**3. Research results**

#### **3.1 Funding background of the startups in Mongolia**

It is not a long time passed since startup businesses were introduced in the country and investment policies and legal frameworks for strengthening this type of business are far from accomplished. Even though, we have an opportunity to make a shortcut using the best practices of the countries who survived the hardships in strengthening the startup ecosystems.

According to the Startup Blink Global startup ecosystem index 2022, Mongolia is ranked 81 globally out of 100 best, increasing seven spots since 2021.

Ulaanbaatar is ranked 491 globally and showed a positive momentum increasing 19 spots since 2021. It also ranked 472 out of 1000 cities [25].

START has significance for venture builder as it contributes to creating startups and accelerating their growth. The startup ecosystem map is prepared annually for the public to promote and support the startup ecosystem (https://startco.mn).

The other stakeholders of the ecosystem are divided into 15 categories including accelerator programs, events, nongovernmental organizations, entrepreneurs, and investors (**Figure 2**).

In the map of the startup ecosystem 2022, 109 startup businesses in 19 clusters are presented by the multi factors including social impact solutions, business model, team structure, work methods, ethics of the founders, technological solutions, and dynamic features (**Figure 3**).

The ecosystem of the startups is comparatively immature, approximately 63% of the businesses are set up in the past 3 years. The technology-based companies are improving recently. Particularly, the pandemic served to the expansion of the digital economy and business environment, although no improvements were observed in the ecosystem of startups operation in other sectors. The reasons behind the holdup serve as a lack of envisioning and attitude that creates the ecosystem. Because of that, the expectations of investors and technology startups differ. The main setbacks for most startups are hiring new employees, fundraising, attracting customers, boosting sales, team development, and penetration of the international market via developing irresistible products and services.

#### **Figure 2.**

*Map of startup ecosystem of Mongolia. Source: https://startupnews.mn/2022/03/30/startupmap2022.*

#### **Figure 3.**

*Sectors startup businesses operate in the businesses included in the map. Source: https://startupnews.mn/2022/03/ 30/startupmap2022.*

#### **3.2 Startup business financing condition in Mongolia**

Recently numerous programs have been implemented to build the capacity of startup companies. The survey on the startups indicates that the total revenue of MNT 60 billion and 1318 jobs contributed to the economy [26].

Despite the progress, insufficient funding of the startups remains unsolved and it serves as the major challenge for further success.

*Seed funding:* In the initial stage, the founders launch and maintain their business operations with heavy internal investments like personal savings, support from family, friends, local angel investors, and other business incomes. A baseline study of the Mongolia startup ecosystem conducted in 2022 shows that 11.3% of the initial funding is made up of the project grant and 6.3% comprises accelerators, incubators, and loans. The local venture funds and international angels are less interested in the initial funding and only 3% of the funding is comprised of this type of financing (**Figure 4**).

*Follow-on funding:* Enterprise venture funds, international venture companies, and crowdfunding platforms are available for local startups in follow-on funding in Mongolia. Major investment companies like MCS Investment, Shunkhlai, and TECO are getting influential players in the market (**Figure 5**).

The typical challenges that prevail among local startups are the lack of skilled human resources and funding. According to the study, the most challenging issues for startups include investment funds (61%), improved tax regulations (54%), subsidies/ grants (40%), intellectual property and regulations to protect innovations (39%), and loans (31%). Moreover, the most expected support for the startups was accessing incubators/startups (20%), innovation hubs (13%), co-working spaces (11%), and awards (8%) [26].

In sustaining the national startup ecosystem, hiring and retention of highly qualified professionals to contribute to the businesses are the utmost priority for the novel businesses. Hence, education reform in science, technology, engineering, and mathematics (STEM) is the highest priority of the education sector to the resource with competent professionals who can support the innovation.

Although an increase of local angel investors supporting startups observed in recent years, at any stage of the development of the startups, personal savings, family, friends, other business income, and project grants and bank loans remain the major funding sources. The government may serve as the major player in attracting foreign

#### **Figure 4.** *Initial funding sources of the Mongolian startups. Source: Baseline survey of the Mongolia startup ecosystem, 2022.*

**Figure 5.** *Follow on funding sources of startups in Mongolia. Source: Baseline survey of the Mongolia start-up ecosystem, 2022.*

investors. Moreover, there is an opportunity for developing the startup ecosystem based on the experience and expertise of the private sector.
