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.

  • What about that self-sustaining ecosystem on which many smaller startups are growing mostly in tech industry. What I see is that most of the opinions in this article are true, however there has been a gap of huge missing numbers that do not come front to our newsfeed. Which includes big numbers $$$ of investments, business revenues and successes.

  • I couldn’t agree more. I have been talking about this openly for the last 2 years at the cost of some industry boycott (which actually helped me). There is 98% of fluff and 2% work. Guess what, we don’t even see that 2% work because 98% fluff is overshadowing the advertising space. About time real shakers and movers take control (however unlikely.)

  • Hahaha. I am saying this since the beginning of this startup bubble. There is no real liaison or public-private partnership going on. Most so-called incubators are pushing out “startups” through their PR, for personal gains. People are getting hundreds of thousands of $$ for e-shop or beauty product marketplaces. Insane.

  • The Pakistani way! If there are issues blame everyone and anyone except yourself!

    Startups are failing themselves and that is ok! They’ll learn, they’ll improve and they’ll succeed!

    If you read Mera Taleem article on this site you’ll see the sum up of why startups are failing. People keep assuming making product is hard part and rest is easy! Anyone can make a product, getting clients etc is hard and the real work! Mera Taleem failed because it took him almost a year to get his company registered something that takes 2-3 weeks if you do via any good lawyer.

    • That’s where our Government institutions come in. They should make processes like company registration, NTN registration, bank account opening as easy as possible. So that startup don’t need a lawyer. Most of the startups are founded by people in their early 20s and at that age, most don’t even have slight idea of how Government institutions work and that its not as straightforward as it looks.

      SECP should have a modern website providing all the guidance along with online application forms. Their current website is a joke.

      • It’s already very easy but use a professional for that. It doesn’t cost much. If you start doing everything yourself that’s just a waste of time!

        20 something need to hire a consultant and get it registered and take any advice needed from them instead of wasting time learning everything themself.

        • If they can afford a consultant, they won’t be wasting their time being startup. Regulations need to be simplified. In US, you can open a company in a day, by submitting a form online. Why can’t you do it in Pakistan. Why the banks treat you as a suspect as soon as you walk in unless you have a Pay Slip? The Govt. and institutions are living in 80s, while the world has moved on on regulations.

  • Rest of the article (SECP, Banks, Telco, Incubators) is something I mostly agree with, but .. not with

    “You cannot name or find 10 angel investors”.

    Within DotZero only there have been 8 people that have financially invested, and 2 that have invested time against equity .. mostly in idea and early revenue companies and our Angel network is growing every quarter.

  • It depends on the incubator. Let’s look at track record of LUMS Center for Entrepreneurship; Out of 70 startups, 16 got funded with a combine revenues of Rs. 100 mil and 700 mil in valuation. Only two failed. Not bad for startups in a weak Pakistani business ecosystem.

  • I agree with most of the issues highlighted in this article. I think funding is not an issues, the real challenge is most of the startup inspire with US/Foriegn culture but fail to realize the local issues and bottlenecks in executing the idea in our culture.
    Regarding incubation center and so called center of excellence they just do selfies and know the art of exaggeration. Their stats regarding startup got funding and all this thing is bullshit, practically small percentage of people get something but through their own channel, not through those so called centers.

  • Aaah…. doing something without knowing ground realities and focusing more on perception instead of reality do nothing but turn you a puppet for cartels or lip-service morons. We are ruining our talent by pushing them to startup game.

  • Really like the way the article has put all the problems in one place!
    Not only does that make it one macro issue… it give me a lot of focused issues to think about. Everyone can play their part in the start-up ecosystem… then why are the established sectors lagging behind?

    Why don’t they want to create something that will get them more money and eventually more resources? That’s baffling!

  • I know it as a fact that this guy name is on ECL for a series of financial frauds in media industry, in STN, PTV, Duniya News and recently at Geo TV. If he is helping startups then there’s certainly something to be worried about …

  • SECP is a regulator and regulates the formation of companies and protects the interest of shareholders. Any private company can be incorporated with a week’s time provided proper documents are filed. Every detail of formation of new company is uploaded in its website. The formation of listed company is cumbersome as it involves minority money which needs to be protected and also have very detailed filing which sometime is a real pain in the neck and irritating. Hiring of reasonable consultant will ease up the process in getting the license of startup business. Every business takes a little time to incubate and once this is done and you have clients it will flourish provided you have a market. Lot of startup business fails as these were based on the studies carried out in different geographical location with people either more sensible and educated and have sense of the technology being introduced. In our part of the world we try to impose that and business fails as majority of population have no such sense.You cannot succeed with eying minority provided you have hefty margins on along term basis.

    As regard banking process, there are possibilities of obnoxious payments which may be made through credit cards which is the main reason of SBP not allowing credit cards to corporates as compared to individuals. Another most important matter is the human psychology, individual can be made to pay if he fails to make payment of credit cards on due dates and can be taken to court, whereas corporates litigation take longer time to be rounded up for any reason because of time and money. SBP has yet to devise rules/regulation for credit cards for corporates.

    We need to understand the process/environment of this country and than move forward. There are problems and issues like every third world country like corruption, favoritism etc and nothing should be expected of corporate environment as is in US and Europe which will take a long time as we are follower not leaders.

  • I agree with some of the points above, but being in the tech space and meeting many entrepreneurs looking for investment & advice, it becomes nearly impossible for us to engage them when start ups that have done NOTHING start thinking that their businesses are worth 1 million, 2 million dollars. Sorry, doesn’t work that way.

    Also, some who we have offered free advice to, and to help them at any time, sometimes just dont show back up, because theyre mainly looking for money, NOT advice. Granted, I’m not saying that all of them are like that, but you tend to get more cynical the more ‘entrepreneurs’ you meet.

  • I generally agree with you but there are few very serious issues that needs to be addressed first. How old or new the concept of start-up is? We cannot expect banks, industries, institutions, governments to know and understand this concept so quickly. Further, we cannot expect them to regulate and accept start ups into main stream so early and easily. Technology in IT and communications are developing and changing so fast and also its integration into the material things is happening at such a speed that we can not expect the society in general to know about it. I ask you, how many in Pakistan know about “Internet of Things” and who is working in this area?

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