'Pakistan’s startup ecosystem needs a few $100mn exits'

Pakistan’s startups saw a record-breaking year of fund-raising in 2021. Momentum was carried over in 2022 as well, but came in tandem with announcements of layoffs and shutdowns.

Commentators were quick to write off Pakistan’s companies, but many also believe the contrasting developments are normal for an economy still discovering its footing.

Dubai-based founder of 3 startups says VC ecosystem in Pakistan will find its footing

Among the latter group is Ali Samir Oosman, managing director at entrepreneurial growth-focused firm Endeavor Pakistan, who recently told Business Recorder that rather than focusing on creating the nation’s first unicorn, the country’s tech ecosystem needed to produce quality companies where founders make a successful exit with an amount of $15-100 million following acquisition.

Oosman’s firm identifies and works with high-growth entrepreneurs, helps them through the process by providing mentoring and guidance, while supporting their fund raising process and/or investing (up to $2 million) itself.

It takes a lot to get a startup off the ground, but certain factors help

“If we can create the right conditions to scale companies in Pakistan and start seeing mergers and acquisitions in the startup space, it will result in a massive multiplier effect,” Oosman said in an exclusive interview.

“Exits of founders with around $100 million will restore confidence of investors in Pakistan’s startup ecosystem,” he said.

According to him, the first big win in shaping the ecosystem was getting Pakistan on the radar of global investors who were willing to bet on potential. The next big win for Pakistan’s tech future will be exits with small to medium amounts.

This can potentially give local investors (especially angel investors) two to five times higher return on their early-stage investments, attracting more locals.

Similarly, entrepreneurs will also get a chance at making a good return in a short time as a reward for their risk, grit and ability to successfully execute their vision.

Play Tests not T20s in business, IT sector stalwarts advise startups

He cited the example of Cloudways that was recently acquired for $350 million. Cloudways provides small and medium-sized businesses with cloud hosting and software as a service (SaaS) facilities.

Explaining his resolve, Oosman stated that Endeavor is driven by the belief that high-impact entrepreneurs transformed economies.

“In Pakistan, we are focusing on startups across a number of sectors which cover almost every vertical,” he said in the interview. “Our clients come from retail and consumer sector, fintech, enterprise software solutions, healthcare, education, talent and many others.”

Pakistani e-commerce platform PriceOye announces $7.9mn in seed funding

Oosman said nearly 65% of the total transactions in Pakistan are in cash, and remain undocumented, identifying the area where gaps are.

“This also means technology penetration is quite low in Pakistan and therefore, the economy lacks efficiency and there are many gaps waiting to be filled,” said Oosman. “This is where new leaner, faster and smarter startups and business models can enter and capture economic value.”

He cherished that things have started to move in the right direction in Pakistan and experts have projected large-scale digitisation across majority industries over the next 10 years.

Biggest challenge for the tech sector

Oosman, a former employee at Microsoft, termed Pakistan’s volatile exchange rate one of the biggest challenges for investments.

CarFirst announces shutdown of operations in Pakistan

“I know an investor, who poured money in an early stage of a startup that performed well and reported over 30% growth since October 2021,” he recalled. “However, this person did not see any growth in investment in two out of four quarters because his investment was in dollars whereas the company grew in rupee terms.”

He cited that the investors who did not factor in the impact of exchange rate while pouring money are now observing the currency closely.

He stressed that the rupee-dollar parity needed to be stable for investors to be comfortable to make investments in Pakistan.

“Instead of celebrating securing an investment, startups should look at things realistically,” he said. “Raising huge amounts of funds is an achievement but it should not be the goal.”

Sometimes building a big business does not require huge funding from venture capitals (VCs). If the numbers are good and the business is validated through performance – there are many options beyond VC funding, Oosman said.

He underlined dire need for tech startups to learn to take things forward in a collaborative manner.

Flip side

Oosman said failures Pakistani startups faced recently are quite normal.

“A similar trend was witnessed in other parts of the world as well,” he said. “Startups are established, investments are made and then it is learnt that they did not perform well.”

However, he lamented that failed Pakistani startups did not reveal where they went wrong.

“They should come forward and convey what actually happened so that others could learn from them,” he said. “Failures are part and parcel of the game and they shouldn’t be taken as some stigma.”

According to him, this would give more confidence to investors and other founders regarding which startups to fund and be wary of where things could go wrong.

Strengths and weaknesses

Meanwhile, Oosman said Pakistan entrepreneurs lack the ability to achieve structured growth.

“Startup founders of Pakistan are good at unstructured growth. They are good at hustling. They know how to get things done with passion,” Oosman said.

However, he said that entrepreneurs in Pakistan lack the ability to pursue structured growth through optimisation, finesse and expertise.

“That will come from exposure and experience overtime. Through Endeavor we hope to bring that experience, expertise, learning and sharing to the Pakistan ecosystem.”