Start-up potential

November 10, 2019

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TWO recent events have once again brought into discussion the performance of internet-enabled start-ups: the launch by the SECP of a start-up portal to encourage innovation and the 021Disrupt conference in Karachi that offered technology entrepreneurs a rare opportunity to raise funds for their ventures from local and foreign investors. Some major investors and entrepreneurs at the conference said that this year marked a ‘watershed moment’ for Pakistani start-ups, especially in terms of funding — a claim many will vehemently contest. Sadly, when we look at the entrepreneurial ecosystem here, there is not too much to celebrate. Indeed, the number of digital start-ups has been growing for the last five years, especially since the launch of 3G/4G mobile technology. This shows that we have the ‘building blocks’, such as increasing digital penetration through smartphones, incubators, accelerators, etc. to promote the entrepreneurial ecosystem in the country. Yet we remain in the early stages — in spite of the progress made over the last several years — due to poor access to funds, as well as regulatory and financial barriers, which continue to restrain start-up growth and bar venture capitalists from entering this market.

One study shows that the majority of digital start-ups die young because of lack of access to funds they need to survive and expand. Only one out 10 firms is able to secure funding from friends, family or investors. Those that are successful in raising the money are unable to sustain their efforts for long owing to poor business and management skills and the absence of an entrepreneurial mindset, or because their ventures are replicas of successful digital business models from other countries, without factoring in local conditions. It is not only the lack of funding and unicorn ideas that are to blame. The regulatory environment isn’t favourable either. For instance, the restrictions on the flow of funds into and out of Pakistan force many to set up companies in other countries and discourage foreign venture capitalists from financing or acquiring local firms. SECP regulations are a major hurdle in actual valuation and stock allocation of start-ups and their listing on the stock exchange to secure capital. On top of that, the present unfavourable tax policies neither benefit the investors nor the start-ups. Matters will not improve and the watershed moment will not arrive unless the government makes concerted efforts to revamp the poor business environment that is debilitating for both start-ups and investors.

Published in Dawn, November 10th, 2019