Innovative Financing Approaches Leveraging Startup Potential in Urban Regeneration: A Functionalist Perspective and a Case Study of Birjand

ABSTRACT
Urban regeneration in the medium-sized Iranian cities, including Birjand, faces multiple financial, institutional, and managerial challenges. Overreliance on governmental resources, the absence of innovative financing instruments, and weak inter-institutional coordination have posed significant barriers to the revitalization of underperforming urban areas. This study adopts a qualitative approach based on thematic analysis, utilizes thirteen in-depth interviews with experts in urban management, regeneration, financing, and startups. The objective is to investigate the potential of startups in enhancing financial flows and restoring disrupted urban functions. The findings indicate that startups can play a constructive role in urban regeneration in areas such as urban tourism, data-driven solutions, clean energy, service management, and digital technologies; however, the lack of supportive infrastructure, networking opportunities, seed capital, and incentive policies limits their capacity. Data analysis further suggests that financing models such as local crowdfunding, participatory budgeting, neighborhood-based funds, venture capital, and targeted public–private partnerships are highly adaptable to the context of Birjand. From a functionalistic perspective, sustainable regeneration can be achieved when innovative financial instruments, innovation ecosystems, and institutional coordination are strengthened simultaneously. This study proposes a theoretical framework and a practical model to transition Birjand’s regeneration process from a slow, project-based approach to a participatory, innovative, and function-oriented strategy.
Extended Abstract
Introduction
Cities, as primary centers of human development, are rapidly transforming, confronting both historical legacies and emerging economic, social, and environmental challenges. regeneration is a multidimensional, forward-looking approach aiming to simultaneously address economic, social, spatial, and environmental challenges by revitalizing underutilized assets, redistributing opportunities, and improving urban functionality and citizens’ quality of life. However, its complex and long-term nature can lead to risks such as privatization of public spaces, spatial inequalities, and weakening of local identity; hence, protecting cultural heritage and residents’ interests remains critical. One major barrier to effective urban regeneration is the lack of sustainable financing and standardized mechanisms. Traditional approaches, relying solely on public budgets, cannot meet the complexity and needs of contemporary regeneration projects. Therefore, innovative financing mechanisms—such as blended finance, public–private partnerships (PPP), urban sukuk, and intermediary mechanisms—are increasingly emphasized (Burnham, 2022). In Iran, particularly in the medium-sized cities such as Birjand, deteriorating urban fabric, informal settlements, limited municipal funds, and weak institutional frameworks challenge urban regeneration (Naseri et al., 2020). Startups, with advanced technologies, participatory models, digital platforms, and innovative financing tools such as crowdfunding and venture capital, can enhance urban financial flows and reduce dependence on traditional resources (Thompson et al., 2022; Doğaner et al., 2017). This study employs functionalism as its theoretical framework. Functionalism views the city as an interconnected system in which each subsystem performs specific functions to maintain the stability and efficiency of the whole. Financial mechanisms are not merely economic tools but part of the city’s institutional function, where dysfunction can disrupt other urban functions. The primary research question is: How can the potential of startups be leveraged in designing and implementing innovative urban regeneration financing mechanisms in Birjand? The novelty lies in integrating functionalist theory with the role of startups in financing urban regeneration and providing a localized model for medium-sized cities in Iran.
 
Methodology
This research employs a qualitative, applied, and descriptive-analytical approach, combining literature review and semi-structured expert interviews. The methodology consists of two stages: Data collection: Thirteen in-depth semi-structured interviews were conducted with experts from municipal management, urban regeneration, startup ecosystems, finance, and cultural heritage. Interview questions aligned with research objectives to explore experiences, insights, and proposed financing solutions.
Data analysis:
Interview data were analyzed using thematic analysis via MAXQDA software. The analysis followed a six-phase process: familiarization with data, initial coding, theme searching, theme review, theme definition and naming, and report generation. Codes were organized into 12 main categories reflecting financial, institutional, and startup-related dimensions.
Research population: thirteen experts, including municipal finance managers, urban regeneration directors, startup mentors, and cultural heritage specialists.

