Venture Capital in India, China and Pakistan

As the US venture capital investment activity in India and China races ahead, the VC investments in Pakistan are just beginning to show signs of life with two young Pakistani companies receiving funding in late 2006 and middle of 2007.

Venture capital investment in China was up to $719m across 39 deals during the first quarter of 2008 from $492m in the first quarter of 2007, with media and advertising companies accounting for the bulk of deal activity and investment, according to the China Quarterly Venture Capital Report released by Dow Jones VentureSource. China has seen some very high-profile IPOs and exits recently that have firmly established China's value to the US VCs as a desirable destination.

IT and IT enabled services sectors have emerged on top for VC investments in India in the first three months in 2008, attracting over two-third of the total deals worth 144 million dollar. Venture capitalists invested $928 million in 80 India-based companies last year, a significant 166% jump compared to 2006, according to Down Jones. From 2006 to 2007, the number of VC and private equity deals in India increased from 299 to 387. The value of the deals increased from $7.5b to over $14b year-over-year, according to IVCA, the Indian Venture Capital and Private Equity Association (IVCA) which has all the big-name Silicon Valley VCs represented in India. Only a quarter of the funds accounted for VC deals. In terms of exits, there were 65 M&As and 16 IPOs in 2007.

While China is flying about 5-10 years ahead of India which is gaining altitude in terms of venture capital investing with high-profile exits, Pakistan is just trying to get off the ground in this space.

Naseeb Networks, a Pakistani online recruitment, social networking, and classifieds company, has received an undisclosed amount of venture investment from two Silicon Valley VC firms, ePlanet Ventures and Draper Fisher Jurvetson. Earlier in December, 2006, PixSense received $5.4 million in equity funding, led by ATA Ventures and Innovacom.

While there is a history of US VC investments in Silicon Valley technology companies founded by Pakistani founders, none of these VCs have previously funded companies such as Naseeb and PixSense which have significant R&D centers and operations in Pakistan.

At the OPEN Forum 2008 in Silicon Valley, Mike Moritz, Senior Partner at Sequoia Capital, said that Sequoia is currently not looking to go into another geography but it may consider other geographies such as Pakistan if their portfolio companies chose to open offices there. What took Sequoia to China, India and Israel were the founders of Silicon Valley companies who made a decision to locate R&D facilities in these geographies.

Speaking in a panel discussion at OPEN Forum 2008 recently organized by the Organization of Pakistani Entrepreneurs in Silicon Valley, Faraz Hoodbhoy, the CTO of PixSense, argued that Pakistani expatriates in Silicon Valley are the harshest critics of Pakistan. They are not immediately likely to ask US VCs to invest in Pakistan. However, Hoodbhoy's company PixSense has taken this path. PixSense currently has a sizable presence in Pakistan and prides itself in what Pakistani engineers have done for it to make it successful on very low budget. Naseeb.com, the only other Pakistani company to get US VC funding from Draper Fisher Jurvetson and ePlanet Ventures, accomplished it because its founders are from Silicon Valley who set up a development center in Pakistan that has produced great results.

Faruq Ahmad, a Pakistani-American VC in Silicon Valley, wrote recently: "In my field of expertise, venture capital, Pakistan's success is particularly hard to predict. My investment experience includes India and China, and I saw how long it took these countries to get to critical mass as attractive investment destinations for US institutional investors. Pakistan is assembling a $50 million fund to help kick-start venture capital support for local companies. How the government structures and selects managers for this fund will determine whether future funds attract institutional investors and sponsorship support from top Silicon Valley firms, assuming attractive deal flow."

A public-private partnership is working with US experts to develop venture capital and private equity sectors in Pakistan. Venture capital is being promoted by the Competitiveness Support Fund (CSF), a joint initiative of the United States Agency for International Development (USAID) and Ministry of Finance, Government of Pakistan which is working closely with the Pakistan Business Council (PBC). To support the innovation economy and spur entrepreneurial economic growth in Pakistan; CSF has a special window on business incubator/ venture capital for which CSF will be working closely with relevant stakeholders in the public and private sector along with the academia and the media. This facility will lead to the creation of business incubators and provide funding for them. Support for CSF is part of the US$ 1.5 billion in aid that the US Government is providing to Pakistan over five years to improve economic growth, education, health and governance.

