TAYYAB TARIQ: How much progress has National Incubation Centre (NIC) Lahore made since the LUMS Centre for Entrepreneurship (LCE) became a part of it?
KHURRAM ZAFAR: LCE was established in 2014. It became a part of the NIC franchise funded by the Ignite Technology Fund in 2017. Since then, NIC Lahore has mentored over 100 start-ups, hundreds of high-growth start-up founders and micro-entrepreneurs and helped raise over two billion rupees for these start-ups, which in turn have created thousands of direct and indirect jobs. NIC was ranked number one in Pakistan and 11 in Asia by Gust and Fundacity. From Lahore, we expanded our footprint to Quetta in collaboration with BUITEMS after securing funding from Ignite. Then, with funding from the Khyber Pakhtunkhwa government, we have started training micro-entrepreneurs in Peshawar, using our Kaamyaab Karobar methodology.

TT: What are the prerequisites for a thriving start-up ecosystem?
KZ: There are three key pillars. The first are entrepreneurs who are passionate and committed about solving big problems, have a growth mindset, are resourceful and willing to work hard and inspire others to work with them. The second is an enabling environment and a culture that does not stigmatise failure, but rather considers it a stepping stone to bigger and better things. Incubators, accelerators, mentors and start-up events all constitute an enabling environment. The third is access to capital (debt and equity), ambitious founders and scalable business models.

TT: How is seed funding calculated, given that company valuation is a little tricky at seed stage. What factors should be considered for seed investment?
KZ: Usually there is no or very little revenue for seed stage companies and financial projections do not carry a high enough confidence level for traditional valuation methods to be relevant. We usually rely on ‘Venture Capital’ and ‘First Chicago’ (methods used to determine the monetary value of start-up businesses) to come up with valuations and our decisions are predominately based on the strength of the founders. They are the single most important consideration for seed stage start-up investments. We also look at traction to date, market size, barriers to entry and potential for global expansion.

TT: Why have none of the Pakistani companies in the B2C tech sector made a mark in their respective fields?
KZ: Although access to growth capital is one reason, it is no longer a bottleneck as a decent amount of domestic and foreign capital is chasing equity investment opportunities and platforms such as 47 Ventures and Karandaaz Pakistan are making debt, equity and grant capital available to local start-ups. The bigger impediment is the mindset of the founders. I often find they do not think big enough. They do not want to conquer the world; (to paraphrase Steve Jobs) rarely do I come across founders who want to make a dent in the universe. Having said so, there are now multiple examples of Pakistani companies raising several millions of dollars in early stage funding; for example PakWheels, Zameen, Finja and PakVitae.

TT: What are the challenges faced by the newly-formed venture capital (VC) companies in Pakistan?
KZ: We make it very difficult for VC to develop in Pakistan. There are hardly any incentives and tons of red tape from creating and managing a fund to investing and managing the investments. Most countries actively pursue investors and provide tons of incentives, particularly for early stage investors, as they have the risk appetite to fuel new, high-growth potential businesses that create jobs and wealth in the economy. The Private Fund regulations in Pakistan are a derivative of non banking finance regulations (NBFC). The tax incentives are designed for mutual funds and modarbas and are ineffective for VC funds. For global VC investors, the process of investing, having shares issued and registered is riddled with red tape and this is off-putting for anyone who has the option to invest anywhere in the world. We need to do a lot of work to attract capital and I hope the new government has an appreciation of this.

TT: Is the lack of capital a big constraint for Pakistani start-ups?
KZ: Access to growth capital, although a challenge, is gradually being addressed. A bigger constraint is finding passionate founders with a growth mindset who have the resourcefulness to reach out and grab the capital and other resources they need in order to grow their businesses. Show me such founders with a scalable business model and I will show you the money.

TT: What is your advice for people who want to initiate a start-up?
KZ: Don’t do it because everyone seems to be doing so these days. Find a massive problem you passionately want to solve and then engage. Your first step is to inspire two or three other people who have the skills and experience that complement yours to join as co-founders. Share equity generously. Know your market and prospective customer intimately and collaboratively build a prototype or minimum viable product. Focus on offering an immaculate experience to every customer. Raise capital from investors who understand your business and can bring something more to the table apart from capital. Think and scale really, really, really big! And be prepared for one heck of a physical and psychological roller coaster ride and persevere. A good set of mentors and advisors will help you steer through the tough questions – engage them and value them.

TT: In a start-up ecosystem, investors make money through an exit or an IPO. Yet, we see few exits in Pakistan and none of the start-ups have been able to reach a point where they can go for an IPO. How does one convince local investors who want a quick ROI to invest in Pakistani start-ups?
KZ: There are plenty of examples of exits in traditional industries. PSX is a small but real public market of listed companies. There are examples of tech companies, such as Netsol, Systems, Avanceon and TRG going public. There are examples of small mergers and acquisitions such as Mixit and Foodpanda. Now with growing Chinese interest, we have seen bigger deals like Daraz.pk and Telenor Bank. Then, there is the example of what has happened in India over the past few years. That is sufficient evidence for investors with the right risk appetite to take exposure in the Pakistani market.

TT: Do some Pakistani start-ups have the potential to become global giants or the next Google, Facebook or Uber?
KZ: Absolutely! If Skype can do it out of Estonia, Supercell can do it out of Finland and Paytm can do it out of India, Pakistani start-ups can do it too. You will see billion dollar exits out of Pakistan within the next five years.

TT: Should the focus of our start-ups be to solve local problems or ones with a global appeal?
KZ: The obvious answer is to shoot for big, global problems. Israeli start-ups have developed cutting-edge research-based products that have global appeal; in 2017, Israeli start-ups had exits worth $23 billion, which shows the scale of their entrepreneurial ecosystem. Internet and mobile broadband have levelled the global playing field and we should capitalise on the opportunity. Having said this, Pakistan is a huge market and can singularly serve a billion dollar company. A mass market product, with a user experience that appeals to the bottom of the pyramid, priced within the reach of every citizen and distributed efficiently with a great customer service experience is a recipe for a billion dollar local company.

TT: How much capital is 47 Ventures bringing to Pakistan’s start-up ecosystem and in how many start-ups have they invested to date?
KZ: 47 Ventures is a $50 million international VC fund and has already had its first close worth $10 million targeted at high-growth Pakistani start-ups that leverage technology for scale. The fund is in the process of closing a fourth investment in a digital retail business.

TT: What would be your advice to the new government to bolster our start-up ecosystem?
KZ: Organisations such as Ignite, the Planning Commission, the Board of Investment and PASHA have done plenty of good work from a planning perspective. This work needs to be leveraged. The government should engage all stakeholders involved in the entrepreneurial ecosystem and prioritise what needs to be done. We do not have any shortage of ideas and resources. We just need the political will by the government to follow through on those plans.

Tayyab.Tariq is CEO, Advertelligent. tayyab.tariq@advertelligent.com