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Published in Nov-Dec 2019

Unicorns in the making

Nabeel Qadeer talks about how Pakistan's start-up ecosystem has moved from nascent to indigenous in nature.

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 24 incubators and accelerators, 20 formal funders and investors and 80 co-working spaces across the country. The domains vary from edtech, health, fin-tech and e-commerce to on-demand.

This evolution can be broken down into phases. Phase One is classified as 2014-2015, 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 the IT Board’s Plan9 model in universities across the country. ‘Entrepreneur’ was fast-emerging as an acceptable career option.

The ecosystem entered the next phase 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, so 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 the 021Disrupt organised by The Nest I/O & Momentum continue to shine as a major platform for entrepreneurs to benefit from; they are also attracting Wapistanis (a term recently coined for expat Pakistanis) returning to contribute to our fast evolving entrepreneurship landscape. Exchange programmes like ATX+PAK Exchange 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”.

The last three years have seen a significant rise in venture financing and investments. The most recent are Airlift, TelloTalk and SastaTicket.pk (which raised $1.5 million in Series A funding by Gobi Partners). Airlift, a decentralised mass transit system, has raised $12 million Series A funding, the largest by any start-up from Pakistan and one of the largest in the South Asian region this year. The funding round was led by Round Capital, a US-based VC that has previously invested in start-ups including Uber and Square. Earlier this year, Airlift secured seed financing amount of $2.2 million from Indus Valley Capital and Fatima Gobi Ventures and TelloTalk, a local instant messaging application, raised $1.6 million from i2i Ventures.

This brings us to the other side of the table – investors. i2i is a Pakistan-based early-stage investment fund with Kalsoom Lakhani and Misbah Naqvi as partners. Other examples are Sarmayacar and Fatima Gobi Ventures. Zamindar Capital has also made investments via Idea Croron Ka, a business reality TV show that over a series of four seasons has connected 100+ start-ups with 25 potential investors, resulting in Rs 510 million committed investments. 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.

Sarmayacar, for example, has been set up with an initial $30 million and will invest $100,000 to two million into companies in technology and technology-enabled sectors. So far it has made investments in Bykea, with a funding amount of $5.7 million that was co-led by investors from South Asia. (Bykea, Zameen.com and PakWheels are set to be unicorns from Pakistan.) Bykea is scalable, local yet replicable and has a forward-looking team of co-founders. Add Jonas Eichhorst’s experience on the board, and you will not find an element stopping them from growing as a million dollar unicorn.

Muneeb Maayr, founder and CEO of Bykea, was previously a co-founder at Rocket Internet’s Daraz, the largest e-commerce setup in Pakistan and the largest in South Asia after the Indian market. The acquisition of Daraz by Ali Baba 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.

There is another perspective too. Atoms, a New York based footwear brand, traces itself to Markhor and HomeTown of 2011-2012. Atom’s journey was not easy – it required passion, dedication and self-belief. Sidra Qasim and Waqas Ali, the co-founders, have all three. Persistence has been key and multiple pivots later, they landed a position at Y-Combinator, one of the top business accelerators in the world. Atoms have successfully raised $8.1 million in Series A rounds led by Initialized Capital, along with other investors including Acumen 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.

In short, 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.

With the government playing an active role, where is the sector 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 that brings industry and start-ups closer.

As large corporations seek to increase their competitiveness globally and in Pakistan, there has been a trend leading to investments in R&D. An example is Google and the development of other products such as Google Earth and Google Nexus.

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.

Organisations (large and small) need to display openness in shifting away from traditional ways of working and incorporate start-ups. That is how innovative and futuristic technology such as AI can be plugged in for predictive analysis by specialised teams from across the globe at lower costs than maintaining in-house innovation departments. The future of the start-up ecosystem is meshed in disrupting barriers and this time, it is about changing who you work with.

Nabeel Qadeer is CEO, InfinIT Global Labs, Co-Founder, Innovation District 92 and Host/Content Producer, Idea Croron Ka. nabeel.akmal@gmail.com