While the efforts of the Pakistani government and CSF are laudable, the real impetus will come from the successful outcome of VC investments in the companies such as PixSense and Naseeb. The other factor that will influence US VCs to do deals in Pakistan is the willingness of Pakistani-American entrepreneurs in the US to set up presence in Pakistan and demonstrate the value of Pakistani talent to the Americans and the rest of the world. Events such as OPEN Forum 2008 will also help bring Pakistan as a VC destination into the consciousness of the US VCs. And, of course, a measure of political stability and security will make a big difference to Pakistan's perception as investment-friendly.

Comments

Anonymous said…
nice article with information regarding OPEN and its conference but whats way to reach a VC if some one is in Pakistan and not belong to Silicon Valley like Naseeb Networks
YaserA said…
Just wanted to let you know about another success story of a Pakistani Innovative Startup that has recently raised VC Funding
More details here
http://www.bhonpoo.com/2009/09/02/seenreport-raises-series-a-vc-funding/

The official press release

http://blog.seenreport.com/report/2009-09-01-seenreport-successfully-closes-series-a-round-investment-by-al-janabi-group/
Riaz Haq said…
Here's an ET article on private equity and debt markets as propellers of economic growth:

Let’s start by asking why are most investors in financial assets only interested in stock and bond markets, to the extent that even the premier CFA institute examinations and most university programmes almost solely focus on these two.

Here is why. These are the only two saving vehicles (asset classes) that are large, liquid and have visible prices. World public equity market capitalisation at $50 trillion (Bloomberg) and bond market debt outstanding at $95 trillion (CityUK), provides decent saving depth for global GDP (annual income) of $65 trillion.

The tangible asset market, mostly real estate (but including under/over-ground commodities and personal property), is even larger at $150 trillion, but is illiquid, due to relatively large ticket deal sizes and non-standardisation and hence is called an ‘alternative asset class’.

Private equity or shares of unlisted companies are interesting. They are grouped as alternatives due to liquidity constraints and big deal sizes, but otherwise seem the same securities, ie equity.

Before I elaborate, let’s try to ascertain the total size of private equity market. According to Credit Suisse 2011 Global Wealth Report, total net wealth in the world is $231 trillion. From this, we minus the value of ‘real’ assets, stock markets and $5 trillion in cash and demand deposits. The size of bond market is not included in the calculation as one person’s bond asset is another’s liability and it cancels out. Hence, estimated value of private companies comes to $30 trillion, which is smaller than the public equity market but still huge.
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Conclusion: Private equity presents a huge universe of opportunities and can certainly add value to High Net Worth (HNW) portfolios containing only stocks and bonds, by both increasing return and lowering true volatility at the same time. It is certainly an alternative investment class, but not only because of low liquidity, but rather because it marries management science with pure investment.


http://tribune.com.pk/story/444765/private-equitya-big-propeller-for-economic-growth/
Riaz Haq said…
Here's PakObserver on US support for entrepreneurship in Pakistan:

Friday, January 11, 2013 - Islamabad—US Ambassador Richard Olson affirmed that the United States will continue to support the development of Pakistan’s entrepreneurs, including through the U.S. Ambassador’s Fund, during a visit to the National University of Sciences and Technology’s (NUST) Technology Incubation Center on Thursday.

“We all know that societies thrive when their people have ample opportunity, and this is why the United States supports young entrepreneurs in Pakistan,” said Ambassador Olson during a tour of NUST’s state-of-the-art Technology Incubation Center.

While at NUST, Ambassador Olson announced that the U.S. Ambassador’s Fund, which supports small-scale, high-impact programs for communities throughout Pakistan, will now also focus on support to Pakistan’s entrepreneurs. The U.S. Embassy also recently unveiled an entrepreneurship program called Khushhali Ka Safar (Journey to Prosperity), which provides support to innovative Pakistani entrepreneurs by connecting them with American investors and mentors, particularly from the Pakistani-American diaspora and academic institutions.