Results and Discussion
3.1 Financial Challenges and Dysfunction
Findings indicate that Birjand’s urban regeneration is heavily reliant on unstable public budgets, delayed allocations, insufficient private investments, and limited application of modern financing instruments such as municipal bonds and participatory funds. From a functionalistic perspective, these issues reflect dysfunction in the economic-financial subsystem, disrupting the overall urban system. Similar international studies confirm that diversified and participatory financing enhances urban regeneration effectiveness.
3.2 Role and Potential of Startups
While the startup ecosystem in Birjand is steadily emerging, it has yet to reach full operational maturity. They possess potential in urban mapping, smart application, clean energy, data management, local marketing, and cultural tourism. Functionalist theory frames these startups as emergent system components, capable of restoring disrupted city functions—employment creation, digital services, energy efficiency, and social engagement. However, limited institutional support, lack of incubation spaces, inadequate networking, and minimal seed funding hinder their impact.
3.3 Institutional Coordination
The research shows fragmented and insufficient coordination among key actors: municipal authorities, urban regeneration agencies, universities, technology parks, private sector, and local organizations. Such a poor institutional network represents dysfunction in the institutional-managerial subsystem, resulting in project delays, overlapping responsibilities, resource wastage, and reduced public trust. Strengthening cross-institutional governance and unequivocal role definitions are critical for successful regeneration.
3.4 Policy Incentives and Regulatory Environment: There is a lack of tailored policies and legal frameworks to support startups and innovative financing. The systematic exclusion of small-scale credit lines, participatory budgeting structures, and transparent evaluation mechanisms constrains urban regeneration efforts. Functionalist analysis identifies this as dysfunction in the regulatory-adjustment function, which should be restored to facilitate entry of innovation and micro-investments into urban regeneration projects.
3.5 Innovative Financing Models: Startups can be effectively integrated into blended financing frameworks, including:
Local crowdfunding for neighborhood-level projects, participatory budgeting combined with venture capital, Public–private partnerships with conditional risk-sharing, Digital platforms for project matching, mentorship, and investment transparency Blockchain-based sukuk or performance-based bonds for secure funding and accountability. These models allow financial flows to align with functional objectives of the city, restoring economic and social subsystems while enabling sustainable regeneration.
3.6 Summary of Functionalist Implications
The research demonstrates that sustainable urban regeneration in Birjand requires:
Restoration of economic-financial functions via innovative instruments, activation of innovation functions through support for startups, redesign of institutional-managerial functions via multi-actor governance. When these three axes operate concurrently, urban regeneration can transition from a slow, project-based process to a dynamic, participatory, and innovative system.
 
Conclusion
Birjand’s urban regeneration is currently hindered by financial instability, institutional fragmentation, and insufficient utilization of startup potential. By employing a functionalistic perspective, this study identifies system-level dysfunctions and proposes a model integrating innovative financing, startup engagement, and institutional coordination.
Key conclusions include:
Financial subsystem: Adoption of blended financing mechanisms, including local crowdfunding, participatory budgeting, public-private partnerships (PPPs), and digital platforms, is critical.
Innovation subsystem: Startups should be positioned as key drivers for restoring economic and social functions, supported through mentorship, incubators, and seed funding.
Institutional subsystem: Effective cross-sector coordination and transparent governance mechanisms are essential for aligning actors toward regeneration goals.
 
Funding
This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. The study was carried out using institutional support and resources available at the University of Birjand.
 
Authors’ Contribution
Conceptualization: Dr. Mohammad Eskandarisani developed the research idea, theoretical framework, and overall study design.
Methodology: Afsaneh Hasani Fork and Dr. Eskandarisani designed the qualitative methodology, including the interview protocol and thematic analysis approach.



Conflict of Interest
The authors declare that there is no conflict of interest regarding the publication of this research. All opinions and interpretations presented in this paper are those of the authors and do not necessarily reflect the views of the affiliated institutions.
 
Acknowledgments
The authors would like to express their sincere gratitude to the experts and officials from Birjand Municipality, the Housing and Urban Renewal Organization of South Khorasan, and the Birjand Science and Technology Park who participated in the interviews. Their insights and experiences were invaluable to the development of this study. Special thanks are also extended to the University of Birjand for providing institutional support and research facilities that made this study possible.