Friday, January 21

Startup fever is taking over the world’s last great untapped nation

The startup scene in the world’s fifth-largest nation is having a great year.

More money has flowed into Pakistan’s fledgling tech sector during 2021 than in the previous six years combined, and investors from the US, Singapore and the United Arab Emirates have joined the rush. And a former employee of Microsoft Corp. and LinkedIn Corp. has been involved in about half of the fundraising deals.

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Until 2018, Aatif Awan, born in Pakistan, was living the dream in Silicon Valley. After more than a decade working for the tech heavyweights, he became an angel investor for American startups and bought a home in San Francisco. He then went to visit his parents in Lodhran, a small town known for growing mangoes and cotton, and new opportunities became apparent.

Aatif Awan, founder of Indus Valley Capital. Image: Jim McAuley / Bloomberg

Several local entrepreneurs contacted for advice on financing and how to accelerate their startups. That’s when Awan, 41, saw the possibilities in the Pakistani starting space. He moved in February of last year and started his early-stage venture capital fund, Indus Valley Capital.

“The situation of law and order is so good, mobile penetration is there, everything seems correct for this to happen,” he said.

While neighboring India has long had a vibrant startup scene, foreign investors have traditionally viewed Pakistan with unease – security concerns, power shortages, and poor digital infrastructure have all counted against it in the past. But by other measures, the potential for fintech and retail is huge. Two-thirds of the 200 million people are under the age of 30, most purchases are still made in cash, and relatively few people have a bank account. Internet users have more than tripled in the last five years, to about 110 million.

By global standards, the sum invested in the country’s startups this year – about $ 300 million, according to data from Crunchbase and Invest2Innovate – is small. But it is a record for Pakistan and the increase in funding is expected to continue.

Silicon Valley-based Kleiner Perkins, an early investor in Alphabet Inc. and Inc., made its first investment there this year. Defy Partners Managementstatr, Wavemaker Partners LLC of Singapore and Zayn Capital Ltd. of the United Arab Emirates are also on the investor list.

Pakistan “has all the ingredients to be a great market that is growing rapidly,” said Mamoon Hamid, partner at Kleiner Perkins. “Just taking into account the youth of the population, we believe that they will adopt the new way of doing things much faster than most countries in the world.”

The risk industry is enjoying something of a boom everywhere.

This year’s global deals rose to $ 524.1 billion at the end of October, according to research firm Preqin, 66% more than last year’s total and more than double the amount invested in 2019. The Covid-19 pandemic It has made some things easier for international investors. as Zoom meetings and email document sharing have replaced in-person meetings. Meanwhile, China’s tech crackdown has also prompted investors to seek new opportunities, and startups from Southeast Asia to India have seen increased interest from venture capital and private equity firms. For some, the flow of capital to Pakistan is yet another sign of foam on the market; for others, it is the logical next step in a global race to invest.

“The internet economy has exploded in the last five to seven years, and I think that’s the main catalyst,” said Ali Mukhtar, general partner at Fatima Gobi Ventures, whose portfolio companies have participated in about 40% of the business. Pakistan fundraiser this year. . The large diaspora in places like Silicon Valley, London and New York has also helped provide a talent and funding base, he added.

Many young people have left high-paying overseas jobs at places like Morgan Stanley, McKinsey & Co., and BNP Paribas SA to become home-based entrepreneurs. The opportunity has also caused some foreigners to move to Pakistan.

The country has “the last large untapped population,” said American citizen Jordan Olivas, 32, a co-founder of QisstPay Inc. The Islamabad-based startup is based on Klarna Bank AB, a later fintech firm and former Olivas employer.

QisstPay relies on the Klarna app to buy now and pay later. Image: Asad Zaidi / Bloomberg

“Just the size of the population and the average age of the consumer creates a good market,” he said. “Until this year, not a lot of venture capital money has come in.”

In addition to the growing interest from global venture capital firms, the business ecosystem is also benefiting from a growing network of local investors, incubators, and shared workspaces. The Pakistani government has also increased support for the tech sector after realizing its potential for exports.

The atmosphere of the startup scene is encapsulated in the Karachi offices of e-commerce startup Bazaar Technologies, which in August raised $ 30 million in the country’s largest Series A fundraiser. Out of more than a dozen investors, only one met with the company in person.

Tucked away in an old office building, it’s a modern workspace with gleaming floors and furniture that buzzes with casually dressed young workers. Co-founders Hamza Jawaid and Saad Jangda, both 28, worked respectively in Dubai for McKinsey and ride-sharing company Careem before returning home last year to start Bazaar, which operates a business-to-business marketplace for grocery stores. .

Just a few years ago, startups in Pakistan struggled to raise funds. Risk-averse banks routinely turned down loan applications from entrepreneurs, while most cash-rich companies and other private investors weren’t even willing to talk to them.

“In 2012, there were no significant sources of funding,” said Kalsoom Lakhani, co-founder of the investment fund i2i Ventures. “You really had to have the network in Pakistan to raise money for business.”

“If you move fast, there has been a support system that has been growing in speed around the startups,” he said.

Several risks could slow the momentum of funding. Investors may lose faith if Pakistan’s pace of digital adoption is slower than expected, and banks with deep pockets have for decades failed to convince the majority of the population to accept bank accounts. An abrupt change in government policy, such as a more punishing tax regime or stricter regulation, would be a real threat to the fledgling tech sector. Investors may also have a difficult time exiting through the Pakistan stock market, as initial valuations are high relative to publicly traded companies, according to Suleman Rafiq Maniya, head of advisory at Vector Securities Pvt. Pakistan is on. The watchlist of the Financial Action Task Force, a financial watchdog, is also a concern for investors and has created additional hurdles for startups.

However, for now, there are a lot of venture capital funds to raise. “People realized that this is a much larger force,” Awan said.

Several startups have found themselves attracting more money than they initially sought, while the ideas and results of a small trial may be enough to raise funds, according to people who asked not to be identified as the matter is private. Some are also hiring at double or triple their current salary because they have money to spend, two of the people said.

“If you have a good team and a good idea, you would come in and revolutionize,” Olivas said. “There is so much white space.”

Orders are prepared and shipped at Airlift’s dark store in Karachi on November 13. Image: Asim Hafeez / Bloomberg

Early-stage success stories include Airlift Technologies, a Lahore-based online shopping delivery platform, which in August raised $ 85 million in the country’s largest private funding round ahead of expansion plans in the Foreign. Digital payments startup TAG Innovation is now valued at $ 100 million after raising funds in September, while competitor SadaPay is projected to be the fastest-growing mobile wallet in the world in the five years to 2025, according to the company. London-based fintech Boku Inc. Neither company has fully started operations yet.

“What happened in China, India and Indonesia has started to happen in Pakistan, only faster,” Awan said. “The wheel has started to turn now.”

© 2021 Bloomberg

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