Ambassador Olson highlighted NUST’s future Center for Advanced Studies, which will focus on Pakistan’s energy needs, and is being established together by the Governments of Pakistan and the United States. Three Centers will eventually be established across the country. “These Centers, a five-year, $127 million program funded by the U.S. Agency for International Development, will promote the development of Pakistan’s water, energy, and agriculture sectors through applied research, training, university linkages, and contributions towards policy formation. We look forward to promoting entrepreneurship and innovation through the strong links each center will have with the private sector,” said the Ambassador.

In addition, the United States recently launched the multi-year Pakistan Private Investment Initiative. Drawing on public-private partnerships, this initiative will spur job growth and economic development by expanding access to capital for Pakistan’s small- to medium-sized companies.Another U.S. program, the Pakistan Firms Project, helps to increase the profitability and incomes of small and medium-sized businesses in vulnerable areas by identifying and removing constraints to private-sector job growth in key areas such as agriculture, livestock, minerals, and tourism.


http://pakobserver.net/detailnews.asp?id=191116
Riaz Haq said…
Here's a Dawn report on Startup Grind launch in Karachi:

Originally founded in California, Startup Grind is an international community with a global presence in more than 40 cities and 20 countries.

Its mission is dedicated to celebrate the success stories of founders and innovators of business startups and encourage entrepreneurship.

The monthly interviews and startup mixers provide a great opportunity to entrepreneurs-in-making to network with ambitious people and benefit from the ‘pearls of wisdom’.

The official launch in Pakistan took place on Friday, the 3rd of May at T2F (The Second Floor).

It was hosted by Mr. Fawaad Saleem, the Chapter Director for Startup Grind and chaired Mr. Farzal Ali Dojki as the guest of honour. Mr. Farzal is the CEO of Next Generation Innovations, a consulting company that specializes in customized IT solutions and often partners with startup businesses to support their launch and operations.

The event started off with tea and networking as professionals across different spectrums of the industry engaged in meaningful networking. Before the interview began, Mr. Farzal gathered the prime issues that plagued the audience’s minds regarding startups.

The concerns focused on lack of funding opportunities, successful team-building, and making the choice between entrepreneurship and employment in the early stages of one’s career.

He concluded his talk with three lessons.

Firstly, as a startup you need to work hard and with dedication.

Secondly, it is important to hire carefully and ‘fall in love’ with the people you are hiring.

Thirdly, in order to launch a startup, it is important to work in a startup first. The learning curve of working in a successful small team is extremely high. One gets the opportunity to engage directly with the customers, take decisions, and explore areas of growth.


http://dawn.com/2013/05/06/startup-grind-launches-in-pakistan/
Riaz Haq said…
Here's a ET report on USAID helping lunch a private equity fund in Pakistan:

The United States and the government of Pakistan hosted the ‘US-Pakistan Business Opportunities Conference’ in Dubai, where USAID in association with the Abraaj Group and JS Private Equity Management (JSPE) announced the creation of the ‘Pakistan Private Investment Initiative’ which will launch two new private equity funds focused solely on Pakistan’s dynamic and fast-growing small- and medium-sized businesses.
USAID Administrator Dr Rajiv Shah announced that USAID will provide a seed investment to capitalise the funds which will be matched by Abraaj Group and JSPE with investments of their own, as well as private funds raised from other limited investors.
“We are seeding individual funds with $24 million each. The Abraaj Group and JSPE will match or exceed our commitment. We fully expect them to exceed that contribution,” said Dr Rajiv Shah. “Pooled funds will initially be $100 million which we expect will grow many fold into hundreds of millions of dollars in investment for small and medium businesses.”
The announcement came at the end of the first day of the conference. “By partnering with Abraaj and JS Private Equity Management, USAID capitalises on these companies’ expertise to make smart investment decisions that will grow the Pakistani economy, create jobs, and generate profits for investors who seize the economic opportunities that Pakistan presents,” Shah said.
Speaking at the conference US Ambassador Richard Olson said, “The United States is one of the largest investors in Pakistan, and the US government supports Pakistani business leaders by offering access to finance, facilitating business deals, and strengthening business education.”
“With 190 million potential customers, Pakistan is a huge emerging market opportunity for US companies,” Ambassador Olson observed.
The conference, sponsored by the US government, was attended by 200 American, Pakistani and Emirati businesses including Gillette, Citibank, General Electric, Procter and Gamble, Abraaj Group, Big Bird Group, Coca-Cola, Conoco Phillips, Engro, Estee Lauder, Goldman Sachs, IBM, Monsanto, Nishat Group, and the Saif Group.


