Nestled in Central Asia, Uzbekistan is still more renowned for exporting traditional products – from cotton to gold – than technology. But while the youth, once exposed to forced labour in cotton fields, are now encouraged to learn foreign languages and coding, the recent emergence of technology startups in Uzbekistan is a symbol of the nation’s new development priorities.   

At the macro-economic level, the future seems bright for local technology ventures. Uzbekistan has the largest population in Central Asia – nearly 36mn, including 60% under 30 – driving the country’s digitalisation at a fast pace. While gross domestic product (GDP) growth has been consistently above 5% since the death of authoritarian leader Islam Karimov in 2016, sweeping economic and legal reforms have opened the economy to the world. 

The local startup scene, however, is still embryonic. There were only around 1,000 startup projects (with or without a legal entity) in the country last year, according to an IFC research the authors had access to.

Among the factors hampering startup development is the scarcity of startup entrepreneurial skills and human resources. 

“Common issues of startups in Central Asia are misguided execution, weak communication skills and indefensible products,” notes Abdul Sharafiy, who recently launched Sarmo Labs, one of the region’s rare startup studios. 

“It is very challenging to find specialists willing to work in the startup field due to its unstable nature,” adds Nigora Akilova, whose startup Beautify.uz offers beauty professionals an opportunity to showcase their works and attract clients at competitive rates. 

But due to the country’s impressive progress in IT education – as exemplified by the success of the state programme “One Million Uzbek Coders” – quality products are, nevertheless, starting to emerge on the market. 

“When visiting one of the local IT companies, Udev, I was pleasantly surprised by their products. Their Uber-style logistics solution, their advanced video streaming software, their online government systems including e-document management system were all competitive from an international perspective,” says Stephen Lin, a US citizen with an IT vendor management background who founded the Swift Launch incubation programme in Uzbekistan in 2023. 

“There’s a bunch of technology assets that are sitting unused here. But Uzbeks rarely know how to sell them internationally and create globally-oriented startups,” he notes.

Billz, a retail tech solution provider, Iman, a halal finance solution, and TASS Vision, a developer of in-store analytics tools, are some of the startup products just starting to sell abroad. The latter two have been backed by various venture funds, including foreign ones, but they still have 95% of their customers located in Uzbekistan. 

Meanwhile, EndCode.io, a mobile app development startup founded last year by relocated Russian techie Artem Panferov, has more than half of its customers in Western countries and no more than 15% in Uzbekistan. 

Rare investors

Not only do local entrepreneurs lack international experience, they also struggle to find funding – both locally and internationally. 

Uzbek venture capital firms are few. They include: Aloqa Ventures, launched in 2021 by a major local bank; Semurg VC, backed by a local high-net-worth individual and a major local insurance company; UC Ventures, which is affiliated with e-payment leader Uzcard; and a state-owned fund called UzVC. These funds invest only small amounts at the pre-seed and seed stages.

Some digital projects are backed by wealthy Uzbeks – as has been the case with Uzum, a giant e-commerce and fintech ecosystem launched last year with involvement from Russian industry veterans.

However, “such cases are still rare, and may involve political complications,” notes a market insider.  

“The small number of investors reflects the small number of investable startups – but things are changing fast: I see more and more incubators and accelerators in Uzbekistan," says Bekzod Sobirov, who represents Kazakhstani investor Activat.VC in the country. 

A handful of foreign investors have been seen thus far on the Uzbek startup scene. UK-based Sturgeon Capital, the most active of them, is a $300mn private equity/VC fund targeting “frontier markets” – including Central Asia, Bangladesh and Pakistan – where they see a “$300bn revenue opportunity.” Sturgeon has backed six startups born or operating in Uzbekistan since 2019. One of them is Zood.biz, a Switzerland-based digital lending and logistic solution provider that serves 30,000 merchants and 10mn customers in Uzbekistan, Lebanon and Pakistan. 

Some other foreign investors have invested in Uzbek startups, but only occasionally. Examples include 500 Global (USA), Activat.VC (Kazakhstan), Caucasus Ventures (Azerbaijan), Quest Ventures (Singapore) and several Asian funds that have backed Iman.

Three major deals involving foreign investors were completed, or are pending completion, this year. In May TBC, the largest banking group in Georgia, fully acquired Payme, the leading digital payment provider in Uzbekistan, at a $113.6mn valuation. This was the first substantial startup exit in the country. In October, Uzum announced the involvement of unnamed “prominent international investors” in a $300mn investment plan – an unseen amount in Uzbekistan’s startup scene, which could thus see the emergence of its first unicorn. 

The third deal involves Zood.biz, which is closing a round of around $50mn, its CEO Michael Khoi told bne IntelliNews. The money is provided by international and local investors such as Uzbek-Oman Investment Co. (UzOman). 

Government push

With IT development considered a national priority, the young Uzbek startup ecosystem enjoys substantial public support. Created in 2019, IT Park Uzbekistan provides a variety of benefits to more than 400 tech startups across the country (out of some 1,600 resident companies). This year, among other initiatives, it launched an acceleration programme operated by Plug and Play and an online platform to connect startups with investors and accelerator programmes. 

The authorities also organise various events and contests, including an annual “Presidential Startup Award” with prizes worth $1mn. 

Much remains to be done, however, to adapt local legislation to venture investment specifics, strengthen local policy-making capacities and better coordinate the efforts of the government bodies involved in startup development. 

Several international organisations have stepped in to support Uzbekistan’s innovators. At the ideation or pre-seed stage they may apply for $5,000 grants from the United Nations Development Programme (UNDP). More mature startups may join Star Venture, an EBRD acceleration programme made available this year in Uzbekistan. 

Moreover, the World Bank and the Ministry of Higher Education, Science and Innovations are now launching a $50mn programme with substantial grants to develop research-based innovation and technical assistance to policy-makers. 

Positive signs

With Payme’s, Uzum’s and Zood’s large international deals, 2023 will go down as a landmark year for Uzbekistan’s emerging startup scene. Another positive sign: Sturgeon Capital feels confident enough to raise a new fund, with a target amount of $50mn, for VC investments across Uzbekistan and other Central and South Asian countries.

On the public side, involvement from development finance institutions has become noticeable, while the local authorities have maintained their commitment to economic reform and IT development programs.

What’s more, the massive arrival of talented Russian tech workers who fled the war has provided an unexpected boost to the local IT industry. 

While still hardly noticeable on the global tech map, Uzbekistan seems truly engaged in the long and challenging way to startup development. The first unicorn is in sight in a country where startups did not even exist a mere few years ago.

This is the first in a series of articles highlighting Uzbekistan’s progress and challenges on the way to technology development. The first story was about the involvement of thousands of Russian and Belarusian tech workers in local IT companies. 

Adrien Henni is the founder of International Digital News. Natalie Novakova is a New York-based journalist and a contributor for Newsweek and Icebreaker Media.