UNLESS WE can convert the scientific knowledge into marketable products it remains raw material. When I was student at Berkeley I took some courses in economic development. No professor, speaker or writer ever used these three words as tools for economic development: entrepreneurship, venture capital and financial markets. In order to create wealth, an economy must create jobs. In order to create new jobs, there must be entrepreneurial activity. It is the private equity funding that provides fuel to the engine that creates jobs.
The Silicon Valley covers an area about 50 miles long and about 25 miles wide. It is still the same size as it was when I landed there in 1975. But now, it has become the 12th largest economy in the world. The major universities provided the basic know-how of engineering and business talent, but it was the entrepreneurial activity, funded by venture capitalists, and an entire ecosystem that no other country could match. Thirty years ago, with exception of a few companies, no major company was located in the Valley. Now Google, Yahoo, eBay, Cisco, Twitter, Facebook, Oracle and Apple are headquartered there. Initially most of these companies did not have a large amount of scientific talent but it was started by entrepreneurs and funded by venture capitalists.
A few years later, my company had a booth at the CIBIT computer show in Hanover, Germany. I visited the Indian Pavilion there. This time they were showing what kind of projects Indian companies had completed for the government of India and others. I observed a significant improvement in their presentation. It was clear to me that India was on its way to becoming a powerhouse of engineering talent.
In 1989, my company, Mylex Corporation, gave two design projects to Indian engineering services companies: one to Wipro and the other to PSI Data Systems. Wipro is Indias second largest IT services and outsourcing firms which has 140K employees and annual revenues over $7 billion. Mylex was the first Silicon Valley company to outsource a design project to Wipro. Their engineers learned a lot about what was expected of them as a supplier of such services. After that, Wipro start placing their engineers with other companies in the Valley.
The government of Malaysia took a different approach for economic development. They created environments and attracted American and Japanese companies to establish manufacturing plants in Malaysia, especially in Penang. As a result, their annual growth for a decade was about 10%. However, they failed in starting engineering institutes like IIT. They are now funding higher education locally as well as sending Malaysians abroad. Malaysia spends over 5 per cent of GDP on education.
In addition, Malaysia is gearing up its funding of startups. As a result of this policy there are about 10 small VC funds, the Malaysian Venture Capital Association, and Hi-Tech VC all working to implement its strategy. The government of Malaysia had the financial resources to directly fund a significant number of startups, but it chose not to. Instead, it sought and encouraged private investment groups to get involved in the funding of startups. They also have Malaysian Venture Capital Association. My fund, Hi-Tech Venture Capital, was one of the groups the Malaysian government worked with.
In the case of Pakistan, any of these three business growth models have yet to be adopted. There are no venture capital firms or angel investor clubs, nor has Pakistan persuaded any major multinational corporation to establish an RandD lab in Pakistan. The transfer of technology from universities in the US to universities in Pakistan is needed, but that technical knowledge will remain as “raw material” unless Pakistan finds other ingredients to convert it into economic development.
As a Pakistani-American, I followed the approach of Indian migrants in Silicon Valley and apply it to Pakistan by starting a solar company. One of the key objectives of this company is to find ways to encourage local investors to fund my startup and also to participate in future rounds of funding.
Knowing that there is major shortage of electric power in Pakistan, as an entrepreneur I decided to venture into offering a combination of wind and solar as sources of power to homeowners.
Since I have been on both sides of the entrepreneurship and funding equation, I wanted to raise funds for this project from local sources. I was going to use the Silicon Valley model for this purpose. In order to encourage more investors, I was planning to prepare a private placement memorandum for raising the seed money. I wanted to invest my own money for 50 per cent of the shares and then invite high net worth individuals to invest the balance. Once the business generates at least a million dollars of revenue, I intend to go for second round of funding inviting new investors, including financial institutions (local and international) and corporations.
I was seeking investment from at least ten individuals who could not only invest money but could also help the company in many other ways. In most cases, VCs in Silicon Valley form a syndicate of 3 to 5 groups to fund a startup. They encourage new investors to join the syndicate as the company grows and needs more funds.
I have come to learn that the government of Pakistan deputed some professors to contact universities in the US to explore the transfer of technology to universities in Pakistan. This is a positive step. I only wish the Pakistani Government had taken it a step further and deputed some well reputed businessmen to approach companies to established RandD offices in Pakistan as well.
In my opinion, Pakistan should learn from the Indian and Malaysian experience and develop a model what suits her needs. Thanks for giving me this opportunity and time for sharing my experience in this matter.