Smart Capital is a private autonomous body of Tunisia responsible for facilitating, managing, and coordinating the Startup Act programs and activities of Tunisia. Mr. Talak Tilik, Head of the InnovaTech Program, a fund for innovative SMEs, is currently the interim Head of Smart Capital after the retirement of the former.
A visit to Smart Capital was another enriching experience of the Tunisia startup ecosystem where you get to hear about everything relating to the Startup Act and its performance. We received a warm reception and a comprehensive presentation from their team.
Prior to the Startup Act, it is important to acknowledge that the team leading Smart Capital had a vision to create, develop, and grow startups in Tunisia. During that time, they accumulated a wealth of experience in creating and building funds. We have mentioned several cases where they started by creating depreciation funds in 2006. Despite the limited fund operators, they started working together using the bottom-up approach to make Tunisia a startup-friendly country.
It was denoted that before the Startup Act, the major challenge for investors was to get a good number of startups to invest in; thus, there was a need to recognize and identify more startups. Other interests that investors had include;
- Labeling of startups.
- Public and private investments for development to strike a balance.
- Successful investor networks continue with their success in the ecosystem.
- Open to our natural environment of the Mediterranean environment.
- There was a synergy that had to be created between different elements. These components include; legal, financial, guarantees/warrantees, and new investors/operators to deal with new investments.
During this time, the challenge was to identify who startups were. This led to a lot of failure with the investors and many other funds —which led to great learnings especially since the actors stayed in Tunisia.
In 2019, the Startup Act was enacted following its voting in 2018.
The Act has three Pillars,
- The Act: An innovative legal framework to promote startups that launch in Tunisia or settle there. The Startup Act is based on a label of merit and a series of benefits and incentives for entrepreneurs, startups, and investors.
- Startup Invest: A financing framework to create an ecosystem of VC funds with high added value for startups and emphasizes e-instruments; a VC Fund of Funds, an Incubator of Management Companies, and a guarantee program.
- Startup Ecosystem: Premised on three objectives; to serve the actors of the ecosystem, provide financial support to startups and startup support organizations while building bridges between ecosystems through improving connectivity and promoting Tunisian startups and the local ecosystem
The Act offers several advantages or incentives to the three different groups;
- For Entrepreneurs: They receive grants, patents, one year leave to create the startup, SIVP, employment programs, and the good failure.
- For startups: They receive a startup portal, corporate income tax, employer & employee charges, a technology card, a special foreign currency account, homologation, and an authorized economic operator.
- For Investors: They receive a tax rebate, contributions in kind, exemption from capital gains tax, startup guarantee fund, and other financial instruments.
Besides the above, the interesting aspect of the Act was the opportunity for them to be able to measure and track the performance and success of their startup ecosystem. As seen below (the infographic), even when the Startup Act targeted to reach 1,000 startups labeled, five years later, the Act has already surpassed the 1,000 mark with 1,043 startups labeled, 2,200+ applications processed, 63 sessions hosted, expanded to 40+ markets, 70+ foreign startups attracted to set up in Tunisia and a 120% annual growth rate in reviews by startups.
As a result of the Act, Tunisia’s wave of fundraising has been growing year on year. In 2020, USD$11 million (approx. UGX40.5 billion, TND34 million) was raised through nextProtein —which grew to USD$20 million (approx. UGX73.8 billion, TND61.8 million) in 2021 majorly through Expensya. In 2022 there was an exponential growth of USD$100 million (approx. UGX369 billion, TND309.2 million) mainly through InstaDeep and USD$15 million (approx. UGX55.3 billion, TND46.3 million) through GB Arena. In 2023, while other countries saw a decline in funding because of the impact of the COVID-19 pandemic, Tunisia raised, USD$682 million (approx. UGX2.5 trillion, TND2.1 billion) through InstaDeep and another USD$100 million (approx. UGX369 billion, TND309.2 million) through Expensya.
In the second part of this article, I will cover the different investment vehicles and programs that the Startup Act has been able to successfully create and lead to such an enabling startup ecosystem in Tunisia.
Editor’s Note: The article is written by Keneth Twesigye; Policy Lead at Startup Uganda, and CEO of TechBuzz Hub
