Dodging illicit cash, Pakistan startups hunt for angel funds
AFTER banks in Pakistan turned down loan applications for his fledgling advertising company seven years ago, Faraz Khan found plenty of private investors willing to back his vision – with a catch.
Much of the cash was illicit, and accepting it would have turned his Gizelle Communication into a money launderer.
“There were investors with blank checks and investors who were like ‘ take as much money as you want,’ “Khan, 42, said over coffee at the Movenpick Hotel in Karachi. “You have to sift through very carefully the ones that are dirty money.”
Khan instead turned to other businesses and an international bank to build the company, which he is considering listing on the Pakistan Stock Exchange this year in what would be a first for a startup in the country. Stung by the banks’ reluctance, he’s taking on an angel-investor role to get hundreds of other businesses off the ground across Pakistan as he seeks to replicate his success with Gizelle through his Seed Ventures incubator. It’s not an easy task. Larger neighbour India has long had a vibrant venture capital and startup scene. But Pakistan, home to about 200 million and South Asia’s second-largest economy, is looked at cautiously by foreign investors concerned about its
They teach you, they mentor you, but when you come out there’s no capital. Unless we can address that, people are going to turn away from entrepreneurship because of the high failure rate.
power shortages and security concerns. Most of its commercial banks are risk-averse, making money through investments in government notes and bonds and preferring loans to traditional manufacturers and industries run by well- established families.
With unemployment remaining high even as China finances more than US$ 55 billion ( RM248 billion) of infrastructure and energy projects, Pakistan is struggling to create enough jobs for its young workforce.
To boost entrepreneurship, Prime Minister Nawaz Sharif set up a loan programme for those under age 45 to set up businesses, providing interestfree loans to more than 260,000 people since his election in 2013. That’s critical in a country where nearly two-thirds of the population is under 30, according to the Jinnah Institute, a Islamabad-based think tank.
Leila Khan, a law maker and chairwoman of the youth loan programme, along with other officials at the agency, didn’t respond to requests for comment. Home- grown organisations like Seed Ventures and Planet N Pvt. are attempting to change the status quo. Young Pakistanis that Khan meets at university roadshows are often resistant to becoming entrepreneurs.
They say “it’s risky, there’s a chance of failure, there’s a lack of access to finance and we’ve got great expectations from our parents to actually become doctors, engineers, lawyers and that is a safer option,” said Khan, whose firm, Seed Ventures, has invested 78 million rupees supporting 135 startups. “That’s the cultural mindset.”
According to Planet N, of the more than 700 startups that were established since 2010, 67 per cent are still active and 68 have managed to raise funding of about US$ 20 million. At least 24 incubators, accelerators and co-working spaces supporting startups have popped up across the country in the past seven years.
Despite the growth of incubators and accelerators, startups will continue to stumble without wider access to seed finance, Planet N founder Nadeem Hussain said. While his firm has invested US$ 8 million in 41 companies, most of them startups, he estimates that at least US$ 1 billion of seed money is needed in Pakistan to help new businesses take the next step.
“They teach you, they mentor you, but when you come out there’s no capital,” said Hussain, 61, a financier who built Tameer Microfinance Bank Ltd. before selling it to Telenor ASA last year. “Unless we can address that, people are going to turn away from entrepreneurship because of the high failure rate.”
The old way of thinking is being challenged at centers that are popping up across Pakistan. The Nest i/o, which opened in Karachi about two and a half years ago, looks just like the incubators found in Silicon Valley. In a high-rise with views across the city of 20 million, millennials hunch over laptops in a colourful open-plan office littered with foosball tables and beanbags.
Founder Jehan Ara took inspiration from visits to incubation centres in Germany, the UK and the US Gaining about US$ 1.4 million in grants from Alphabet Inc.’s Google, Samsung Electronics Co. and the US State Department, about 100 startups have come through the centre’s four-month cycle.
About 85 per cent of those are continuing to survive. — WPBloomberg
Hussain, a financier who built Tameer Microfinance Bank Ltd.