The National ICT R&D Fund is aiming to launch an ICT Venture Capital Fund with one or more financial mechanisms aimed at attracting investment in Pakistani startup companies in the Information and Communication Technologies space, told us people who are familiar with the plans.
This fund will generate monetary resources for rapid expansion of its projects in ICT industry and multiply the contribution of telecom and broadband operators in new projects.
These funding mechanisms are attractive for newly formed hi-tech companies with high-potential products and services ideas but limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering.
The ICT industry in the Pakistani context, so as to help accelerate Pakistan’s economic and social development. The ICT R&D initiative is likely to attract foreign and local investment in ICT industry.
Venture capital is also associated with job creation, the knowledge economy, and used as a proxy measure of innovation within an economic sector or geography.
The ICT industry has identified the lack of Risk Capital in Pakistan as being one of the factors that has hampered growth in this sector. The risk capital is actually financial capital provided through VC funding, angel investments, grants and similar arrangements to early-stage, high-potential, high- risk, high-growth startup companies.
The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in ICT. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists get significant control over company decisions, in addition to a significant portion of the company’s ownership.
Presently, the ICT R&D Fund sought Expressions of Interest (EoIs) from Pakistani firms willing to assist in the multiple issues that will need to be resolved before launching the planed fund.
These companies will be sort out different issues such as
- How will the Fund be structured? Will the fund invite private participation?
- How would it operate within Pakistani financial and contract law especially with regards to SECP and State Bank?
- How will the Fund’s investment be safeguarded? How will the Fund managers be compensated?
- Are there alternative funding models which will achieve the same objective, such as the Small Business Administration loans program in the USA or Carbon Trust in UK?
- What percentage of the funds should be allocated to this ICT VC Fund based on global best practices?