Encircled by geopolitical risks, Armenia builds a lively tech startup scene

Yerevan, Armenia – The rugged mountains of the southern Caucasus are not an obvious location for a thriving tech startup scene.

Situated 7,000 miles from Silicon Valley, landlocked Armenia is buffeted by geopolitical headwinds from all sides.

To the north and south, respectively, lie Russia and Iran, two of the most heavily sanctioned countries on the planet.

To the east and west, it faces Turkiye and Azerbaijan, adversaries whose relations with Yerevan, respectively, are marked by tensions over the 1915-1916 Armenian genocide and armed conflict over the disputed Nagorno-Karabakh region.

Home to fewer than 3 million people, the ex-Soviet state has an economy that is barely larger than that of poverty-stricken Haiti.

None of that has dampened Armenia’s big ambitions for its tech start-up scene, which is making waves to an extent that belies the country’s diminutive size and difficult circumstances.

The number of IT-focused companies in Armenia more than doubled last year, while the number of employees in the sector increased by 30 percent, according to the Armenian government.

Armenian-founded startups such as Piscart, the creator of a popular photo and video editing app, meanwhile, have found success in Silicon Valley, which founders have in turn used to support offices and jobs back home.

The flow of investment has gone the other way, too, with big-name players such as Nvidia and Adobe in recent years announcing plans to set up operations in the country.

Armenia’s government has been eager to leverage the local scene’s links overseas to boost its profile on the international stage.

‘Invest in Armenia’

Last month, Yerevan hosted the annual World Congress on Innovation & Technology (WCIT), an international forum for discussing emerging technologies, for the second time in the past five years.

Guest speakers at the event included Moderna co-founder Noubar Afeyan and Nvidia executive Rev Lebaredian.

Nvidia’s Rev Lebaredian speaks at WCIT 2024 in Yerevan, Armenia [Courtesy of World Innovation, Technology and Services Alliance]

The idea of an Armenian tech company bringing a product to market was once viewed as “super unique”, Mikayel Vardanyan, chief product officer at Picsart, told Al Jazeera on the sidelines of WCIT 2024.

But these days, there are “many, many companies doing it and every year this number is growing because they are looking at each other,” said Vardanyan, whose startup in 2021 became Armenia’s first unicorn with a valuation exceeding $1bn.

“They are looking at a couple of successful ones, including ours, and they are thinking, ‘OK, it’s possible to do it, it’s possible to do it in Armenia, and let’s invest in Armenia.’”

Tech founders in Armenia readily acknowledge that Silicon Valley remains the place to be for fundraising and networking opportunities.

But they say that, increasingly, opportunity beckons at home, too.

Davit Baghdasaryan, the CEO and co-founder of noise cancellation software startup Krisp, said that many Armenian entrepreneurs have a setup that splits operations between their home country and Silicon Valley.

“Armenia has been growing and people from the US, they see that there are actually interesting entrepreneurs and founders coming out of Armenia. They get so much more motivated, to not only give back, but come over,” Baghdasaryan, who moved home in 2017 after a decade in the US, told Al Jazeera.

Baghdasaryan said that the growing number of success stories has inspired others to take a bet on the country.

“You want to be part of it because your heart and your brain are still – part of it – in Armenia,” he said.

“So that’s very exciting for me to watch. Because I stayed there for 10 years, I came back. I know both worlds very well.”

Armenia’s government says it is committed to doing what it can to make doing business seamless, including simplifying the process of registering a company to the point that it can now be completed in as little as 15 minutes.

Last month, the Ministry of High-Tech Industry introduced legislation, called the New Law on High-Tech Support, to reduce rates of personal income tax and corporate tax for tech start-ups during their formative years.

The government has also allocated 1.940 billion Armenian dram ($5m) to fund the construction of “Engineering City”, a public-private project that is envisaged to include facilities such as an engineering business accelerator, an advanced research centre, and supercomputing and cybersecurity facilities.

Armenian Minister of High-Tech Industry Mkhitar Hayrapetyan [Courtesy of World Innovation, Technology and Services Alliance]

“Armenia’s long-term vision is to become a global technology hub known for innovation, quality, and excellence, where we create and build new industries and sectors,” Armenia’s Minister of High-Tech Industry Mkhitar Hayrapetyan told Al Jazeera.

“We aspire to build a vibrant tech ecosystem that naturally attracts top talent and foreign investment.”

‘Culture of resilience’

On paper at least, the government’s efforts appear to be paying dividends.

Armenia’s economy, which is about the size of Peru’s on a per capita basis, has grown rapidly since the end of the COVID-19 pandemic.

Gross domestic product (GDP) is expected to grow approximately 6 percent in 2024, after expanding 8.7 percent and 12.6 percent, respectively, last year and in 2022.

Hayrapetyan said his government is especially focused on the potential of AI.

“AI is not just a buzzword now but also a driver of public administration transformation and delivery of quality of public services; it’s key to increase your productivity by redesigning our operations,” he said.

“According to numerous international independent reports, our highly educated and technology-focused population gives Armenia a unique advantage in becoming a global leader in AI and machine learning. To fully harness this potential, we recognise that investing in human capital is paramount.”

Picsart’s Vardanyan said that some of the government’s efforts have been more successful than others.

“In some cases, it worked. In other cases, it still needed to move a bit faster in order to be competitive with other countries,” he said.

But with Armenia likely to always struggle to compete with bigger countries that can offer more generous incentives, consistency and long-term vision will be crucial to the local ecosystem’s success, he said.

“So that’s why it’s really important to keep it going,” he said. “So it’s not that you did it once and then you need to forget for 10 years, it won’t work.”

When it comes to Armenia’s selling points, though, Vardanyan singled out a factor that is beyond the scope of the government: a “culture of resilience” forged through hardship, including shortages of energy and basic goods in the aftermath of the breakup of the Soviet Union.

“There was no electricity, there was no water, but you were figuring out what to do even in the situation, whereas in other countries it’s considered the end of the world,” he said.

“But for us, looking at electricity, let’s figure it out. What we can do this way? No internet connection? OK, let’s figure it out.”

Travel to Armenia and accommodation were paid for by the Union of Advanced Technology Enterprises.