Jehan Ara, President, P@SHA and Big Bird, The Nest I/O, on the entrepreneurship ecosystem in Pakistan.
First published in July-August 2016
AURORA: You have been invited to speak at the Global Entrepreneurship Summit, 2016 (GES) in Silicon Valley. What precisely is the GES?
JEHAN ARA: The GES is held in a different country every year; this is their ninth year. There are about a thousand plus attendees and speakers are by invitation only. To be a delegate, you have to send in an application explaining why you want to attend and your connection to entrepreneurship. The Conference itself is a three-day one; there are plenty of networking opportunities and parallel sessions taking place. It is an exciting place to be for entrepreneurs, and to be a delegate is special because only a few are selected. Three young people from The Nest I/O are going, although there must be others coming from Pakistan.
A: Why have you been invited as a speaker?
JA: I guess word about The Nest I/O and what we are doing has got around. I don’t think Pakistan has had a speaker at the GES before. This will be a great opportunity to talk about the start-up ecosystem and the entrepreneurship scene here. Entrepreneurs are cropping up all over Pakistan and this is the right time to try to attract investment from international markets. At the moment most of the investment is local, with a few odd investments coming in from Abu Dhabi or Malaysia.
A: Is anyone from The Nest I/O pitching?
JA: There are two programmes. One is the GES, which is the conference; the other is the Global Innovation and Science & Technology (GIST) programme, where you pitch. About 1,074 start-ups from all over the world entered the competition, and Muhammad Waqas, one of the people we are incubating, was selected to be among the top 15 to pitch. If he wins, he will probably receive a cash award, plenty of publicity and access to a network of people. It is a great opportunity.
A: What is the name of the start-up?
JA: WonderTree. He and his team have developed games for special children to help them in their therapy. Because it is difficult to engage a special child in therapy, they have ‘gamified’ the process, so that although the children think they are playing, they are doing the exercises they need to do. It is a tough area to work in because it is not a purely commercial venture, so attracting investment is more difficult.
A: What topics will you be focusing on when you speak at the GES?
JA: The panel I am on is called ‘Investing in South Asia’ and I will talk about what is going on here. Most people out there do not know the kind of companies we have and the fact that we are not restricted to start-ups. I will be talking about companies which have emerged in Pakistan and have gone global.
A: Companies like...?
JA: Systems Limited, for example. They started in the 70s with initial capital from Babar Ali and they now have offices in New Jersey and Bangalore. Then there are smaller companies, for example, PakWheels, Rozee, Remoteinterview; they received investment from Silicon Valley. Groopic, which developed an app whereby the person taking a photograph can be part of the picture, are working on a product called Ingrain; they have raised the investment and moved to San Francisco because they feel that intellectual property is protected there. Also, once you have an office there, the likelihood of raising investment goes up. There are many success stories in Karachi, Lahore and Islamabad and it is spreading. Today, entrepreneurs are starting ventures in cities such as Peshawar, Faisalabad, and it can only grow. There will be failures, but there are failures all over the world and I think the chance of failure in Pakistan is much lower.
A: Why is the chance of failure lower in Pakistan?
JA: Because the investment required is lower and at the same time the support structures are good, be they family or friends. And because the chance of failure is low, the incentive to experiment is higher.
A: What criteria need to be met to incubate at The Nest I/O?
JA: It can be any product idea, so long as there is technology to it. The Nest I/O comes under P@SHA (Pakistan Software Houses Association) and the element of technology is important, because these are the kind of start-ups where we can help. We don’t just take people who have ideas; we want to see how much effort they have put into them. We ask for a minimum viable product; they have to demonstrate that they are serious, because the four months of incubation we provide will only be enough if they have already worked on their idea.
A: What do you offer them during those four months?
JA: We take them through a curriculum designed to fill in their knowledge gaps. Most of them are techies; they have no business knowledge or access to a network of people. For example, if they want to set up an online store, the tech is the easy part, but knowing about logistics, distribution, marketing – this is knowledge they have to acquire. So we try to increase the likelihood of them succeeding; they could still fail, but we want to give them a chance and show them that learning is never wasted. During those four months we provide them with a free working environment and connect them to mentors. We have graduated our third batch. There are about 16 start-ups in each batch, with four to five people in each team; at any given time we have about 55 kids in this space and we have graduated about 60 start-ups, most which continue to survive.
A: Is it difficult to find mentors?
JA: The moment people in the business and IT community heard about what we were doing, I received so many calls enquiring about how they could help. It was very heartening; that feeling of wanting to give back and the understanding that young people need our help.
A: What about investors?
JA: They are more difficult to tap, because it is always risky to invest.
A: On average what are the sums involved?
JA: They can range between $100,000 to about 250,000. So it is substantial.
A: But manageable as well?
JA: Yes. We try to convince these kids that they need to bootstrap and not ask for investment until they start to generate revenue, because then the value of their company goes up. However, most of them come from middle-class families and if their parents have invested in their education, they expect them to find good jobs and start earning, rather than experiment with ideas. Family pressures are difficult to resist and these kids can only do this for a limited time. Sometimes they agree to an investment because they don’t have a choice; they need the money.
