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Importance of Failure for Startups & Should Pakistani Startups Go For VC Funding?

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Is the failure of a startup founder, a failure or a badge? Do Pakistani startups need VC funding? What’s the way forward for the investment ecosystem of Pakistan? 

It was a pleasure speaking to the startup founders of Karachi where Faizan Laghari and I discussed the importance of failures, need for VC funding and significance of pivoting for Pakistani startups in a fireside chat hosted by National Incubation Center, Karachi. 

Following are the key takeaways for entrepreneurs:

𝗜𝘀 𝘁𝗵𝗲 𝗳𝗮𝗶𝗹𝘂𝗿𝗲 𝗼𝗳 𝗮 𝘀𝘁𝗮𝗿𝘁𝘂𝗽 𝗳𝗼𝘂𝗻𝗱𝗲𝗿, 𝗮 𝗳𝗮𝗶𝗹𝘂𝗿𝗲 𝗼𝗿 𝗮 𝗯𝗮𝗱𝗴𝗲?

  • It’s the ‘why’ of the founder that determines whether the failure will be a failure or a ‘badge’. 
  • Your failure is a badge when it brings with it genuine learnings & the startup founder comes out to be more mature, and does not repeat the same mistakes. 
  • Success of a startup is a slow, transitional, and an iterative process. 
  • Raising investment is not a success; the process towards it ‘begins after’ that. 
  • Startups shutdown when the end goal is wrong. If the goal is to raise funds to become a brand before the startup is even mature for the local market and make money fast, that is when all goes wrong. 

𝗗𝗼 𝗣𝗮𝗸𝗶𝘀𝘁𝗮𝗻𝗶 𝘀𝘁𝗮𝗿𝘁𝘂𝗽𝘀 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗴𝗼 𝗳𝗼𝗿 𝗩𝗖 𝗳𝘂𝗻𝗱𝗶𝗻𝗴?

  • Your startup can never be successful until you know what your customer wants. That can only be done through real interactions with customers and understanding why they would pay for your product. VCs, unfortunately, have no measure to calculate that. Founders, on the other hand, are only able to figure this out when they are very passionate about what they’re doing. 
  • Raising VC funding in the early stage of a startup to overcome losses or scale is similar to delaying cancer; you’re not resolving the issue, you’re just delaying it.
  • Before deciding to raise an investment, as a founder you must do three things:
  1. Conduct market research.
  2. Figure out why people would pay for your product and the number of iterations you can do in your product/service accordingly.
  3. Talk to the customer repeatedly, and ask why he is not willing to pay.

Once the clarity on the above is gained, and still, if the startup is not going in profits, then you should consider raising an investment.

  • Know the difference between Bad Money & Good Money. Bad Money is taking money from people who themselves have not made money from running a business. 
  • VCs really need to know the startup founder & his” why” before deciding to invest in a startup.
  • On the other hand, founders must “ask the right questions” from investors before they decide to go for funding. For example, 

             o How many startups have you done? 

             o How much money have you made from your business and how? 

             o How many people did you employ? 

             o How did you manage to take out their salaries and pay your bills? 

  • If the burn rate is higher than revenue generated, that is when the founder has to take the tough decision to draw the finishing line. 

𝗪𝗵𝗮𝘁’𝘀 𝘁𝗵𝗲 𝘄𝗮𝘆 𝗳𝗼𝗿𝘄𝗮𝗿𝗱 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗹𝗮𝗻𝗱𝘀𝗰𝗮𝗽𝗲 𝗼𝗳 𝗣𝗮𝗸𝗶𝘀𝘁𝗮𝗻?

  • Like our startups, our VCs too are nascent. The solution right now lies in building a local investment ecosystem where small ticket size investments are done in exchange of small equity. 
  • It is time that IT companies’ CEOs step up into angel investment. This will be a win-win for both the startup ecosystem and IT industry of Pakistan. Where startups will start having the element of tech in their products, at the same time, these CEOs will be better advisors to the founders as they themselves have made profitable businesses based on tech products/services.
  • At this stage, Pakistani startups do not need VC money; they need angel investors - local businessmen who understand local market dynamics, and have the capacity & willingness to invest. At the same time, startup founders should also be wary of ‘equity’ investors who claim to be venture capitalists.
  • Ecosystems evolve over 20 to 30 years. It took 50 years of government intervention for Silicon Valley to become Silicon Valley; Pakistani ecosystem too will take some time to show its true potential. Our focus right now for the next 10 years should be on building the local investment landscape that is customised for local needs, and then move towards building the VC ecosystem on top of it.