investment partner

The Government of Pakistan is seeking an investment partner, preferably a credible international entity, to launch the Rs6 billion ($33 million) Pakistan Tech Startup Funding Programme (PSFP), an official said.

The Government of Pakistan is seeking an investment partner, preferably a credible international entity, to launch the Rs6 billion ($33 million) Pakistan Tech Startup Funding Programme (PSFP), an official said.

The programme is an intensive investment support programme for startups with the aim to accelerate their chances of growth and scale, he added.

“A minimum of Rs.6 billion is to be invested over a period of 5 years (tentatively starting from July 2022) in the Pakistani startups,” the official said.

“It is proposed that in the first year, the total annual seed grant from the Ministry of Information Technology via Ignite will be Rs1 billion (with first tranche of Rs500 million); while the investment partner will at least invest matching funds of at least Rs1 billion.”

In the later years, the ministry will keep contributing Rs500 million/year or more while investment partners would keep matching at least the annual grant funding, until the end of the programme.

“It is expected that the investment partner will contribute more than its committed funds over the period of this programme,” he said.

Prime Minister Imran Khan, last month announced establishing the PTSF, allowing tax exemptions and 100 per cent foreign exchange retention for IT companies and freelancers registered with Pakistan Software Export Board (PSEB).

The PTSF will be led and managed by the investment partner, which may create a Special Purpose Vehicle (SPV) or an alternate mechanism for operations and management of this funding programme through a dedicated bank account.

The committed funds from the government (in the form of grant) and the contribution by the investment partner would be parked and managed.

“The investment partner will be responsible to identify promising startups and make investments from this account,” the official said.

As per further details, in the initial year, investment in 30 to 50 startups can be made. The proposed investment limits per startup would be a minimum of Rs10 million and maximum investment up to Rs50 million per startup.

“According to the proposal, the investment partner will have the right to take equity in the startups, not exceeding 20 per cent in any selected startup.”

The Covid-19 pandemic was a catalyst for the startup landscape in Pakistan, which saw investments rise from $65 million in 2020 to $350 million in 2021.

Extended lockdowns and quarantines provided entrepreneurs the opportunity to create digital products with a human impact.

With more than 250 startups since 2015, an increasing internet penetration driven by low-cost smartphones and affordable data witnessed cellphone users reach 184 million at the end of 2021.

Pakistan is one of the final few untapped markets for startups and investors to offer internet-based services similar to those in other parts of the world.

Funding is the lifeline of any business and access to financial resources is required to meet day to day operations of the business activities and to keep its doors open.

In case of startups or new ventures, access to capital is a challenge and almost 83 per cent of startups find it difficult to have access to financial resources at an early stage.

Due to the lack of access to capital, most of the startups try to stay afloat through personal savings or investments from friends and family to meet day to day operations, while many fail due to the lack of funding and insufficient cash flows. The same is the case for Pakistani startups.

Access to capital is a key challenge and traditional means of financing for new ventures are either not available or the markup is comparatively high with tight terms and conditions.

It is considered that investment in the early-stage startups is the riskiest phase of the startup life cycle because the company is new and it does not have ample resources to cover its operational costs and other related activities.

Due to this, venture capitals and angels and other investment firms remain reluctant to invest in such startups due to high risk of failure and without any support from other channels of grants.

The startups are the building blocks of any country’s economy. If access to capital is provided to startups, the economic dynamics of a country can be uplifted by job creation, bringing local and foreign investment in the country and empowering the social lives of people.

Source: BOL

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