of background noise cancellation on calls. It’s probable that many other Armenian startups will also focus on solving complex technical challenges.
While the existing trend of American companies establishing engineering offices in Armenia will likely persist, Armenian-founded startups will continue to expand worldwide. There’s been an especially remarkable growth in Armenian consumer apps. PicsArt (a photo-editing app founded by Hovhannes Avoyan, who also founded Sourcio and Monitis) was the eighteenth most downloaded app worldwide in the second quarter of 2020. Coronavirus may have imposed social distancing, but it’s made Armenian technology more accessible: physical barriers aren’t as problematic when our daily routines are now predominantly online.
To drive innovation forward, Armenia’s diaspora needs to change its perspective towards its homeland. Armenia is not a charity case; it’s an emerging center of innovation seeking investments. Those investments are not only monetary but also intellectual. Experienced entrepreneurs and industry experts have to come to Armenia and bring their insights with them. Only with that collective knowledge can Armenian startups truly be on-par with their American counterparts.
It was only a few months after reading that LA Times article that I was fortunate to meet Vahe Kuzoyan—one of ServiceTitan’s founders—at USC’s Innovate Armenia event. He had just given a talk about Armenian technology and was standing outside the lecture hall. I was nervous when I approached him, but Vahe greeted me with a smile. We had a great discussion about college and entrepreneurship.
At that moment, I had a profound realization. I don’t know where life will take me—whether as a computer science student, an entrepreneur or just as a person. What I do know, however, is that my Armenian roots have always been a central part of my identity. Now, I’ve discovered a crossroads between my culture and a subject I love: startups.
Armenia’s transformational moment has arrived, and it’s time to take notice.
Thank you to Alex Kablanian, Vazgen Hakobjanyan, Armine Galstyan, Meruzhan Danielyan, the meettal team, and all of the incredible Armenian founders out there for making this article possible.
