Pakistani startups had a record fundraising year in 2021. The momentum was also maintained in 2022, but was accompanied by announcements of layoffs and closures.
Commentators have been quick to write off Pakistani companies, but many also believe the contrasting developments are normal for an economy still uncovering its foundations.
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Among the latter group is Ali Samir Oosman, managing director of entrepreneurial growth-focused firm Endeavor Pakistan, who recently said company registrar rather than focusing on building the nation’s first unicorn, the nation’s tech ecosystem needed to produce quality companies where founders would exit with $15 million to $100 million after acquisition.
Oosman’s business identifies and works with high-growth entrepreneurs, helping them through the process by providing mentorship and guidance, while supporting their fundraising process and/or investing (up to $2 million) herself.
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“If we can create the right conditions to scale businesses in Pakistan and start seeing mergers and acquisitions in the startup space, that will result in a massive multiplier effect,” Oosman said in an exclusive interview.
“The exit of the founders with around $100 million will restore investor confidence in Pakistan’s startup ecosystem,” he said.
According to him, the first major victory in shaping the ecosystem was to put Pakistan on the radar of global investors who were willing to bet on its potential. The next big win for Pakistan’s tech future will be small to medium quantity releases.
This can potentially give local investors (especially angel investors) a two to five times higher return on their seed investments, thereby attracting more locals.
Likewise, entrepreneurs will also have the chance to achieve a good return in a short time as a reward for their risk, courage and ability to successfully realize their vision.
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He cited the example of Cloudways which was recently acquired for $350 million. Cloudways provides small and medium businesses with cloud hosting and Software as a Service (SaaS) installations.
Explaining his determination, Oosman said Endeavor is driven by the belief that high-impact entrepreneurs transform economies.
“In Pakistan, we focus on startups in a number of industries that span almost all verticals,” he said in the interview. “Our customers come from retail and consumer, fintech, enterprise software solutions, healthcare, education, talent and many more.”
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Oosman said nearly 65% of total transactions in Pakistan are in cash and remain undocumented, identifying the area where the gaps lie.
“It also means that technology penetration is quite low in Pakistan and hence the economy is inefficient and there are many gaps waiting to be filled,” Oosman said. “This is where new startups and new, leaner, faster, smarter business models can come in and capture economic value.”
He cherished that things have started to move in the right direction in Pakistan and experts have predicted large-scale digitalization in majority industries in the next 10 years.
The biggest challenge for the tech sector
Oosman, a former Microsoft employee, called Pakistan’s volatile exchange rate one of the biggest challenges for investments.
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“I know of an investor, who poured money into a startup that performed well and grew over 30% since October 2021,” he recalled. “However, this individual saw no growth in investment in two out of four quarters because his investment was in dollars while the business grew in terms of rupees.”
He said investors who did not consider the impact of the exchange rate when pouring money are now watching the currency closely.
He stressed that the rupee-dollar parity should be stable for investors to be comfortable investing in Pakistan.
“Instead of celebrating getting an investment, startups should look at things realistically,” he said. “Raising huge amounts of funds is a feat, but that shouldn’t be the goal.”
Sometimes building a big business doesn’t require huge venture capital (VC) funds. If the numbers are good and the company is validated by its performance, there are plenty of options beyond venture capital funding, Oosman said.
He highlighted the urgent need for tech startups to learn how to get things done collaboratively.
Oosman said the failures faced by Pakistani startups recently are completely normal.
“A similar trend has also been seen in other parts of the world,” he said. “Startups are created, investments are made and then you learn that they have not performed well.”
However, he lamented that failed Pakistani startups did not reveal where they went wrong.
“They should come forward and tell what really happened so that others can learn from them,” he said. “Chess is an integral part of the game and it should not be seen as a stigma.”
According to him, this would give investors and other founders more confidence in which startups to fund and be wary of places where things could go wrong.
Strengths and weaknesses
Meanwhile, Oosman said Pakistani entrepreneurs lack the capacity to achieve structured growth.
“Startup founders in Pakistan are good for unstructured growth. They are good at hustling. They know how to get things done with passion,” Oosman said.
However, he said Pakistani entrepreneurs lack the ability to pursue structured growth through optimization, finesse and expertise.
“That will come from overtime exposure and experience. Through Endeavour, we hope to bring that experience, expertise, learning and sharing to the Pakistani ecosystem.