Armenia Unveiled: A Hidden Gem Transforming Into The Next Global Technology Hub

Armenia, a tiny landlocked nation in the South Caucasus, is defying expectations by emerging as the world's newest technology center.

In the face of security threats and scarce natural resources, Armenia is cultivating a tech ecosystem to shape a new paradigm for a culture that has endured numerous hardships.

The lack of support from its allies makes Armenia's foray into the tech industry even more critical.  Russia has been historically responsible for Armenia's safety and security. With Moscow failing to intervene in the Nagorno-Karabakh conflict, Armenia is seeking ways to diversify its economy by strengthening its ties to the West and leverage its substantial diaspora—which outnumbers the population at home by more than two-to-one. 

Armenian entrepreneurs are committed to tackling global tech challenges for a more prosperous and stable future. Armenia's strong reputation in science and math, once recognized as the Silicon Valley of the Soviet Union, positions it to reclaim a regional or potentially international tech hub status.

Narek Vardayan, CEO of Prelaunch.com and The Crowdfunding Formula, articulates the country's ambition. "The goal is to solve difficult problems for the world, challenges that others couldn't solve. We want to set the bar very high."

Amid adversity, Armenia boasts one of the world's fastest-growing economies, recording a remarkable 12.6% GDP growth in 2022, the highest in Eastern Europe and Central Asia. The emphasis on developing its tech ecosystem is yielding tangible results, with the IT sector experiencing an average annual growth of 23% per InvestIn. 

Accelerating its growth in the tech sector is the influx of residents fleeing Russia and Ukraine during the onset of the Russian-Ukraine war. In 2022, 2,565 new tech companies were registered in Armenia, and 50,000 new tech professionals from Russia, Ukraine and other post-Soviet states entered the country, according to EVN Report.

Armenia's Diaspora: A Key Differentiator

What's striking about the country of just 2.8 million people is how many startups are determined to solve some of AI's most pressing technological challenges. Many entrepreneurs in Armenia believe their connection to the West will help ensure these companies are noticed.

Alexandr Yesayan, Co-Founder and Chairman of Team Telecom emphasizes the role of the diaspora in fostering success: "It's one thing to have the capacity to do difficult tasks, but it's another thing in how you can bring it to the market. The diaspora connection here plays a huge role. That gives us ground to believe that we can be successful."

ServiceTitan, a $10 billion company founded by first-generation Armenian-Americans and headquartered in Glendale, California—the epicenter of the largest Armenian population in the United States—stands out as a prominent illustration of leveraging this diaspora connection.

In 2019, ServiceTitan expanded its operations, establishing a second headquarters in the capital city of Yerevan. Initially comprising just five individuals, ServiceTitan's Yerevan office has swelled to over 410 employees.

Ashot Tonoyan, Managing Director of ServiceTitan Armenia, said that opening a second office in Armenia started as an experiment but eventually became a significant contributor. Now, it's powering roughly half of the company's R&D. 

The decision to establish a significant presence in Armenia stemmed from the founders' awareness of the abundance of talent within the country. Tonoyan stresses that the move wasn't driven by cost considerations but rather by the scarcity of engineering expertise in the US.

"ServiceTitan couldn't find enough talent in the US. Since the founders are Armenian, they knew there was talent here. So they said, 'Let's try it out. If it doesn't match the quality, we'll pass'," he said.

"As it turns out, the level of quality is no different than in the US. That's what drove the appetite. And, of course, you have the cost-benefit as a bonus." 

Tonoyan recognizes the challenge of a small population unable to support large-scale global productions, prompting Armenia to shift its outlook from an outsourcing hub to one that can create value through innovation. 

Tonoyan underscores the significance of human capital and brainpower, asserting that they are arguably the nation's most valuable assets.

"We have to rely on the things that create the most value but don't require too many large numbers, which is innovation and R&D," Tonoyan said. 

"Since we can't depend on national resources, we must create differently. We have a small population, so we can't support huge worldwide productions. However, human capital is probably the most sustainable capital you can have," Tonoyan added.  

Picsart: Armenia's First Unicorn

In addition to fostering its connection with prominent startups founded by Armenians in the US, Armenia is also developing its homegrown talent. 

Picsart, a photo-editing app, is the most notable startup founded in Armenia. It is the first domestic company to reach unicorn status after raising $130 million in its Series C round, led by Softbank's Vision Fund 2. 

Krisp, another notable Armenian-founded company, is an AI-based audio processing software that offers real-time noise and voice suppression technology.

