The state of entrepreneurship in Pakistan requires a lot of structural changes to help accelerate its growth. The country might not have unicorn startups at the moment, however, it has started to show immense potential and promise. In recent years, big names like Bykea, Careem, Zameen.com, and more have made headlines with their scale of operations as well as attracting foreign investment and funding.
Two-thirds of Pakistan’s population is under the age of 30. With these statistics, and the country expected to grow at 6% per year through 2026, Pakistan is on the road towards a flowering startup scene. Let’s explore the startup ecosystem in Pakistan. Past, present, and the future.
Startup Ecosystem Growth and Maturity
Since 2010, more than 700 startups have been established, with around 100 successfully raising funding. Most of these major investment deals have taken place in recent years, reflecting the promising opportunity for local startups and a burgeoning investor focus in the country.
Well Funded Startups in Pakistan
A few major examples of startups in Pakistan that got funded are;
- Daraz: Alibaba acquiring Daraz for an estimated $200 million in 2018
- Zameen.com: Till now, Zameen.com has raised $29 million in disclosed venture capital funding with a valuation of around $80 million. Its most recent funding came in a Series C round from existing investor Frontier Digital Ventures and other undisclosed investors.
- Airlift: An application aiming to decentralize the mass transportation system in Pakistan, Airlift has been able to raise $14.2 million dollars in disclosed venture capital funding led by Indus Valley Capital and Aatif Awan.
- Sastaticket: An online travel agency founded in 2016, Sastaticket.pk secured an investment of $1.5 million from Gobi Partners, a China-based venture capital fund.
- Bykea: A platform that leads the ride-hailing service in Pakistan, has raised around $22 million to date. Its most recent investment was a Series B round of $13 million led by Prosus Ventures in September 2020.
Trends of Startup Ecosystem in Pakistan
A joint effort in the startup community, both national and international plays an important role in the growth of startups. Establishing a great ecosystem cannot be done by the startups alone, it needs active participation and efforts of academia, investors, industry, and other stakeholders.
The overall trend shows a positive increase in terms of the startup activities in Pakistan for the past few years. There has been an increase in the number of angel investors, however, it is important for them to be educated around investment and startups.
Though the landscape for startups in Pakistan is progressing at an exciting rate, there is still a myriad of challenges and problems that cause startups to fail.
Challenges faced by startups in Pakistan
One of the biggest challenges for startups in Pakistan is obtaining capital. Quality investors are hard to come by as most investors take away an enormous amount of equity that leaves founders handicapped rather than empowered.
Secondly, recent research shows that the country requires more tech hubs and infrastructure to facilitate innovation. Support organizations do play a vital role in providing help to startups, however, they need to specifically cater to the lack of guidance and mentorship startups have. This could relate to the legal aspects, business development, access to the startup network, and investor connections.
Although Pakistan improved its position on the World Bank Doing Business Index 2020, moving up 28 spots to 108 out of 190 countries, current government policies and regulations are unfavorable to investors and startup founders alike. While local venture capital funds are not incentivized to domicile their funds inside Pakistan, foreign investors also need to be provided with further incentives to enter and invest in startups in the country. Moreover, the stringency and complexity of the regulatory processes create a difficult ground for all stakeholders in the startup ecosystem in Pakistan.
Lastly, one of the most pressing concerns in the startup ecosystem of Pakistan is the gender gap. Startups run by men find it easier to raise investment than their female counterparts. Also, when female-led startups do raise funding, they predominantly raise angel and grant money (and little to no venture capital funding). The country desperately requires more women-led companies. Incubators and accelerators can play a vital role in this by seeking more female founders for their programs or providing access to investor networks for women-led companies
If all goes well, and you overcome the challenges, you will soon be looking to get your startup officially registered. Let’s see, how do you actually go about it.
Startup Registeration in Pakistan
Registering a startup in Pakistan is fairly easy, with a few complications only. However, since these things are not taught in schools and universities, startup founders find this process to be daunting and often delay it. It is important that you register the company as soon as possible. Why? Because it saves you from later hassles and problems. Most importantly. it is not possible to raise funding without being registered.
Process
The incorporation of a company in Pakistan involves 5 basic steps.
