Pakistan’s VC investments hit $1bn mark, eyeing first unicorn status

LAHORE: Venture capital (VC) is a relatively new player in Pakistan's burgeoning startup ecosystem, but early signs of success are emerging despite a lack of major disruptions yet.

One of the country's VC pioneers, Rabeel Warriach, spoke to The News about the challenges and opportunities in Pakistan's VC landscape.

Q: Why did venture capital come late in Pakistan?

A: We had drawbacks of technology as well. Venture capital came to Pakistan in 2016-17 when 3G, and 4G technology became available in the country. Careem was launched in Dubai because technology was there though it was programmed in Karachi. Our initial VC fund of $25 million had its first close in 2018 and till now about 1 billion dollars have been invested in Pakistan by venture capitalists that include both local and foreign investors. The investment in venture capital in Pakistan is very low compared with our GDP per capita.

Neighboring India became home to 100 unicorns, in May 2022. Unicorn is a startup that graduates to become a $1 billion company. Indian startups raised $42 billion across 1,583 deals in 2021. There is as yet not a single unicorn in Pakistan

Q: Are there any success stories?

A: However few of them have done wonders because of their innovative ideas. Simpaisa is one of them. It obtained funding $200000 only from us in 2019. It operated by removing the hassle consumers go through in making payments to streaming services, for example Netflix, Spotify, gaming companies etc. Simpaisa charges a small percentage from consumers to transfer their money to streaming companies. They contacted inward remittance to pay Pakistani recipients in their banks in exchange for the foreign exchange with which they paid the streaming companies.

In order to comply with State Bank regulations, SimPaisa is authorised to utlise 50 percent of its revenue from inbound remittances to serve its customers. In return, SimPaisa brings in over $25 million per month into Pakistan through freelancer and content creator applications and overseas workers remittances. The company’s earnings have been close to $10 million a year. We purchased a 20 percent stake in the venture at the time of our initial investment; from which we are paying back our investors. Since then, the company has issued various stocks and options to employees. Currently, we hold a 17% stake in the company. They are replicating this model in Bangladesh and Indonesia. Chances of success are high as they have earned the confidence of streaming companies.

Bykea is another success story. For a middle class family travel and delivery through car (Uber/Careem) is expensive. They engaged bike owners to do the same. Keeping in view the low literacy rate of bikers they launched their AAP in Urdu. They divided big cities into numerous zones to make it easy for the rider to accept or refuse an assignment. They have 60,000 bikers (earning hands) registered with half million paying customers per month.

It was financed by us in 2019. Later we arranged foreign funding for them. Now they are in profit with more bikers registering with them. They will need no further funding as they are planning to get listed in capital market

Q: Can you name a few leading VC funds in Pakistan and how do they invest?

A: Pakistan now has some established VC funds which include Zyan Capital, Fatima Gobi Ventures, i2i Ventures, Indus Valley Capital and Sarmayacar. There angel investors as well as some foreign funding. Venture capitalists or funds invest money in a business on expectation of high returns, usually a start-up, which is seen as having strong growth potential. A venture capitalist (VC) is a private equity investor that provides capital to companies with high growth potential in exchange for an equity stake. They make early investments in promising companies (or even ideas) with significant growth potential.

Q: What is your opinion about the Startup fund established by Umar Saif?

A: The intent is good. The fund will give support to venture capitalists that will mitigate their risk. It will provide 30 percent grant (maximum $300,000) on funding by VC fund.