Lazy Goliaths and venture (in)activity

Published April 12, 2021
Big-business lobbies can’t secure protections against global competition in the emerging tech sector. — AFP/File
Big-business lobbies can’t secure protections against global competition in the emerging tech sector. — AFP/File

With the tech ecosystem getting more mature around the world, one of its underlying features has been the way big businesses have embraced and promoted this growth.

Be it the eye-watering acquisitions of WhatsApp or Instagram by Facebook or Bain Consulting launching venture funds worth billions of dollars, large corporates have actively driven its rise.

According to Pitchbook data, corporate investors participated in 26 per cent of the total venture capital deals in the United States — and those rounds accounted for more than half of the dollar value.

In 2020, corporate venture capital (CVC) investments were part of over $73 billion of funding across 3,359 deals. On the acquisition front, FAMGA (Facebook, Apple, Microsoft, Google and Amazon) bought 35 companies in 2020 alone, spending over $12bn.

Big-business lobbies can’t secure protections against global competition in the emerging tech sector

These are obviously global giants that dwarf even big organisations in terms of scale. But even beyond these tech titans, it’s fairly common to come across frequent deals. The usual model is acqui-hire where an entity rakes up either a direct competitor or someone offering some synergy in services and the founding team of the acquiree becomes a part of a bigger group.

Now let’s turn to Pakistan and see where we stand. Obviously there is no comparison of our entire economy to even some of the regular big businesses. But for the local standards, corporate presence is broadly missing from the startup or broader innovation ecosystem. That’s naturally reflective of not only their own inefficient and manual processes but the generally lacklustre merger-and-acquisition landscape.

Whatever developments or initiatives corporates have taken have been few and far between, with multinationals not being much better than their home-grown counterparts if not slightly worse. In this regard, Telenor entered the innovation ecosystem relatively early in 2016 through Velocity, an accelerator programme. Up until 2019, their focus was more on training and grooming entrepreneurs — a mini-MBA of sorts — but the telco has since moved away from that strategy.

“We are looking at tech startups in the education, health and agriculture spaces among others which align with our broader strategy and then help them through our network. For example, Pak Agri Market is one of the ventures we have backed. It aligns with the company’s own Khushal Zamindar initiative,” says Telenor Chief Operating Officer Khurram Ashfaque.

“At the moment, we aren’t really looking to directly invest in companies — though we have done that in the past with Easypaisa being a successful example — and are instead trying to build an enabling environment for startups,” he adds.

“There might not be monetary injections as such but a number of services that are offered can cost anywhere between $3,000 and $10,000, such as access to APIs, SMS campaign infrastructure and communications support among other things.”

Since the founding of the programme, 32 entities have graduated from it across six cohorts and reportedly raised over $3 million of external funding, with Edkasa being the latest entrant just last week.

Jaffer Business Systems too has a similar approach, but instead of an accelerator model, it has preferred to invest in startups — the acqui-hire way to be precise. So far, they have participated in two deals, first being the big data firm Blutech Consulting and last week a greentech IoT company, ENA, in which it bought a significant stake for Rs300m.

Though the deal has a price tag attached, the offering here is not money but rather the synergies, economies of scale and knowledge sharing that come with being a part of a bigger brand name. “We don’t believe in giving them just cash. Instead, the idea is that these companies become part of our broader ecosystem. They will be able to utilise our office space, tech and other infrastructure, as well as a proper corporate infrastructure. With everything looked after, the founders can simply focus on scaling their products and services,” according to Jaffer Business Systems CEO Veqarul Islam, who shared plans to acquire 10 such entities by 2030 and is eyeing young startups — even those at the idea stage.

International Brands Ltd, the group behind the likes of Searle Pharma and Dunkin Donuts in Pakistan, too has tried to enter this arena, first with MyCart and then Trax Logistics. Likewise, TPL Corporation has shown interest within the innovation ecosystem and invested in a few startups, including the messaging platform Tellotalk.

There have also been acquisitions. For example, 10Pearls bought the UI/UX research firm Two Dots in December 2020 and San Francisco–based Zen Cloud in February of the same year. However, given its export-oriented nature, the spillover effects for companies catering to the local market might be more limited.

Meanwhile, the “big announcement” that a particular tech company with a banking licence made two years ago is yet to properly materialise. For the uninitiated, in November 2019 at a conference, Habib Bank — with all the flare of a revelation — unveiled its plans to set up a venture capital fund. It’s April 2021 and there is hardly any information available on its progress, spare one article on how this could be a gamechanger, without really providing any operational details. Similar is the story of Systems Ventures.

The only two corporate players that have an operational presence in this space are Fatima and Lakson Groups. The former not only invests through its standalone ventures arm but also has a fund along with South Asian Gobi VC, and combined the firm was the most active investor in Pakistan during 2020. The latter too has paced up its activity and participated in as many as four deals last year.

For the tech ecosystem to grow, the local corporate sector needs to become more active but that might require a kind of dynamism they are alien to. After all, this is not an industry where their lobby groups can secure protections against global competition and continue the usual rent-seeking modus operandi of providing substandard services.

Published in Dawn, The Business and Finance Weekly, April 12th, 2021



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