- Company Name Registration
- Documents of Incorporation
- Digital Signatures
- Incorporation Fee
- Obtaining Certificate of Incorporation
Company Name Registration:
First, check if your desired company name is available. You can check this on SECP, which is the Security Exchange Commission of Pakistan. If the name is available, log in to the E-Services account, go to Company Name Reservation, and then fill out the details. To complete this process you will need to make a payment of Rs. 200 either online via credit card or offline in the chosen bank. However, before you finalize the process make sure you choose the right company kind.
Refer to this Company Name Reservation Guide by SECP for more information
Documents of Incorporation
Company Registration Office (CRO) will send you the confirmation of the name reservation in 2-3 days. The name will be held till 90 days during which you will have to submit your documents of company incorporation. Hence it is advised to start drafting your Memorandum and Articles of Association right after you submit your application for name reservation.
Memorandum of Association
The Memorandum of Association contains the important conditions upon which the company is allowed to operate.
Find a sample memorandum according to the nature of your business. If you are unable to find a sample, then hire a professional to take care of this matter.
Articles of Association
Articles of Association along with the Memorandum of Association make up the company’s constitution, states the responsibilities of the directors, the kinds of business to be undertaken, and the means by which the shareholders exert control over the board of directors.
Form 1, Form 21 & Form 29
1: Declaration of compliance with the requirements of the Companies Ordinance, 1984
21: Notice of situation of the registered office of the company
29: Particulars of Directors and Officers including the Chief Executive, Secretary etc.
All forms are available at this link.
Note: When using e-Services you only need to upload the following documents in PDF format.
- Memorandum of Association
- Articles of Association
- Scanned version of CNICs of the Directors
- Scanned Receipt of Bank Deposit (In case of Offline Payment)
Form 1, Form 21 & Form 29 are automatically generated from the details you enter in the Form of Incorporation.
This is where you fill out the details and upload the documents.
Digital Signatures
If you are getting your company registered through the eservices, the witness to your documents will be NIFT. You will need to get a digital certificate from them in order for all the directors of the company to electronically sign the relevant documents.
Click here to download NIFT Application Form
Instructions for obtaining and installing digital certificates are available here.
Incorporation Fee
You can calculate the incorporation and filing fee online using the Incorporation Fee Calculator. For more details, see the Schedule of Fees.
Certificate of Incorporation
After you are done with all the above mentioned steps, you will receive an email confirmation of the incorporation of your company with the incorporation number. SECP takes about 7 days to process this.
Once you receive the email you can pick up the Incorporation Certificate from the concerned Company Registration Office (CRO) by showing a copy of the payment receipt or it will be delivered to your registered address after seven working days.
Next, let’s look into the complexities of acquiring startup funding in Pakistan.
Acquiring funding in Pakistan
Present Situation
Before we dive into the process of acquiring startup funding in Pakistan, it is important to familiarize yourself with funding statistics, both past, and present. Since 2015, investments in startups in Pakistan has increased significantly. There were 101 investment deals between 2015-19 in Pakistan-based companies, about 47 of those occurred in just the past two years (2018-19). Of those investments, about 22% were funded by venture capital funds, while about 44% were funded by angel investors (either syndicates or individuals). Most investments continue to occur at the pre-seed and seed-stage level, which highlights the need for more quality early-stage funders – donors, angel investors, and funds.
Local Funds
The launch of new local funds focused on Pakistan in the past two years like Sarmayacar, i2i Ventures, 47 Ventures, TPL e-Ventures, Fatima Ventures, and Lakson Investments, are all strong indicators of where the venture capital landscape is moving. These funds all invest at the early-stage, ranging from seed-stage to Series A. The growth of this landscape is significant as the startup ecosystem also grows, and there are two interesting trends worth noting: first, most funds are sector-agnostic and do not exclusively invest in one particular stage of a company’s growth. While most funds do look at technology-enabled ventures, their desire to be more flexible is a reflection on the nascency of the market (with growing quality deal flow).
International Funds
As more international funds enter or look to enter the Pakistan market, getting early-stage deals ready for growth is vital, as is fostering collaborations between international investors and funds on the ground, who understand the local context and can help outside players navigate the landscape.
