Forget the Hype, Pakistan is Failing Its Startups

by Faisal Sherjan

Woke up with some reflection on what I have experienced in the last 15 months since quitting my job and getting involved with technology startups. It is remarkable to see how committed and resilient these young passionate and in most cases grounded young entrepreneurs are.

Let me start by saying they are succeeding in spite of the eco system around them rather than because of what their environment is like. Whether it’s incubators and accelerators, angel investors or even “institutional” ones, regulators, policy makers or the enablers of tech, the telcos, everything is a challenge.

More than co-working space and some PR largely in their own favor the incubators and accelerators provide nothing of real value. Speak to a start up and you will discover that yourselves. Mentors that float through these platforms are largely scoring photo ops instead of providing any real engagement and advice worth having. Few are just there to cherry pick ideas and go do it themselves.

Mentors that float through these platforms are largely scoring photo ops instead of providing any real engagement and advice worth having

Incubators/accelerators rarely open doors or make introductions these start up businesses need to either validate their ideas or grow their businesses.

You cannot name or find 10 angel investors who have seriously even looked at and supported young entrepreneurs. There is a lot of talk but few are actually walking. Announcements are made but money does not always come through.

No major institutional investments have been made in what is now more than 5 years since these start ups started to emerge. Huge disconnect between academia and industry which results in low to no appetite for institutional investors to step forward and commit themselves. The few who float around just want to acquire-hire.

The regulators are clueless. Starting with the IT ministry down to PTA which can play a key role there is either no understanding or total apathy. Again lots of talk with no real vision or implementation. Everything is restrictive.

How many businesses have got any level of support from any of the telcos?

SECP is the worst in this regard. It’s compliance requirements are designed for big companies not start up businesses. It does not support the creation of new businesses that are normally strapped for capital and has created no platform for nascent businesses to raise capital other than going hat in hand to angels of which we know there are very few with any appetite. Investors from outside have little appetite for Pakistani startups as no exits are visible. Everybody is hoping for trade sales and that too is not happening soon given the environment here.

No bank has any idea of what to do for a startup other than open an account. Lots of startups build their brand and their client base through social platforms like FB. No bank provides you a credit/debit card linked to your company bank account to make payments online. Individuals in the startup end up using either their own cards which they rarely have and normally use cards with family or friend. This now becomes an accounting conundrum. An investor comes in. Sends their accountant in as part of due diligence process and you have problems. I have not seen any incubator/accelerator addressing these issues. No effort is being made by policy makers also. SECP has no clue.

No bank has any idea of what to do for a startup other than open an account

Now we come to the most important player. Tech businesses are in reality businesses built on flow of information and need connectivity. That link is dependent on the behaviour and practices of the telecom industry. They also need transaction instruments and lots of cases mico-payments. That is a huge challenge. Just processing of a mobile money account can take months.

What we do know is telco revenue based on voice and SMS is dying. Use of data is going to be dependent on Content. Revenues for telcos will increasingly be dependent on content and services packages. Scan on your phone right now. Does your telco provider even indicate they know who you are?

Do they offer you services that you are even remotely interested in? How much of your day is spent on their network and how much off net on wifi? What do they offer you that is unique? Do they have any product offerings that excite you enough to actually spend more than you have normally been doing? How will they arrest their ARPU fall?

SECP’s compliance requirements are designed for big companies not start up businesses.

Now flip the coin. How many businesses have got any level of support from any of the telcos? What is the cost of such support? How many non branch instruments that these telcos are touting actually support start up business dynamics? Do we have any real micro transaction platforms that actually work. Yes the premium rate SMS but what do the telcos charge for it?

70% or if you get really lucky 50%? How many legitimate businesses can actually afford to pay out that much? Most of the content you do find on telcos is blatantly pirated or at best dubiously placed. Lots of incest too. If you do get dependent on receiving your money through a telco billing platform make sure you have enough cash to support your business for at least 9 months as you are not likely to receive your share before that.

This is for money that has actually been received by the telco at the instance of the transaction. It can work for pirates not for businesses securing legitimate rights. My advise to all startups think telco independence. These are dinosaurs who will take you down also as they can’t adapt.

You cannot name or find 10 angel investors who have seriously even looked at and supported young entrepreneurs

Things have to change if the startups are to grow into real businesses. Not every business idea is a workable one but the few that are will find it very difficult to survive and thrive in the environment they find themselves in. It’s not rocket science. It’s simple common sense. I for one cannot see much of it and can only marvel at the nous and energy of these young entrepreneurs who still want to create disruptive businesses in an environment full of negative inertia.

Feel free to disagree.

Faisal Sherjan is a  former media veteran who now advises multiple leading startups like Patari, Travly, Bookme and more.