Comment by Riaz Haq on September 25, 2012 at 4:58pm

US AID promoting private equity investment in Pakistan's SME sector, reports Express Trib:

..$80 million, earmarked by the Obama administration under the Kerry-Lugar-Brahman Act for the Pakistan Private Investment Initiative

Crowding-out of the private sector from credit channels due to reckless government borrowing has provided a unique public relations opportunity to the US. The US has said it will offer loans ranging from $500,000 to $5 million to small and medium sized business in Pakistan, to help the latter expand and create jobs.

In total, $80 million, earmarked by the Obama administration under the Kerry-Lugar-Brahman Act for the Pakistan Private Investment Initiative, will go towards providing cheaper financing and equity to small and medium enterprises (SMEs) in Pakistan.

“The United States Agency for International Development (USAID) will provide up to $24 million for an equity fund, and fund managers will be required to match the requested funding to take the size of each equity fund to at least $45 million,” said Theodore Heisler, the project manager and senior economic growth advisor to USAID.

Heisler said that co-investment was essential in bringing the size of each fund to a level where it can cover operating expenses. The US intends to create at least three funds, but is, as yet, noncommittal to the total number. US authorities are on the lookout for good fund managers, and the availability of quality managers will determine the numbers of the funds, officials have said. During the last fiscal year, the federal government borrowed Rs1.77 trillion to finance the budget deficit. The State Bank of Pakistan has already warned that due to increasing government borrowing, there is little credit available for the private sector to grow.

“Having access to finances is a challenge for SMEs, as there is little equity and debt available for the sector,” said Heisler. “The longer term goal is to help expand the market for private equity investment and provide money that is not available through banks and other international lending agencies,” he added. He said the real job growth potential lies in the SME sector, as the corporate and public sectors cannot create unlimited jobs.

Heisler said each fund will have a 10-12 year lifespan. Individual investment sizes will range from $500,000 to $5 million, but could vary depending upon requirements. The initiative has been modelled on the Polish American Enterprise Fund, which was started with $140 million and has now grown to a multi-billion dollar fund.

Heisler said the US is looking to create a private equity industry in line with global standards, as there is hardly any private equity investment fund in Pakistan. He said the other purpose was fetching foreign investment through co-investment, as investment in Pakistan is dwindling.

The US is currently looking for fund managers who have a successful history, and Heisler said that both local and international fund managers have expressed interest in the project.

To a question whether Pakistani fund managers have expressed reluctance due to doubts over long-term commitment issues with the US, the US embassy replied “we believe there will be substantial interest from local, regional and international investors”.

It further said that “the US government designed the Pakistan Private Investment Initiative after a year of research and consultations with numerous stakeholders, including the Pakistani private sector and regulatory authorities.” It added that USAID will structure the funding to ensure that it is sustainable.

http://tribune.com.pk/story/442469/credit-crunch-as-banks-turn-thei...

Comment by Riaz Haq on September 25, 2012 at 7:56pm

Here's an excerpt of a piece from Venturebeat.com on venture capital in Pakistan:

Naseeb.com was definitely the example that led DFJ and EPlanet to back Rahman’s next venture, the Lahore-based online job portal, rozee.pk, in 2007. That was a time “when everything was turning upside down in Pakistan,” Rahman said. The constitution had been suspended, bomb blasts were a daily occurrence and Benazir Bhutto was assassinated. That did not scare the investors who Rahman had bombarded with data on the robustness of Pakistan’s market and the growth projections of his enterprise.
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Venture capital has always been anchored in taking a risk on an individual and an idea, where the probability for success, as Rahman noted, is “super, super low.” And risk is exactly what Pakistan needs to encourage in order to jumpstart investments and the flow of capital.

Capital in Pakistan is frozen in a different era. Banks balk at extending credit to innovative startups, even where contracts guarantee return.

That is what happened to Shakir Husain, CEO and founder of the technology outsourcer Creative Chaos, when he went in to request a $100,000 loan to expand his business

“Put together collateral for $100,000 and we’ll give you this loan,” he was told. When the entrepreneur replied that he had a $1 million contract from a client based in the United States, he was still refused. “Had I been a textile company where I could produce a letter from my client there would have been no problem. Being a software company, they didn’t know how to collateralize that risk.” He eventually self financed.

He also set out, much like Reid Hoffman, to ensure that other aspiring entrepreneurs have access to risk rather than roadblocks. He, along with Rahman and other established Pakistani entrepreneurs, has become an angel investor. This has resulted in some progress.
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The Acumen Fund, a U.S.-based non-profit which uses philanthropic dollars to make venture investments, is one resource for larger amounts of financing. Self-described as a “social venture fund” that promotes “patient capital,” Acumen has invested millions in several Pakistani “social” enterprises, which have proven to effectively serve the social needs of the poorest.

The Kashf Foundation, Pakistan’s second largest private microlender, is Acumen’s best example. Touching nearly 1 million Pakistani women, Kashf has dispensed $100 million in loans and has closed over $36 million in commercial deals with local and international banks.

Pakistan’s “non-social” entrepreneurs require similar and bold backing. They require it, not from the philanthropic or non-profit world, but the private sector. Capital markets cannot be built by anyone else. Nor can Pakistanis build them alone. This is where U.S. venture capitalists can help.

Certainly, firms on Sand Hill Road or Route 128 aren’t in a position to source deals for individual Pakistani entrepreneurs. The levels of financing, which would average around $200,000 to $400,000, would not be worth the exorbitant transaction costs. Pakistan’s weak legal system would require tough term sheets that would be a disadvantage to most Pakistani entrepreneurs. Conducting due diligence, the real value to entrepreneurs, would be a challenge.

What they can do is challenge Pakistani banks and investors to create a Pakistan venture fund that they would then match. There are already several investment firms in Pakistan, such as the Abraaj Capital Group-backed BMA Capital, that could administer the fund. Last year’s announcement by The Overseas Private Investment Corporation (OPIC), a U.S. government agency, approving $455 million in financing to support the establishment of five private equity funds to invest in Middle Eastern companies provides a precedent and model....

http://venturebeat.com/2010/11/16/pakistan-venture-capital/

Comment by Riaz Haq on October 1, 2012 at 10:08am

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-fo...

Comment by Riaz Haq on November 2, 2017 at 8:40am

#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-...

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-...

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