New mechanisms have been established in Azerbaijan to regulate the activities of venture funds to finance startups, Head of Corporate Law Department of the Innovation and Digital Development Agency (IDDA), Turkan Hajiyeva, said during her speech on the topic "Development of the digital and innovation ecosystem in Azerbaijan: new legislative opportunities" organized within the framework of the educational session "Digital skills for the media", Trend's correspondent reports from the event. According to her, traditional banking and financing mechanisms are not always available for startups that have high potential but also carry high risk. "Traditional banking and financial access mechanisms are not fully functional for startups.
Because banks and insurance organizations usually require collateral or other security during financing. Startups do not always have the financial resources to provide such security," Hajiyeva noted. She pointed out that although state support mechanisms exist, the limited volume of grants creates certain difficulties in financing large innovative projects.
"The funds allocated in the form of grants are smaller than in a number of other countries. This does not allow creating sufficient financial access for large innovative ideas that apply artificial intelligence and high technologies," the department head emphasized. According to Hajiyeva, the need for financing also changes during the development stages of startups.
"At the initial idea stage, startups usually start operating with initial support from family and relatives. Later, they can use certain state support mechanisms. However, most local startups are able to pass the initial grant stage in some form.
The main problem arises at the stage of testing after the development of a minimum viable product (MVP)," she explained. According to her, one of the most effective financing mechanisms at this stage is venture financing. "One of the most ideal financing mechanisms for startups that have an idea, are at the stage of developing a prototype, or have already developed an initial prototype is to attract funds from external investors.
This is carried out through venture financing, unlike the state support mechanism," Hajiyeva said. She underscored that technological failure in innovation projects should also be accepted as a possible outcome. "Innovation activity is an area where there is no guarantee that an idea will always be successful.
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