Support for Entrepreneurs? Yes! Practical Support? Maybe.
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Adnan, who is documenting entrepreneurial business insights he learns while working on Lootmaar, said in a post which talked about Pak Startups:
If you are a Pakistan entrepreneur looking to start up, there is an entire community to support you. It has founders and CEOs of publicly traded companies, senior executives in companies like Yahoo, SAP and Sun, professors in top schools like Berkley, and of course, angels and top-tier VCs. And you know what?
They want to see you succeed.
That’s good encouraging advice for startups.
The trouble is, as I’ve said often in the comments at G&W, that even though Pakistan’s private equity industry is seeing growth, and even though many VCs from abroad are making frequent rounds here (even the people who backed Paypal and other ventures), what Pakistan’s Entrepreneurial market REALLY needs is an angel investment network that well defined and represented by professional organizations.
As Fahd Bangash (Amaana) mentioned here, tech startups working on local problems here only need $150K – $250K to become a decent business, not $7-8 MM. I agree.
The second difference between the Valley and Indus, is a problem resulting from disproportionate wealth balance. Many of the brightest ideas from the country cannot even rely on “friends and family capital” to get going – it pretty much doesn’t exist unless you are already a 25-yr industry veteran.
What seems to work for some companies is bootstrapping, but if the goal of your tech business is to build a product that solves a problem like Jawwad feels will work for Pakistan (and I agree with him on this), there could be nothing more harmful to your focus than doing professional services projects as bootstraps (unless you’re consulting in the precise domain that your product serves, as Alchemy did).
In my view, PASHA can be the perfect organization with the repute to represent Angel Investors in Pakistan, and it would be good to get some insider thoughts from Jehan on what stops them.
Ofcourse, any aspiring entrepreneur can even set out to solve THIS problem with a hi-tech solution. Any entrepreneur up to the challenge?
11:25 am
Osama
There is already talk of a business incubation/acceleration fund that is being put together by OPEN and MIT in colloboration with PASHA and PSEB.
I have one minor point to make. I agree with the Fahad number on total capital requirements but you don’t need the entire 150 – 250K in one go.
The objective of a business it to build a business. Most proof of concepts can be done with as low a budget as 10,000 US. All you need is a half crazy startup guy or gal and his team of equally crazy geeks… lo and behold your proof of concept is done. Depending on your business model, once the proof is done, revenues are normally another 3 – 12 months away. If you skimp on lifestyle and live on the bare necessities, you can survive that year on another 10,000 US.
So my maths is 10K for the proof of concept. Another 10K for 6 – 12 months to prove that you have a future. If you don’t you are dead. 20,000 US is not a large amount and is within easy reach of most desi startups if only they know where to look and how to ask for it.
We are nowhere close to angel status based on our personal networths, but four desi founders, raised 25,000$ for another hotshot desi founder in less than 15 minutes. Each of us contributed 6,000$ in cash or services so that a new concept could be give the space to prove itself. Lets see how this experience works out.
Jawwad
12:05 pm
Aren’t most of the Accelerator / Business Support / VC funds set up by PSEB only serving already established companies? I heard the VC fund e.g. is for non-profit companies only, and PSEB will just match your own investment by 50%. That doesn’t help the entrepreneur.
I also heard that their “Apprenticeship” program – they can be a useful relief for startups in managing employee costs, requires the company to already have a certain set of customers to show them — in other words pre-launch product companies automatically disqualify.
As for the numbers; yes a half-crazy guy could run on 10k or 10k but unless you find a team of half-crazy geeks around you in college or work etc, typically you would have to go through hiring people.
Sometimes its just needed because of the complexity of a system – a great area of innovation is video application middleware systems for the telecom environments but they just require a bigger team to get through.
But even then you can get about the same amount of traction here in $100k or so that you’d get with $1MM in the USA.
12:07 pm
As an example, you can’t build pixsense or iscrybe in 20k and a half-crazed team.
1:43 pm
$20K means Rs. 1,200,000 which is certainly a decent amount by Pakistani standards and any startup should deliver on this. However most of the startups try to think too big and want lavish offices and a team of 20 to start of with. Why don’t we consider Google or Amazon’s startup time?
There are numerous IT investors in Pakistan. I am sure if local startups prepare realistic budget and be committed enough to deliver, they can surely get funded.
IMHO bootstrapping is the way to go. We did exactly that for many years and now we are standing on our feet.
PS. If somebody sets up a local community of angel investors, we are all game to participate and do our bit for the growth of Pakistani Web Entrepreneurs.
2:00 pm
My mistake, I wasn’t clear enough.
