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Pakistan’s VC Landscape – A Snapshot

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For the entrepreneurial ecosystem to grow at an accelerated rate, corporate innovation partnership with startups is the next natural progression.

The start-up ecosystem in Pakistan has entered the next phase. It has moved from being nascent to more indigenous in nature. The sector is now facilitated by more than 35 incubators and accelerators, 20 formal funders and investors, and 80 co-working spaces across the country.

This evolution can be broken down into phases.

Phase One is classified as 2012-2015, when the concept of entrepreneurship, incubation and acceleration was in its introductory stage; the number of incubation facilities was on the rise with the academia-industry gap bridged by the Higher Education Commission’s ORIC and replication of Punjab Information Technology Board’s Plan9 model in universities across the country. ‘Entrepreneurship’ was fast-emerging as an acceptable career option.

The ecosystem entered Phase Two in 2016 with the challenge of investments; there was a gap between the increasing number of start-ups and funding available. There were small first steps with Markhor and Eyedeous Labs grabbing investments. However, the solution was not institutionalised. For the ecosystem to strengthen, start-ups had to scale up and hence, the access to funding channels was essential.

Players in the Pakistani entrepreneurship ecosystem are now staging international conferences and exchange programmes providing exposure to young entrepreneurs; they have the opportunity to network and learn from entrepreneurs, mentors and investors from across the globe.

Conferences such as 021 Disrupt (organised by The Nest I/O) & Momentum Tech Conference continue to shine as major platforms for entrepreneurs to benefit from; they are also attracting expat Pakistanis returning to contribute to our fast evolving entrepreneurship landscape.

Exchange programmes like ATX+PAK Entrepreneurship Program have increased the confidence of international investors and entrepreneurs to collaborate and work with Pakistani start-ups. The above have refined start-ups in terms of global market knowledge, competitiveness and scalability, thereby increasing their “investment readiness”.

Over the past five years (2015-20), start-ups in Pakistan have raised over $190M - these are mostly early-stage deals signalling the still nascent & evolving ecosystem.

Last 18 months in particular saw more acquisition & fundraising activities for Pakistani start-ups than the previous 10 years combined. 

During 2019 alone four major Series A rounds ware completed in Pakistan raised by Airlift Technologies, Bykea, Cheetay and Knowledge Platform with two pre-seed funding rounds raised by Bazar and Taajir.

Airlift, a decentralised mass transit system, raised $12 million Series A funding, the largest by any start-up from Pakistan and one of the largest in the South Asian region in the year 2019. The funding round, that was raised just five months after its formation, was led by First Round Capital, a US-based VC that has previously invested in start-ups including Uber and Square, and its investment in Airlift was its first investment in Asia in more than a decade. The round was co-led by Indus Valley Capital and Fatima Gobi Ventures from Pakistan. And now recently closing a $10M Series A-1 financing in June 2020, Airlift has become the company that has raised the most amount of Series A funding grossing to a total of USD 24.1M to date. The round was led by Quiet Capital, based in San Francisco, with TrueSight Ventures (London), RT Ventures (London), Shorooq Partners (Abu Dhabi), and ACE Capital (Taiwan) participating, among other local partners. At a time of mass turbulence in capital markets, Airlift’s Series A-1 round marks one of the largest capital investments in the region.

On the other hand Atom’s journey was not easy – it required passion, dedication and self-belief. Sidra Qasim and Waqas Ali, the co-founders, have all three. Starting off with Markhor (a 2012 graduate of Plan9), persistence has been the key on their journey and multiple pivots later, they landed a position at Y-Combinator, one of the top startup accelerators in the world.

After their success in Silicon Valley, Sidra Qasim and Waqas Ali founded Atoms - a New York based footwear company, in 2018. Atoms raised $8.1 million Series A fundraising round. This brings Atoms total investment to $8.6M after it raised $560,000 from Aatif Awan in seed funding. Led by Initialized Capital, additional investors included Kleiner Perkins, Dollar Shave Club CEO Michael Dubin, Acumen founder and CEO Jacqueline Novograts, LinkedIn CEO Jeff Weiner, and TED curator Chris Anderson. A completely home-grown startup has set an overarching way for others to acquire global exposure and rebase internationally.

Recently with Bazaar, a Karachi-based B2B e-commerce marketplace connecting small-sized retailers with wholesalers and manufacturers, Pakistan saw its largest pre-seed funding round. Founded by former Careem and McKinsey employees, Bazaar raised $1.3 million in less than two months after its formation. The round was led by Indus Valley Capital. Alter Global, a Silicon Valley-based fund, making it their first investment in Pakistan.

Tajir, another Pakistani B2B marketplace trying to solve similar pain points of grocery stores, have recently received $1.8 million worth of investments. The funding came from San Francisco-based Pioneer Fund, Singapore’s Golden Gate Ventures, Pakistan’s Fatima Gobi Ventures, Pakistan-focused VC Karavan, Dubai-based VentureSouq, and different angel investors with some from the Middle East. This comes less than three months after Tajir’s graduation from Y-Combinator. Founded in 2018, the start-up received $150,000 investment from Y-Combinator as part of the program.

Other start-ups that raised Series A funding rounds include TelloTalk (a local instant messaging application raised $1.6 million from i2i), Cheetay (raised $7.8 million from US-based investors) and Knowledge Platform (raised $2 million Lakson Investments Venture Capital).

Besides these outstanding early-stage investments, the country has also seen some staggering Series D funds raising.

Zameen, one of the earliest and largest Pakistani startup success stories, raised a massive $100M series D round in 2019. The company has now expanded to 40 cities across the UAE, Pakistan, Bangladesh, Morocco, Spain and Romania, and have over 2,000 employees.

