The long road ahead for Mongolia’s nascent startup scene

Ganzorig Jigjidsuren founded one of the most promising startups to come out of Ulan Bator. His company, Kaizen Mongolia, makes point-of-sales devices and software targeted at restaurants and other small businesses called Egulen. It stands out among other startups from his home country for its polished product and presentation and having actual paying customers. But Jigjidsuren, who is now based in Hong Kong, had to pay a high price to expand beyond Mongolia’s borders.

"I gave up 50 percent of my company to get a small amount of investment," he says, explaining the realities of Mongolia’s nascent startup scene. "I had to take it because not many people will offer you investment."

That investment came from a Mongolian restaurateur who was one of Egulen’s first customers. Jigjidsuren’s experience is representative of many of Mongolia’s tech startups – early stage investors take 10 times the equity they would normally receive in Silicon Valley or Beijing because the ecosystem is starved for capital. Most of Mongolia’s young companies are far less mature than Kaizen, which now operates in a modest 19 restaurants, so you can bet they’re getting the short end of the stick as well.

In Mongolia’s capital, terms are bad and deals are sparse. Ider-Od Bat-Erdene, who founded a Salesforce-type startup called CallPro and is deeply involved in promoting Mongolia’s startup ecosystem, says he hears of "a quarter-million-dollar funding about once every four months." Beyond early stage investment, the outlook seems even more bleak. Bat-Erdene says he’s never heard of a startup in Mongolia securing a series C or higher round.

He adds that late stage investors often ask him about potential startups to back, so the problem isn’t a shortage of cash. "I believe that there is money but there is a lack of strong, promising startups here." Put simply, startups fail to meet investors’ expectations once they hit growth stage.

"Hiring is tough"

One of the challenges companies face is hiring and retaining talent. Bat-Erdene says Mongolians are entrepreneurial by nature, but true to their nomadic reputation, keeping them at the same job for a long period of time proves difficult. "It’s hard to hold people within a company because they want to try new things all the time," he explains.

"The mindset of the young generation in Mongolia is not really stable. They do not think twice before quitting their jobs," Jijidsuren adds. He says startup founders often push their employees too hard, causing them to jump ship and work at a more established company.

To make matters worse, young people often can’t learn the skills they need to work at a tech startup while in university. Jigjidsuren says his team had to teach themselves iOS development for Egulen’s upcoming iPad point-of-sales solution. "We had to learn along the way. We still don’t have any program teaching iOS development in Mongolian universities."

Jigjidsuren tried not to repeat the mistakes of his peers, educating new staff over three to six months, then giving them individual products to hone their skillsets, but without overworking them.

Diversifying the economy