Co-Investment After the First Trial

Knowledge-based companies tend to run short of capital at precisely the stage where conventional financial instruments are least useful. Their principal assets are knowledge, people and technology — not the land and machinery that can be pledged as collateral — and the road from product to market is usually long and uncertain. At the same time, a private investor never captures all the returns a technology generates; part of it, from the diffusion of know-how to reduced industrial dependence, accrues to the economy as a whole.

Public–private co-investment exists to close that gap: the state absorbs part of the risk, but shares the work of selecting and steering the company with a professional investor. The question facing Iran today is not simply how much money reaches these firms. The more important question is how the public bodies that support innovation and technology can move from being suppliers of public funds to becoming anchor investors and market builders.

What global and Iranian experience shows

The international record carries a clear message: public capital works better when it is combined with the private sector’s skill at selection, monitoring and exit. An OECD study published in 2024, covering 196,000 firms, found that companies backed by purely public capital performed less well in raising subsequent rounds, whereas firms with mixed public–private backing came close to entirely private ones on many indicators.

South Korea has built a model in which an accelerator or private investor invests in the company first, and the government then adds research and development funding on top. A World Bank evaluation in 2024 found that firms admitted to this programme — TIPS — had 13.2 per cent higher employment a year later, 37.6 per cent higher R&D intensity, and were 3.7 times more likely to go on to raise private capital. Short-term sales, however, showed no meaningful change — a reminder that technology cannot be judged against one-year yardsticks.

In Iran, the public institutions supporting innovation and technology entered this territory roughly a decade ago, and the co-investment programme itself began in the closing years of the 1390s (the late 2010s). Under that model, the public sector can provide up to 80 per cent of a project’s cash capital, while the co-investing agent — anything from a research and technology fund to an accelerator — supplies the remainder and takes responsibility for appraisal and management. This was not the state’s first venture into technology finance, but it was the first national, deal-by-deal attempt to turn the government from a lender into a partner in risk.

Version two: reform drawn from experience
Being first does not grant immunity from revision; if anything, the opposite is true. The principle of learning by doing implies that the capital ratio, the method of selecting agents and the length of the review process should all be treated as testable hypotheses rather than permanent rules.

The place to start is the selection of agents. Not every non-governmental institution is, by that fact alone, a professional and independent investor. The sponsoring body should rank agents on the track record of their team, the size of their genuinely private contribution, the quality of their corporate governance, their capacity to attract a following round, and their history of exits. Agents in the top tier could be granted two-year framework agreements and, within a defined envelope, allowed to decide without a second commercial appraisal by the sponsoring body — this is the logic behind the European Angels Fund as well: be demanding in choosing the partner, then extend trust conditional on performance. Case-by-case review should remain in place for other agents, but with a clear deadline. In an inflationary economy, a delay of sixty or ninety days can leave a project’s budget and valuation obsolete before the money is even paid out.

The 80 per cent public share should likewise not be the standard ratio. For a company that already has a product and an early market, a fifty-fifty split — or at most 67 per cent state participation — makes better sense, and the 80 per cent ceiling should be reserved for deep technologies and strategic projects, and even then coupled with independent technical appraisal, a pilot customer or industrial pilot, and staged disbursement. In later rounds, the state’s share should fall. Singapore follows exactly this tiered path: the more mature the company, the heavier the weight of private capital.

The design of agent incentives also needs attention. Carry should not be paid on a single successful exit in isolation from losses elsewhere in the portfolio. Public principal should be recovered first and losses deducted; only then should the agent’s performance share be paid out of net cash profit. In exchange for that rigour, a legal safe harbour is required: where an agent has paid in its own contribution, disclosed conflicts of interest and followed a professional process of appraisal and monitoring, the commercial failure of a single company should not be treated as administrative misconduct. Venture investing without the right to fail reverts very quickly to conservative lending.

Nor should the financing chain break after the first cheque. Three windows can fill the gap: Pre-Co for proof of concept, Core-Co for the first institutional round, and Post-Co for growth. Agents would be well advised to reserve something like 35 per cent of their portfolio resources for follow-on rounds. For deep technologies, a five-year horizon is too short and should move closer to eight or ten.

Exit, too, cannot be left to an undefined future. The programme needs a secondary-market window through which shares in more mature companies can be offered to corporate investors, industrial groups and private funds. A call option on the state’s stake, priced by a transparent and pre-agreed formula, can serve this purpose. Obliging founders to buy the stake back, by contrast, turns an equity investment into hidden debt and should remain the exception.
Contracts need to be aligned with Iran’s legal and inflationary reality. Standard packages for seed capital, deep technology and the growth stage lower the cost of negotiation and of disputes. In import-dependent projects, budgets should carry separate domestic and foreign-currency components and be adjustable without repeating the entire approval process.

Finally, the public bodies supporting innovation and technology must move beyond reporting how many approvals they have issued. Amounts actually disbursed, independent private contribution, time to decision, follow-on capital raised, sales, employment, exits, losses and portfolio returns should all be published and broken down by year of entry. Data on rejected companies should be retained as well — without it, there is no way to know what difference the programme has actually made. These reforms are best tested first in three twenty-four-month pilots — delegated authority, tiered ratios, and a secondary market — and then extended in light of the results.

Conclusion
Co-investment by Iran’s innovation and technology support institutions marked a genuine shift in public-sector behaviour: an acknowledgement that technology cannot be financed by loans, collateral and fixed repayment schedules alone. This is not the moment to set that experience aside; it is the moment to let it mature. The state should commit more capital where market failure runs deepest, and step back as risk recedes; it should choose professional agents demandingly and, having chosen them, give them room to act; it should tolerate commercial loss, but not conflicts of interest or misconduct. Success, too, should be measured by additionality, by independent capital raised and by exits — not by the number of contracts signed. The second version of this programme should be built from the data of these very years.