The company has since moved its headquarters to California and was named to TIME Magazine's 100 Best Inventions of 2020 in the Artificial Intelligence category and listed as one of America's Most Promising Artificial Intelligence Companies by Forbes. 

While Picsart and Krisp showcase the country's capability to produce globally recognized technologies, the Digitec Expo, organized by the Union of Advanced Technology Enterprises (UATE), highlights Armenia's ambition to become a top destination for cutting-edge technology development.

Digitec held its 18th annual conference in October in Yerevan, featuring over 100 exhibitors. With over 75,000 attendees, it is one of the largest tech conferences in the entire region. 

"We have a mission to make Armenia the best place for tech entrepreneurs," said UATE's Interim CEO, Sargis Karapetyan. 

"When we invite people to Armenia, they are shocked with the level of complexity and sophisticated technology that is coming out of a small, unknown place in the mountains," Karapetyan explains. 

In terms of predecessors, Karapetyan notes two small countries with robust startup ecosystems as models to emulate. 

"We love to compare ourselves with Israel and Estonia, but geographically, with the allies we have, and geopolitically, we are totally in different camps. Whatever help the Armenian ecosystem gets comes from Armenians," Karapetyan added.

VCs Taking Notice

While the link between the Armenian diaspora is a catalyst for developing the ecosystem, outside investors are taking notice.  Acrobator Ventures, an Amsterdam-based stage seed VC firm that invests in early-stage companies in Central Europe and CIS regions, has shown specific interest in Armenian companies. 

"The diaspora is incredibly strong, and I think that's a unique element for such a small country," said Mike Reiner, General Partner at Acrobator Ventures. 

With more Armenians living outside the country and roughly 1.2 million Armenians living in the United States, this connection enables them to punch above its weight, says Joachim Laqueur, Acrobator Ventures Co-Founder and General Partner. 

"It won't be the next Silicon Valley, but for the size of the country, especially on the cybersecurity and biotech side, they're doing incredibly well," Lacqueuer said.

Acrobator Ventures recently closed its third investment in one of its funds, "that's quite a high ratio," said Reiner. 

Despite geopolitical risks, the firm remains undeterred, viewing the limited interest in Armenia as an opportunity.

"This is one of these cases where we feel there's future potential. The risk profile makes it more attractive because few want to take that risk," added Reiner. "We're very bullish on the ecosystem from a fund perspective and are coming there regularly to look closely at what we want to invest in next."

Tech Giants Enter The Region

And it's more than just the startup ecosystem flourishing in the country. Last month, Adobe Inc ADBE CEO Shantanu Narayen was in Yerevan to speak at the Silicon Mountains Conference. The presence of a $270 billion tech juggernaut further validates that Armenia is in the early stages of a tech revolution. 

"Adobe is proud to have a research presence here. Yesterday was a very important day for us, as we opened our new building, which I think proves that we are loyal to the people of Armenia and are ready to continue expanding our presence here," Narayen said, according to Itel.am. 

NVIDIA Corp NVDA also opened a research center in Armenia in 2022.  Synopsys Inc SNPS, VMWare, Inc. VMW, and Siemens AG SIEGY have all acquired and integrated Armenian companies.  Advanced Micro Devices, Inc. AMD announced its plan to triple its headcount at its Software Development office in Yerevan.

While things are moving in the right direction for the country, its tech revolution is still in its early innings. Armenia is set to host the World Congress of Information Technology (WCIT) conference in 2024, after hosting it in 2019, seen as a coming-out party for the country's tech ecosystem on the global stage.

The government currently has a reduced flat tax rate of 10% for the IT industry. However, when companies become too large for the domestic market, many register in the United States and are no longer considered Armenian-based.  

Yesayan says the next step is creating a governance environment where companies will establish headquarters in Armenia. 

"Because the Armenian market is small, it's relatively easier to make changes in the structure of the country itself," Yesayan said. 

Samson Avetian, CEO of Eqwefy, a fintech app that enables investment into Armenian startups, acknowledges the progress made in the last decade but emphasizes the need for continued efforts to put its tech ecosystem on a firmer footing. 

"The technological progress in Armenia over the past five to ten years has been significant. Citizens and policymakers are actively working to establish a robust, sustainable, and resilient ecosystem. Armenia is pursuing a more urgent and focused direction than other countries in the region."

Disclosure: I have no business relationship with any of the companies mentioned in this article. I also do not own any shares in the companies mentioned.