What I meant was that you can demonstrate a reason for your continued existence with $20K. Once you do that you can generate or raise your capital on a milestone by milestone basis.
Omidyar, the founder of Ebay, built Ebay as a profitable business with only a single employee – Himself. It was only when he found someone smarter than himself that he hired his first team member. Oh and it helped that by that time the business was generating more money than his monthly paycheck.
6:15 am
Wonderful discourse. Sorry I am travelling and working so access is slightly limited. Entrepreneurs need more support in this country than say in the US or elsewhere because we have to:
1. Train our own people (because of lack of employable skills of those that our education system turns out)
2. Generate our own power (because of inefficiency of KESC/WAPDA)
3. Create our own markets while working constantly on the image of Pakistan
4. Try and access finance in a country where Intellectual Capital is not considered as something to risk your money on
All this in an environment that is not conducive to innovation and entrepreneurship – at least not in the technology sector.People like Adnan Haider would never have explored their entrepreneurial spirit if someone like Jawwad Farid had not been around to “show him” that it was a possibility. Our business schools certainly don’t do it.
P@SHA has so far been a bunch of volunteers who have given two years of their time to run the Association, continuously pushing the IT industry agenda with the government, branding the industry and highlighting the companies within its fold as well as organizing capacity building events, conferences and Annual Awards to recognize innovation.
P@SHA now has a secretariat with a few administrative staff. The communication vehicles are being strengthened and a newsletter and magazine will be launched this year together with a much more effective web presence.
A small group of CEOs have put together the first angel/startup fund (Jawwad mentioned that). For P@SHA to handle anything more than what it is doing now – creating networking opportunities, capacity building, branding, liaising with govt on policies, holding several events a year – it needs to strengthen itself a little further and have a full time CEO and a small team of dedicated people.
12:33 am
We do need an angels network, but as I commented on my blog, angels, by definition, are well-off individuals willing to invest in high risk ventures. Pakistan has no shortage of those for amounts up to 20-30k, expansion capital beyond the Proof-of-Concept stage is a problem.
It is certainly harder to setup a company in Pakistan, given the culture, mindset and infrastructure. A good incubator, like Plug&Play Tech Venture, would do a lot to alleviate the problem.
11:11 am
What’s plug&play tech venture?
7:47 pm
I’ll share my experience here. It may be quite interesting for aspiring entrepreneurs.
We started in LUMS as six partners. We were working on a product which we thought would fix all problems of electricity theft, power losses and billing in Pakistan. We built a proof-of-concept and went to some of the ‘biggest’ business men in Pakistan (don’t wanna take names). We estimated that we need 1.2 million rupees to start with and that should be enough to fund us (we won’t take any salaries etc.)
So anyway, these big businessmen treated us like kids, smiled a bit and said best of luck.
We then built a prototype set-top box and went to CTI (Carrier telephony industries) to build it as a product and market it. They were interested but the boss’s son was my class fellow but obviously nothing came out of it. It was quite exciting though, meeting people, trying to sell the idea etc.
Then we got a project from one of the friend of a professor at LUMS (related to image processing). Then we got another.. then another..
Then we moved out and got an apartment (we ate, slept, and worked on the same desks) and hired a couple of our batch mates as part time programmers. Then we hired a few full time developers and then the apartment turned out to be too small and we moved in to a bigger location.
Because we were quite a few people so there was no direction and eventually we got stagnant. At that point one of my partners joined a big MNC (think of the comparisons drawn between us and our class fellows making more than 80k and us struggling to run the business), another one joined his dad’s business, and another one started his own startup … and then we started focusing on improving the firm…
To cut the long story short, 3 years down the line we are now a team of 50+ with more than around million $ revenues (growing fast) and offices in europe and pakistan. Bottom line – you can build a startup without an investor as well!
Regarding investors, i personally wouldn’t wanna give you 1.2 million rupees. That’s such a small amount that you can get it from your family. In any case, investors know you can’t do much with 1.2 million rupees and you’ll be back for more. If you need a million $ then they’ll talk. I know VCs in Germany as well as the US, and i know for a fact not many people are interested in small investments, simply because small investments yield small returns. If you are a building a business, any serious investor would like to see a proof of concept, a marketing and sales plan, a competition review and how you’d make money (sell out or whatever). If you don’t have all of this, you should probably take a loan from friends and family.
Just my humble opinion and story
10:21 am
Angel, seed, and growth financing for tech startups has yet to formally come to Pakistan. We all know that. What we may not realize is that it has to come from operational people within the local tech industry. Keep working on your ideas. Stay tuned…