This brings us to the other side of the table – investors. Formal venture capital in Pakistan as of now lies between seed-stage to Series A, and accounts for around 30% of the overall funding raised by startups in 2018 and 2019.

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According to i2i report (2019) Pakistan has seen a growth in local funds and interest from international funds. Local VC firms include Indus Valley Capital, Sarmayacari2i VenturesFatima Ventures, Lakson Investments Venture Capital, 47 Ventures and TPL e-Ventures,

Sarmayacar, for example, has been set up with an initial $30 million and so far has made investments in startups like Bykea and Dot & Line. Bykea raised a funding of $5.7 million that was co-led by Middle East Venture Partners and Sarmayacar. Bykea is scalable, local yet replicable and has a forward-looking team. With experiences of Muneeb Maayr, founder and CEO of Bykea (co-founder at Daraz - the largest e-commerce setup in Pakistan and second largest in South Asia) and Jonas Eichhorst’s (Director Bykea) on its board, and you will not find an element stopping the startup from growing as a million dollar unicorn.

The acquisition of Daraz by Ali Baba  for somewhere between $150M-200M, presents multiple facets. Firstly, the entrance of an e-commerce giant in the local market is promising and a positive sign for other large companies and start-ups to enter and secondly, setting the scene for other, early stage start-ups by showing a possible trajectory.

Zamindar Capital (founded by Naeem Zamindar – former Chairman Pakistan Board of Investments) has also made investments via Idea Croron Ka, a business reality TV show, that connected 100+ start-ups with 25 potential investors, resulting in Rs 510 million committed investments over a course of four seasons.

While local VC firms have started to emerge, international institutional funds have also recently started investing heavily in Pakistani startups.

In 2018, Chinese VC fund Gobi Partners led a Series A $1.5 million round in, their first investment in a Pakistani startup. Gobi announced in 2019 a joint $20 million fund with local player Fatima Ventures forming Fatima Gobi Ventures. The fund, co-manged by Gobi Partners and Fatima Ventures, focuses on seed and Series A investments in tech startups of the country. 

In 2019, one of the leading regional funds in the Middle East, Middle East Venture Partners (MEVP), made a $2 million investment in Bykea, as part of their aforementioned Series A round (the largest raised by a Pakistan-based startup).

Omidyar Network, along with Accion Venture Lab made an investment in Pakistan in 2018 with a $1.1 million round investment in Tez Financial Services, the first fully digital Non-Bank Microfinance Company (NBMFC) in Pakistan.

Oman Technology Fund has invested in six start-ups – including $100,000 each in Smartchoice, a financial comparison platform, and Queno, an edtech offering ERP solutions for schools – in a short span of 18 months. Most recently, SparkLabs Global Ventures, the world’s third-biggest early-stage investment firm, has announced the launch of SparkLabs Pakistan in this year.

Other international funds, like Sparklabs in Hong Kong, have signalled their interest in the market and plan to make investments in the future.

To sum it up, the current phase of the start-up ecosystem has been marked by investments and the entrance of international investors and stakeholders in the local market. It has been a mix of local investment funds, angel investments, maturing domain-specific leads, and it is safe to say that a palette exists on this front, and which is being institutionalised. Yet, Pakistan’s funding size is only negligible as part of the amount invested by VCs across the globe.

Mapping the evolution of the start-up ecosystem in Pakistan, one observes the introduction of a concept and a few experiments that produced output in terms of ideas. This was followed by streamlining the supply side in the form of university level incubation centres facilitated by global mentoring and eventually matching start-ups with investors.

In addition, the sector has now mainstreamed with Idea Croron Ka. Angel Investors are now more willing to take risks and invest in start-ups across Pakistan (most are not associated with any incubator or accelerator). Entrepreneurship is now reaching a wider public, increasing the probability of positive social impact and economic growth.

The government is playing a more facilitative role in terms of IT infrastructure, tax exemptions and the establishment of Ignite and the National Incubation Centre. More importantly, the recently launched Kamyab Jawan Programme envisages a policy framework for youth centred matters, including entrepreneurship. One outlined means of doing so is the Youth Entrepreneurship Loan Scheme for the provision of low-cost loans.

In Pakistan’s context, on a macro-level, there has been improvement in the business environment; on the World Bank’s Ease of Doing Business Index, Pakistan jumped 28 places in one year to 108. This has positioned Pakistan as the sixth global reformer and first in South Asia in the last one year. With the economy reviving, large corporations and SMEs need to innovate to regain market share. On the local front, the reduction in GDP per capita and higher inflation have caused the goods market to slow whereas fluctuation in the exchange rate affected global competitiveness.

With the government playing an active role, where is the entrepreneurial industry headed next?

Innovation is the key word. For the ecosystem to strengthen and produce results, its expansion has to be vertical.

The next natural progression is corporate innovation partnership with startups.

The future of the start-up ecosystem is meshed in disrupting barriers and this time, it is about changing who you work with. As large corporations seek to increase their competitiveness globally, the missing link is to scale and bring on the table a variety of ways to capture new markets by the virtue of innovation yet being able to 'reduce' costs. Organisations, both large and small, need to display openness in shifting away from traditional ways of working and incorporating start-ups in their systems. Startups' innovative ways of doing things paired with companies' experiences is that ingenious, disruptive combination that will bring unmatched value addition to the economy benefiting players at all three ends - companies, startups and customers. This is how companies will sustain, nurture and scale in-house innovation departments at costs much lower than they would have to incur otherwise.