A: Are there not risks that an idea can be superseded by someone else’s?
JA: One of the first things we ask them to do is to validate their idea by talking to about 100 people who could be potential customers and find out whether they need such a product and how much they would be willing to pay for it. Sometimes, in doing this research, they discover the idea is not viable. So they pivot and start working around something based on the feedback they received in order to adapt the idea and make it work. Yes, people are working on ideas all over the world, and someone elsewhere can launch a similar idea first. That is what entrepreneurship is about; if a product turns out not to be viable, they go build something else. It is risky, but that is what they want to do; they don’t want to work for other people. Most of them could find a job in an IT or multinational company if they wanted to, but they choose not to. Some have been in a job for a couple of years, but left in order to try something of their own. They have this inner yearning to be their own boss; to create jobs rather than get a job. Not everyone is cut out for this, you can’t be risk averse and you need to constantly come up with ideas and be willing to go through the struggles that an entrepreneur does; it’s not easy.
The entire ecosystem of entrepreneurship functions on a combination of technology and young people, and Pakistan has a large and growing population of young people, many of whom are excited by technology.
A: How do incubators sustain themselves?
JA: Some incubators take equity in the companies they incubate; about five to seven percent. Some of those companies may not succeed, but those that do, bring in enough funding for the incubator to survive. We were very clear that we will not charge anything because some of the most talented youngsters are those who cannot afford to pay for the space. The reason we can do this is because we have partners like Google for Entrepreneurs, Samsung, as well as a grant from the US State Department. All three organisations have covered us for a period of three years and we have a renewal in the works with Google.
A: How do these organisations benefit from partnering with The Nest I/O?
JA: Their customers are young people. Google was already in the picture before Samsung came on board, and they synergised because both companies work on the Android platform. They also felt this partnership would give them visibility. The State Department has been funding stuff all over the country; mostly government projects, which have not really worked. They wanted to show that they are working on something that is producing positive results and we have given them that.
A: Why are Pakistanis doing so well on the start-up front?
JA: We have a young population who understands technology and has access to mobile phones. This is a growing market because everything that is developed can be delivered via the mobile phone. Many large corporations use technology to enhance the visibility of their products and services. The entire ecosystem functions on a combination of technology and young people, and Pakistan has a large and growing population of young people, many of whom are excited by technology.
A: How much funding for start-ups is coming into Pakistan?
JA: It is still very small. We need a couple of investment success stories of Pakistan and then the flow will not stop. A lot of Pakistanis abroad are ready to invest their money; the issue is whether it is riskier to invest in the entrepreneurship ecosystem in Pakistan rather than somewhere else. As success stories come out of Pakistan, a lot of non-Pakistanis too will want to look at Pakistan. Zameen, Rozee and PakWheels have been successful in attracting investment. However, most of the investment in incubators has come from local IT people who have been successful in their own companies and have decided to invest small amounts and see if something takes off.
A: How large is the incubator ecosystem in Pakistan?
JA: More and more are emerging. Recently, it was announced that the Federal Ministry of IT is to fund a huge incubator in Islamabad called the National ICT R&D fund. The contract to run it has been awarded to Mobilink and the Government has invested $5.5 million. The LUMS Centre for Entrepreneurship has a very well run incubator called The Foundation; IBA has the Centre for Entrepreneurship; NUST have theirs and Bahria University is setting one up. Three universities in Baluchistan have asked us whether we would help train their people to run an incubator. This is all good. Over the next few years these university incubators will start turning out kids who have already been through a process and the quality will start to improve. When we started The Nest I/O, nothing was happening in Karachi. We may expand to other cities but we don’t want to jump the gun. We need partners to do this and we have to think about sustainability and ways to bring in money because grants only last that long.
A: With so many organisations jumping on the incubator bandwagon, isn’t there a danger that some will not only fail, they will also not do a good job helping out potential start-ups?
JA: This will happen and the good ones will survive. But yes, the danger is that the young people will start pursuing entrepreneurship even when they don’t have the skill set or the capabilities to do so. One of the problems entrepreneurship solves is the fact that there are never going to be enough jobs for these kids. Most of the kids who have left The Nest I/O have hired at least five to 10 people each; they have created jobs for others and generated revenue for themselves. It’s been a struggle, but they have done it. Kids who are still at university have started freelancing online, taking on design or coding work or even research work and they have established themselves on these online networks. They manage to generate incomes between $2,000 and 5,000 a month and when they start getting more work, they involve friends and family – and then suddenly this group of freelancers becomes a company. Pakistan is number three or four on the global network of freelance service.
A: Are incubators documenting what they are achieving, so that people can gauge the degree to which they are playing a significant role in developing entrepreneurship in Pakistan?
JA: Every incubator is documenting their growth. We can provide statistics to show the number of companies we incubated, the number of young people involved, the revenue they generated, the investment they received and the number of people they employed. We intend to document this further to show the advantages of incubators.
Jehan Ara was in conversation with Mariam Ali Baig. For feedback, email firstname.lastname@example.org