Attracting venture financing to Pakistan
Published in Jan-Feb 2019
Bernhard Klemen, International Partner, Sarmayacar, talks about the steps Pakistan needs to take in order to attract venture capitalists.
ANUSHA ZAHID: What made you become a venture capitalist?
BERNHARD KLEMEN: After completing my Ph.D in economics and business in Vienna (Austria), I moved to Morgan Stanley where I met Rabeel Warraich (who is now my partner at Sarmayacar). A few years later, I joined J.P. Morgan and was given the responsibility to set up their Austrian franchise. Since 2011-12, I have been investing in Europe as a first investor in different companies and so far, I have co-founded 15 companies in different countries. Seeing my experience, Warraich approached me in 2016 and proposed we look at the entrepreneurial ecosystem in Pakistan. We made a couple of investments with our own money and found it interesting enough to plan to raise a venture capital fund, which eventually became Sarmayacar.
AZ: What is Sarmayacar’s interest in Pakistan?
BK: Pakistan is one of the largest untapped ecosystems in the world and international investors are beginning to show an interest, although it is still at a nascent stage. In my opinion, there is a perception-reality gap in the sense that the reality is more promising in Pakistan than what investors outside the country believe it to be. This is a problem, but it is also an opportunity. We are trying to change this perception by trying to convince investors to do what we did – come to Pakistan, see what the situation is like and then invest here.
AZ: How does Pakistan’s entrepreneurial ecosystem compare with that of other countries?
BK: Pakistan’s ecosystem is still shaping up. As an investor, I look at it in terms of the different ingredients that are important to tech investors, such as the market, talent pool, education system, investor base and infrastructure. Equally important is internet access and smartphone penetration, where there has been a rapid increase. I would say that the ecosystem is at a very interesting stage. However, you have to look at it from the entrepreneur’s point of view. You need business angels, early venture capitalists, later stage venture capital and finally the exit opportunity. There is a scarcity here of experienced/serial entrepreneurs who make money with their first start-ups and put the money back into the ecosystem (we call it smart money). These entrepreneurs not only invest in future start-ups, they also provide guidance; more of such individuals are needed and we are working on this. We are bringing in additional entrepreneurs who are experienced and ready to invest. Part of our fundraising includes briefing international venture capitalists from Silicon Valley to China on the opportunities in Pakistan and the potential because we need co-investors in the beginning and later stage of the start-up cycle.
“In my opinion, there is a perception-reality gap in the sense that the reality is more promising in Pakistan than what investors outside the country believe it to be”
AZ: What are the key aspects you look for in a start-up when deciding to invest?
BK: Firstly, the team and a shared value base; they have to believe that they are capable of doing what they commit to. Secondly, we need to reach an understanding that we provide more than just capital; we want to bring in our expertise to ensure the start-up does not run into financial loss. After this comes the business model, the market, the competition and so on.
AZ: Apart from capital, how else does Sarmayacar support a start-up?
BK: It is case by case. The optimum scenario is to find a serial entrepreneur who has done this three to four times in a similar environment. In Pakistan, this is largely missing; entrepreneurs are motivated and ambitious, but they have no experience. Creating a company is about avoiding the mistakes made in the past. We see ourselves as sparring partners in terms of what is required to achieve the end objective. Strategy and mentorship help in identifying distribution channels and the talent required. It’s about giving advice if we fear they may run into a problem and then solving it together. But it is not about doing the job of the entrepreneur or running the business or interfering.
AZ: What sectors is Sarmayacar looking at to invest in Pakistan?
BK: We are looking at both b2b and b2c. We prefer recurring business models with recurring revenues, so yes the B2B side. I have a lot of experience in fintech and payments so that is a good starting point. We are also looking at SAAS models. Otherwise, we are agnostic in what we are looking for and everything is up for discussion.
"We don’t want to be in a situation where a team is trying to figure out what works and what does not. The start-up should work; otherwise there is no basis for investment."
AZ: What advice would you give new entrepreneurs about how to increase their success rate with venture capitalists?
BK: Number one is to know how to scale a business. We don’t want to be in a situation where a team is trying to figure out what works and what does not. The start-up should work; otherwise there is no basis for investment. Equally important is to know how to take it to the next level and turn it into an organisation ready for growth, recruitment and scalability on the marketing and distribution side and identify areas where there may be obstacles to scale.
AZ: What are the areas where government support is required to attract venture capital to Pakistan?
BK: Regulations clearly. However, what is more important is to have stability in the country. Secondly, we need a better perception of Pakistan internationally. We are trying to do this on our own but everyone should support this because a positive image will increase the likelihood of more success stories because these speak louder than any bad press coming out of the international media.
AZ: How many Pakistani start-ups has Sarmayacar invested into so far?
BK: We have invested in three. SimPaisa (online payments), Patari (the Netflix model for music) and Procheck (verifies if a medicine is genuine or not). We are close to investing in two more.
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