http://tribune.com.pk/story/568796/access-to-finance-usaid-launches-private-equity-fund-for-pakistan/
Riaz Haq said…
Ijarah Capital to launch $100 million #VentureCapital Fund in #Pakistan this year. #Tech #startup http://bit.ly/2dUWSDS via @techjuicepk

Ijara Capital Partners Limited has been granted a license to a private venture capital fund and equity under the newly promoted Private Funds Regulations 2015 by the Securities and Exchange Commission of Pakistan (SECP), reports Dawn Media.

Ijara Capital Partners Limited is the second firm to receive this license. Lakson Investments Ltd. was also granted a similar license a few days ago. The license issued will be valid for a period of three years and the firm will be required to launch the fund within six months of license approval.

CEO of Ijara group Farurukh Ansari told Dawn that the fund will be worth $100 million dollars and is expected to launch in December. The fund will focus on verticals including energy, healthcare, education, infrastructure, fashion and lifestyle.

The fund will be raised by encouraging local and international VCs to invest by sharing insights and information about the business industry and opportunities in Pakistan.

Venture Capital fund shops have started to crop up in the country and deal flow has started too. Just yesterday, while presiding a meeting of information technology leaders in Lahore, Chairman PITB Dr. Umar Saif mentioned that the government is inching close to launching a government-backed venture capital fund in the country. The fund is also expected to be north of $3 million dollars and will be dubbed as ‘Innovation Fund’ because government doesn’t want equity in startups but it wants to accelerate entrepreneurship and encourage local and international investors to put their money in the business industry of Pakistan.
Riaz Haq said…
#US-based 1839 Ventures partners with #PTIB to launch $20m #Pakistan-focused #VC fund. #Punjab #Lahore #Technology

https://www.dealstreetasia.com/stories/1839-ventures-partners-with-ptib-to-launch-20m-fund-84321/

Punjab Information and Technology Board (PITB) of Pakistan has partnered with US-based investment firm 1839 Ventures to launch a $20 million venture capital fund for the technology startups in Pakistan. “1839 Ventures announces its international expansion and the start of a $20-million venture capital fund that will be dedicated to investing in technology-oriented startups operated by exceptional entrepreneurs who are based across Pakistan,” the company said, in a social media post. Austin-based 1839 Ventures specialises in Series A, early stage and growth capital investments in technology oriented companies working in commerce, communication and business intelligence. It invests primarily in Texas-based companies. The announcement was made last week by the venture capital firm at the Atx+Pak Launch Entrepreneurship Program launch ceremony in Austin city. Pakistan has been trying to boost its local entrepreneurship base. Earlier in May, Pakistan’s federal government announced that it will set up a $20 million venture capital fund for local startups. The startup programme was to be open to all startups – not just in IT – since Pakistan needs innovative startups in all sectors such as agri, textiles, logistics, and manufacturing, Pakistan’s Planning Commission Member Athar Osama had said in a blog post at the time. In June, Lakson Investment was granted Pakistan’s first venture capital licence in the South Asian nation. Its application for a private equity and venture capital fund had been approved by Securities and Exchange Commission of Pakistan last year. Lakson had set up Lakson Investment Private Equity (LI PE) in the end of 2014 and is still in its pre-launch phase. It had proposed to start making investments by late 2017.

Read more at: https://www.dealstreetasia.com/stories/1839-ventures-partners-with-ptib-to-launch-20m-fund-84321/

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