Overview – 021Disrupt Investment Roundtable White Paper by The Nest I/O


The future of the Pakistani startup ecosystem is certainly looking bright as many international and local investors are dubbing Pakistan as an opportunity that is too large to ignore. The Nest I/O published the 021Disrupt Investment Roundtable White Paper that highlights the findings of the Investor’s Roundtable at the 021Disrupt Conference on the 4th of November 2017. In the report, the landscape of investment for early stage businesses and startups has been explored.

The attendees of the roundtable ranged from various local and international investing giants such as the 500 Startups, Middle East Venture Partners, The Bakery, Golden Gate Ventures, Wamda Capital, Sarmayacar, CresVentures, Gaditek etc.

In the report, the investors realize the huge potential of Pakistan with there being a population of 208 million, making it the 5th most populous country in the world and a huge market for growing businesses.

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The report talks about the challenges faced by Pakistan in terms of attracting foreign investments, some of the major hurdles mentioned were related to the nascent ecosystem, regulatory framework that does not offer the required support to early stage businesses, lack of local investors, and a lack of potential exit opportunities for investors.

According to the white paper, the investors however do mention that the above mentioned challenges are not unique to Pakistan and that they can be solved by relevant stakeholders including entrepreneurs, enablers such as incubators, investors, and regulators to actively contribute to the entrepreneurial ecosystem.

The role of CPEC was also discussed and how investment of more than $50 billion is being made in various infrastructure projects in Pakistan.

The investors focused the following points while discussing the investment landscape: founder and investor maturity, where they talked how both of parties have to have a mature mindset and how there is a need to reduce the risk associated with the country, product and market to raise investment from an international investor. Several concerns were raised regarding the maturity of founders in an early stage ecosystem with most investors expressing concern that the lack of an efficient enforcement mechanism increases the risk of their investment. With the conclusion to this being that founders, investors and ecosystem stakeholders should realize that effective collaboration is essential for building anything meaningful.

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The roundtable also discussed the importance of local investors and how the need to play a crucial role for the startup ecosystem to attract more foreign investment. According to the investors at present, early investments in startups, including particularly the pre-seed and angel stage, will have to come from local investors who need to exhibit their confidence in the market and team for international investors to then also step in and take part in the financing rounds.

With one of the major impediments for foreign investors being that there is a huge country risk when it comes to putting money in Pakistan the investors, local or international, need to realize that the initial growth will be slow, but gradually go on to be exponential one. So the capital needs to be patient in that regard.

The report without the intention to discuss the merits of the model of the venture capital business discusses that it is important to consider what impacts the limitations can potentially have on a nascent ecosystem like Pakistan’s. For not all potentially successful businesses will have the potential to give the returns in the time frame required by most venture capital firms.

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The attendees also noted that most nascent ecosystems in emerging markets have seen predatory early stage investors where these investors usually take a big chunk of equity upfront leaving the founders in a position where they get significantly diluted in the next round of funding. This according to them is also seen in Pakistan.

As of present several existing early stage businesses are not ready to absorb significant capital that is the minimum ticket size some funds are willing to write according to the white paper. However, as noted earlier, the entrance of international investors is contingent upon professional local investors, as they can help more businesses achieve product market fit by providing capital and mentorship.

Another major concern that was addressed in the report is that with most startups and early stage businesses that have successfully raised angel or seed investments they are facing difficulties in getting follow on capital. The major concern raised was that there is a lack of exits seen in the Pakistani ecosystem and that local investors have often found it difficult to justify investments considering the lack of any sizeable exits or deployment of later stage capital (Series A) seen in the ecosystem.

The investors, according to the report also focus on how there’s a need for the change of the narrative regarding failure. Not many startups learn from their failures and that the investors also need to realize failure is only a part of the process, including when looking at their own portfolio and that the majority of their investments, will fail.

Jeffery Paine of Golden Gate Ventures, speaking on the investment landscape in Pakistan said,

“What I feel is that if you are investing right now in Pakistan, and your fund size is about $5m, you will probably make a lot of money. There is no question eyes will be on Pakistan. But don’t just spray and pray; be careful about what you invest in.”