(Long Post) The Biggest Hurdle to Start Up Funding in Pakistan is…


Written by Mujtaba Raza. ([Source](https://mirmak.pk/he-biggest-hurdle-to-start-up-funding-in-pakistan-is/))

Hundred start up events a year. Thousands of young energetic and innovative founders running from pillar to post to raise funds. Incubators renting spaces or running on foreign funding. Government funded facilities giving a break to new ideas with small funding which runs out after a few months. Greatest of ideas being killed and hundreds of dreams dying, why, because the entire start up culture is running towards raising funds but not a single person is stopping to think for a second as to why it is almost next to impossible to raise a $100 million dollars for an idea in Pakistan while far less innovative ideas raise billions in the remotest of countries globally.

It is like wanting to cure your disease, going to see a thousand doctors a year but never changing the habits that caused the disease as long as the doctor gives us a strong pain killer, the pain subsides temporarily and we think the disease is gone.

A lot of hue & cry was created by the ones who thought I was against Start Ups. Of course, this is Pakistan, we love to judge the book not by its title, but altogether by ignoring the title even and looking at the graphic design of the front page. So I knew what the reaction would be before I even published that article. Three years later, it proves to be on dot. Sadly. Literally sadly. There are times I do not want to be proven right. I would rather be wrong so Pakistan wins. The whole idea of such rare articles is to warn and guide at the same time, the youth and the mentors, as to what we are doing wrong in Pakistan. Not based on my personal opinion but based on facts as to how others are doing it successfully and getting results. We do not need to reinvent the wheel. There is no honor or pride or genius in reinventing the wheel. It is sheer stupidity.

Years later, again we are making the same mistake when it comes to raising funds for our ideas. Great ideas that our youth has.

What is that mistake ?

Well, it is simple. But I will have to explain it to you in bit of a detail so please bear with me.

India next door raises billions of dollars every year in Start Ups. Foreign companies come and invest already going concerns and give it multibillion dollar funding’s. Their market is huge. I agree. But do not think for a second that their ideas are better. ByJu’s, an education app started just 4 years ago raised funding with a valuation of $5.4 billion. OYO, a small hotel Start Up created by a 25 year old named Ritesh Agarwal, just raised over a billion dollars with a valuation of over $6 billion. Flipkart was bought by Walmart for $16 billion dollars. An online shopping store started by a few friends. These are some extreme examples, but the reason I gave them to you was the fact that these giants became giants because few years ago when they had started, they had no problem in raising small amounts of funding right at the inception stage.

Why was it easy for them to raise funds so easily ? Is India a cash rich country ready to take ridiculous risk in Start Ups ? No. Is America a mad country when it comes to giving Start Up funding to any risky idea that comes along ? No. Then what is the reason ? Well it is simple. There is a process that we never pay attention to.

And that process is the EXIT STRATEGY. Exit strategy relates to how the initial investors will sell their shares and benefit. And without fail, it is always the stock market. It is the stock market that provides an exit strategy by having the company listed and allowing the initial investors who took huge risks to sell their shares to small investors and long term investors.

Nobody wants to invest in an idea that their money can be stuck in for an indefinite period of time. Every investor wants profits. Nobody invests based on the niceness of their heart. Investing is not a merciful exercise. It is and always should be a shrewd and intelligent one.

We in Pakistan have no exit strategy for investors. We ask the investors to invest and never provide them an exit strategy. Why ? Because we have never amended our Stock Exchange listing requirements for smaller companies. We do not have idea companies being listed on exchanges. We only have established companies getting listed. No startup has ever been listed in Pakistan until it became established. And at times it took a decade or so for it to be established. Would you want your investment to be stuck in a company for 10 years and above ? I would not.

Plus, when you provide an exit strategy to initial investor, his $5 million has already become, let’s say, $50 million, and now he is sitting on a $45 million profit. The lion has tasted blood. The investor has tasted profit from investing in a Start Up. Now he can reinvest $45 million in 10 other companies if he wishes. And this is how the exponential growth in idea investing comes. May it be Silicon Valley, Wall Street, Paris, Tokyo or China.

Until we create ease in listing Start Ups on our exchanges, we will have 100 great ideas come to the market, 2 get funding and 98 die along with it, killing the aspirations of the youth. Maybe 5 of those 98 founders could have been Oyo of Pakistan or Elon Musk of Pakistan.

We would never know. Would we?

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