What entrepreneurs should do to get their startups financed.

Byline: Bilal Hussain

Bilal Asif, founder of a blockchain-based software-as-a-service (SaaS) company Block360, says all of his company's clients are outside Pakistan - mostly from Europe. Block360 is yet to have a local client and Bilal believes it is only due to lack of awareness about the technology.

Block360 currently has four foreign clients - two from Germany and one each from UK and Denmark. Bilal believes his startup has great potential to scale and has already started generating over Rs1 million per month in revenues, which his company is receiving in euros.

The company provides infrastructure for the cryptocurrency and machines economy. It develops and delivers cutting-edge software solutions necessary for businesses, governments, organizations and individuals to securely move assets across the blockchain. Since its inception in 2017, it has provided blockchain technology support to over 15 startups and established companies mainly in Europe but also in the United States.

Small businesses are becoming 'micro-multinationals' across the globe by using digital platforms such as eBay, Amazon, Facebook, and Alibaba to connect with customers and suppliers in other countries. Even the smallest enterprises can be born global. According to a McKinsey survey - which was cited in its report Digital Globalization: The New Era of Global Flows - 86% percent of tech-based startups reported some type of cross-border activity. Small businesses have the ability to reach out to new markets. Such businesses support economic growth everywhere.

But Pakistan is not faring well in the segment. The startup culture is struggling. Entrepreneurs have reported several reasons. There is still a cultural lack of support for entrepreneurship and the physical and technology infrastructure of the country leaves much to be desired. But a big complaint from startups is that there are still not enough venture capitalists willing to fund and scale their businesses.

'The startup culture is very bad in Pakistan. Nobody is working to address it, and those who are supposed to be doing this, are serving their own personal interests,' said one entrepreneur who wished to remain anonymous so as to speak more candidly.

This entrepreneur successfully completed an incubation round at a renowned incubation center with their team, but was not happy with the experience at the incubator. In this person's view, the only good thing they got from the incubation was a place to sit, which served as a temporary office when the team was unable to afford renting an office of their own.

'There was a clause in the contract, which made it binding for the aspiring entrepreneurs to sit in all workshops when they are asked to, whether it is related to them or not.'

According to the entrepreneur of the tech-enabled startup, investors in Pakistan are not very much fond of tech-based business idea. And those who are interested ask for majority stakes in the company. 'We come up with an idea, spent time developing it, and when we contact a potential investor, they ask us for majority shares. That's the biggest catch of our startup culture,' the entrepreneur said.

Most analysts agree that Pakistan has great potential for venture capital investment. It is the sixth most populous country in the world with a population of over 200 million. It has the fourth largest middle-class in developing Asia and 65% are under the age of 30 with a median age 22. It has one of the fastest growing retail markets with an average annual growth rate of 8.2% for the period 2016-21 - ahead of India's 5.3% and Vietnam's 4.8%. The size of Pakistan's retail market is $210 billion.

The online retail sales in Pakistan have surpassed $1 billion in 2018 with a compound annualised growth rate (CAGR) of 140% over the past four years. However, online sales are still only 0.34% of total global e-commerce as compared to India's 5% and Indonesia's 4%. But Pakistan's e-commerce sales are projected at $4-5 billion by 2021.

The difference between venture capitalists and vulture capitalists

Zoya Imam, head of investments at TPL e-Ventures - a venture capital fund backed by TPL, the security technology and financial services company - says that venture capitalists who look for majority stakes in startups are mockingly referred to in the industry as 'vulture' capitalists.

Such investors are considered detrimental for the startup culture as it demotivates entrepreneurs seeking to build out their businesses. It is considered bad for industries that might flourish as a result of a thriving startup...