What does Pakistani venture capital keep missing?

For years, I’ve attended Pakistani startup events trying to learn and get a feel of the ecosystem of business here. While I can talk at length about how there are parallel universes of business existing in Pakistan, what I want to focus on is the VC behavior - or at least what is publicly made available.

It’s a tale of two cities. Venture capital has been raving about the latest buzz word in the global markets. In 2022 it was all about web 3.0 - metaverse, blockchain, crypto. I remember attending a prestigious conference in Lahore as I came back to Pakistan, and thinking “who on earth is buying this in Pakistan?” and “where are the young people of Pakistan?” A little bit before that, was the covid-inspired-tech-startups. 30 minute deliveries. Instant groceries. Fast everything. It was everywhere. Millions were poured into companies that were digitizing everyday life for Pakistanis. The phrase 220 million was thrown around (with an undertone of 220 million ready buyers) and VC pumped money like it was life or death. Today, I see the same patterns except two small nuances. All previous buzz words have been replaced by the word “AI” and VC isn’t as frivolous with their money.

Not from a cafe in Pakistan but yummy looking frappe

But alternatively, something quiet has been happening. And it’s been happening on a grassroot level.

Let me take you back to the summer of 2024.

I was at a client site in Hyderabad with my dad. And for some stupid reason, I decided it will be great idea to do a one-go road trip. We left Lahore at 2 am reached Hyderabad around 2pm, had 2 meetings and client sites and left from Hyderabad at 6pm. The drive back (100% due to me being stubborn) was dreadful. And I needed coffee. And for the life of me, I could not find coffee…anywhere. Sparing you the details of my drive back, I’ll tell you one thing I remember saying. Wow. If Hyderabad got a cafe, it would do so well. This is where the opportunity lies.

Now, if we look at the data, it would say coffee is restricted to the top income earners only, and not adapted by mass market. So the new cafes popping up are not a signal. However, the same reports show that the coffee consumption went up from 1% in 2018 to 6% 2023. Furthermore, Pakistanis consumed 1 cup of coffee for 14,000 cups of tea in 2004, which went to 1 cup of coffee to 1900 cups of tea in 2014, to 1 cup of coffee for every 734 cups of tea. I’m not a mathematician. But that is a trend.

Similarly, in 2014, there were a handful of clinics that were offering aesthetic dermatology services. Today, there is one on almost every corner. In every city. I know this because our company knows doctors in 78 cities across Pakistan. Up from just 10 setups in all of Pakistan.

Venture Capital in Pakistan missed out on both these industries.

The doctor in Hyderabad who opened her aesthetic dermatology clinic opened up a cafe too. And in just one year it grew so much they opened their second branch in Hyderabad.

The thing about venture capital that I don’t understand is that fundamentally it is a business. It needs to make money. And every once in a while, it could give you a unicorn return like Facebook, or Paypal. But that 0 to 1 to 100 to 1000 is not a sustainable bet. It is a gamble. And businesses are not built on gambles. A calculated investment would be a Fund studying the real market patterns in Pakistan and investing in founders who wanted to build a saleable coffee chain. Or finding founders who want to build a scaleable healthcare verticals. Or global fashion brands that retail.

Healthcare-like business

I don’t think Pakistani Venture Capital is truly banking on the stage of economy we’re at. Did you know fashion retail pays better than tech in Pakistan? Companies like Khaadi, Ethnic, Outfitters, Junaid Jamshed are HUGE drivers of economy locally and internationally. Why then did I keep hearing funds scouting for web 3 and tech-everything?

We do not have a middle class that can pay for subscriptions. There. The reason every ride hailing app left/leaves is because there isn’t a strong enough business case for it unless you heavily subsidize it. The economic factors, population’s behavior, and government’s policy that is hell-bent on ensuring that the middle class gets affected the most has meant that the middle class is shrinking at a rapid rate, as inequality is rising. Technology companies work where basic necessities are met. Where people have enough to spend on subscriptions. (Although you could argue people do spend on subscriptions like Netflix in Pakistan, but then we’d have to face the fact of pirated web stores and that Netflix starts from as low as PKR 250 per month).

In the Western countries, there is a diversity of VCs in the types of businesses they invest in. D2C products, retail, fashion, lifestyle, ecommerce, tech, hardware, construction, and much more. Here, our funds generally get excited about the most trending topic in Silicon Valley. This doesn’t make sense because Pakistan has extreme inequality, and there are people who afford luxuries, but that segment is less in number. Our population is 250 million people (and rising) but a market’s real segment is not 250 million paying customers. Majority of the people are Gen Z, are trying to make money, and won’t spend PKR 5000 a month on a subscription but will spend PKR 800 on a cup of coffee.

I’m not a VC. I don’t know how lucrative investing in Pakistan’s businesses (as per LinkedIn) is. But I am surprised that businesses that present themselves as anything other than the current market trend are ignored. I want to see VCs investing in makeup for brown skin, skincare for Pakistani skin, a fashion brand that wants to go global, a locally manufactured solution for bikers in Pakistan that protects them from extreme heat and is detachable, someone making BATTERIES for all the solars and electric cars and batteries we have, a construction firm doing sustainable Pakistan-friendly architecture. The list in endless. And free from buzz.

What are new waves in industries that you think will exponentially grow? What VC funds would you recommend for non-buzzword VCs? Are there angel investors who think like me that are looking to support businesses with high impact? Let me know!