Analysis

Why the Pakistani startup ecosystem is still lagging behind India

Back in January, India launched a “Startup Action Plan” to support new startups in the country. Launched by Prime Minister Narendra Modi in New Delhi, the plan clearly laid out the support the government would provide to startups.

The Indian Startup Action Plan actually promises a lot, and looks very promising. Tax exemption, self-certification, establishment of a Startup India hub, labs with 3D printers and other equipment for R&D, programs for students, quicker registration, help filing patents and getting legal advice, a fund, festivals and much more. Yet, the plan was met with criticism and the general belief that it wouldn’t change much.

How similar are we to the Indian market?

Just like Pakistan, Indian startups face two issues that no action plan can address: the first is government apathy and corruption, and the second is the strong hold big corporations already have over the local market and the inability of startups to compete against them.

Indian’s and Pakistani’s also have similar opportunities when they consider starting up a business. For instance, mobile phone penetration in both countries is very high, which makes it the perfect market for mobile app development. But while India has gone much further than just providing outsourced app development service for international clients, Pakistanis are still stuck in the mindset of easy money without any investment.

What does a successful startup ecosystem need?

Here are a few things that a startup ecosystem needs.

  • Skilled people
  • Large marketplace for those products
  • Multiple sources of funding
  • Bigger companies to acquire those startups, thus providing investors with an exit strategy

Do we have skilled people? Yes. While most college graduates prefer to run abroad and never look back, plenty also stay behind and therefore you could say we have the skill required.

Do we have a large marketplace for products and services? Yes, as the success of recent startups has shown, people will pay good money for the right product or service. Who had ever thought they would order a plumber online, but here we are.

Do we have sources of funding? A big fat no. There are no government backed funds, it can be hard to get a loan and there are very few private investors (and a lot of competition for their money).

Do we have a structure for mergers? No. And to add to that, we don’t have a lot of legal framework or R&D support for startups either.

The big problem of funding can be explained. In most startup ecosystems, the initial funding circles startup from the tech companies themselves. Since they understand what’s there to gain, they’re more likely to jump in and invest in new ideas. When these stories (of successful startups) become well known, more investors jump in, creating a cycle of investment.

Well this hasn’t really happened in Pakistan. Firstly, because we don’t have the kind of millionaires you hear about on Silicon Valley (the show, not the place). There may be rich people, but they certainly don’t have enough to kickstart a whole culture (or maybe they’re hiding their money abroad, who knows!). Those who have money, and certainly want to invest, can see the absolute value in buying a Subway franchise or a DHA plot, but won’t be willing to see the long-term ROI a tech startup would have. And the government, of course, has nothing.

Add to this the sad legal structure that doesn’t protect minority shareholders, and suddenly no one wants to invest unless you make them a majority shareholder in the company you set up with your blood, sweat and tears.

Since we all watch Karan Johar movies, we also know the importance of the Indian NRI. Well, Pakistani’s abroad aren’t made of the same cloth it would seem. While Indians will go abroad, make money in the tech sector, and then figure out a way to make it back home, Pakistani’s are content to stay abroad, live their suburban lives and never look back. This is the smart money we need, but lack of government support and infrastructure makes it a risky investment and no one wants to lose their retirement fund in one go.

What are the options for a startup coming out of Pakistan?

Does all this mean Pakistani entrepreneurs should give up? Of course not.

There are plenty of startups doing great work in Pakistan, with and without investment. And while the government may not have a lot of offer startups, there are certainly private resources (and a few semi-government ones) that offer support.

Incubators, accelerators, co-working spaces. We have a lot of things happening on the ground that provide hope. And startups like Convo, Appography, Rozee.com, Vivid Technologies and many others have managed to fight against the odds and come out successful.

So go forth and start-up. Be prepared for a long and hard journey, but one that will certainly teach you a lot.

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