The number of investors and funding sources has also increased significantly since 2012. Currently, there are approximately 20 formal investors in the Pakistan ecosystem and many of these funders cater to startups ranging from pre-seed to pre-Series A-stages. FatimaVentures, in its recent partnership with China-based VC fund Gobi Ventures, Sarmayacar, Lakson, Ithaca Capital
and 47 Ventures can all invest at the Series A round, which is a relatively new development in the ecosystem, given that local investors were investing at earlier stages in the pipeline in the past.
Process of startup funding in Pakistan
Awareness
The first thing to do to raise capital for your startup is to create awareness. You need to spread the word around to people to get noticed. The best way to do this is to create an effective social media presence for your startup. Having a great social media following is proof that the audience is getting attracted to your idea. And that is exactly what investors look for.
Crowdfunding
Another way to raise money is to crowdfund. Crowdfunding basically means asking the internet for money. You put your idea out, and hope for people to back it. There are Crowdfunding sites in Pakistan like Indiegogo, Fundstalk, Rockethub, FundAnything, FundingLab etc.
Networks and Events
It is also essential to have access to the startup network. Conduct events to highlight what your startup is all about and its progress. Not only will this create awareness but this will also attract sponsors and investors. You can also tap into legal entities to buy marketing contact lists. These have numbers of major marketing and business firms and individuals who might be interested in your idea. You really need to have contacts with the right people to establish your business. You should also seek out government grants and resources which you can easily obtain.
Venture Capitalists
Your ultimate goal in your journey towards startup funding should be to get noticed by venture capitalists. And when you do get noticed, you need to be ready to present your idea formally. For this, you need to ensure that a few things are in check.
- Pitch Deck: Have a pitch deck for your startup ready. It should be to the point (10 slides max), to the point, and clear. If you do not know how to make a pitch deck, you can always have it made from an external source. For example, the people at Slidebean do an amazing job at this.
- Introductions: You should have your informal and formal introduction ready. At times, you will only have a few minutes to make a lasting impression. Make sure you nail it!
- Terms: When venture capitalists invest in your startup, they take equity in return. You need to be prepared beforehand and decide the amount of your startup equity you are willing to giveaway in exchange for investment. Making hasty decisions will never take you far.
- Team: You need to ensure you have a great founding startup team. Investors look for a great team more than a great idea. They put their money on the team, and that is where you should ensure you do not fall short.
Read More: Venture Capitalists Culture in Pakistan
Also Read: Startup Funding Explained
Incubators/Accelerators
If you look at the startup landscape of Pakistan in the last 10 years, there has been tremendous growth in terms of the incubators and accelerators in the country. In 2012, there were just two major incubators and accelerators in the country, now in 2019, there are over 24 incubators and accelerators, 80 coworking spaces, and approximately 20 formal investors who are players in Pakistan.
The government also played a key role by establishing the Technology Board (PITB) and launched efforts like Plan9, a technology incubator, in Lahore. Since 2016, the federal government, via Ignite (formerly known as the National ICT R&D Fund), under the IT Ministry, initiated funding around National Incubation Centers (NICs) across the country. Collectively, the five major NICs across the country have graduated over 200 startups.
This reflects a promising future ahead, especially since startups in Pakistan desperately require access to resources like these. Not only do incubators and accelerators provide these startups with in-house resources, what is actually truly valuable is the exposure, access to investor networks, and the much-needed mentorship.
Startup Events
There are a plethora of startup events and conferences that take place in Pakistan. These include Momentum, 021 Disrupt, Startup Grind, and several others. These events are an opportunity that startup founders must avail at all costs. Why? Because they bring together a diverse mix of panel discussions, national and international speakers, startup workshops, roundtables, and amazing networking activities. As a startup founder, if you are unfamiliar with the startup ecosystem in Pakistan, these events will surely be a great start for you.
Note: 021 Disrupt is taking placing virtually this year from 30th November to 5th December. Do not miss out on this amazing opportunity especially when it is FREE this year!
Conclusion
The Startup Ecosystem of Pakistan has all the ingredients to succeed, it just needs to capitalize on it. We have skilled people, a huge marketplace, a growing funding network, and most of all companies and high-profile business individuals taking an interest. Despite the inherent challenges, the startup activity in Pakistan is definitely something to be excited about.
What are your thoughts about the startup ecosystem in Pakistan? Do you think the country is progressing, or on the contrary? Do share your thoughts in the comments section below! For questions and queries, reach out to us at PACE Business.
