ImpactAlpha, April 21 – If overlooked markets and underserved entrepreneurs represent untapped opportunities, Pakistan presents i2i Ventures with a rich bounty of possibilities.
The fifth most populous country in the world is one of the smallest recipients of both venture capital and foreign investment. Pakistan’s share of the $320 billion in global VC commitments last year: $65.6 million.
And women entrepreneurs in Pakistan are particularly underserved. All-female founding teams raised just 6% of venture funding, or $1.8 million, in Pakistan in 2020, while all-male teams claimed 79%, according to i2i Ventures’ sister research firm.
By the end of this month, i2i Ventures expects to have five companies in its portfolio, three of them led or co-led by women.
“The gender-lens approach defines how we look at investments and how we build our portfolio,” i2i Ventures’ Kalsoom Lakhani tells ImpactAlpha. “Our portfolio and pipeline really reflects innovation across the tech sector in Pakistan right now.”
Male-led VC firms in Pakistan are leaning into gender-lens as well. Last year, Sarmayacar secured capital from the Women Entrepreneurs Finance Initiative, or We-Fi, an alliance of International Finance Corp. and emerging-market development banks.
The firm positioned its strategy as directing more capital towards existing women-led businesses and “to businesses that might be led by men but have business models where income generating opportunities could be created for women,” Sarmayacar’s Rabeel Warraich said on an ImpactAlpha Agents of Impact Call last fall.
The funding scheme requires Sarmayacar to meet specific gender targets, both on its own team and through its investment portfolio.
i2i Ventures’ investment thesis is straightforward: Pakistan is a large and grossly underinvested innovation hub. Its large population—216 million —and swelling consumer middle class make Pakistan a market in its own right, much like India and Indonesia.
But because there is so little venture capital coming in, there’s a big upside financial and impact opportunity for those backing early, homegrown technologies that serve local and regional market needs.
“We’re not an impact fund in the strict sense of the word. We are a commercial fund with a gender lens,” says i2i Ventures’ other partner, Misbah Naqvi. “But in a market like Pakistan, there’s impact in bringing goods and services to people in a more efficient way, or more cheaply.” And, she adds, “There’s the domino effect of creating jobs, improving lives and helping move the economy forward.”
The fund’s third investment is Edkasa, an edtech venture in Lahore led by a wife-and-husband team. The company launched in 2017 to complement secondary schooling with free videos and paid live-streamed instruction to prepare students for the workforce and university, particularly in math and science. The founders added test prep for standardized exams as a “freemium” product.
Test-prep tech ventures have popped up all over South and Southeast Asia, including edtech giants Byju and Unacademy in India, where test prep is an estimated $500 million market, and Pahamify, Zenius Education and Cerebrum in Indonesia.
Pakistan’s market is still informal and fragmented. Edkasa’s innovation is in the way it engages with students, keying in on the behaviors of Pakistan’s young tech-savvy online natives. “We want to see students get top marks, continue their higher education, and increase our country’s knowledge-based economy,” Edkasa co-founder Annum Sadiq said of the company’s mission.
Its product is also highly accessible: nearly 90% of Pakistanis have internet access and data costs in the country are among the lowest in the world.
“Parents are willing to pay for good after-school ‘tuition,’ or extracurricular instruction—sometimes more than for the schooling itself—because the exams are very important. They can determine whether you go to college, or where, or if you get into medical school,” Naqvi explains. “This is something that parents will budget for. It’s a priority, not a luxury, and there is a strong cultural practice that exists around that.”
Two-year-old i2i Ventures has been scouting such opportunities longer than most. The fund is a spin out of Invest2Innovate, a startup accelerator and research firm that Lakhani started in 2011. i2i Ventures secured $545,000 from the Dutch Good Growth Fund to pilot its venture fund model. It has since more than doubled the commitment with investments from members of the Pakistani diaspora.
That capital has been key to helping i2i build out an early portfolio of opportunities that may not be immediately understood by foreign investors.
“Pakistan is a frontier market,” says Naqvi, “and in terms of deals, there’s commercial opportunity here that is still very undervalued compared to other markets in the region.”
Lakhani and Naqvi acknowledge that foreign investors’ preconceptions about Pakistan also create hurdles to running a VC fund.
“Pakistan is generally completely overlooked or just viewed with one lens: security,” says Naqvi. “Investors often ask about countering violent extremism through business.”
Such conversations often feel disjointed for fund managers like i2i focused on demographic trends: a large population at the base of the economic pyramid with increasing spending power and surging smartphone adoption.
“The people we’re creating jobs for are not people who would otherwise become terrorists,” says Lakhani.
In addition to Edkasa, i2i Ventures has invested in Mauqa Online, an online housekeeping booking service, and chat app Tello Talk, and expects to add two more companies to its portfolio this month.
The firm is leaning into investor interest in finding more women-led companies, in a market where male-led businesses claim the majority of the country’s small amount of venture financing.
Most investors see “no difference in the quality of companies led by women versus those run by men,” according to a market study conducted last year by i2i Insights. The study recommended that incubators and accelerators actively seek more female founders and cited the need for hands-on support to women-led companies at the early-stage as well as improved access to follow-on investments.
i2i Ventures sourced three of its deals from the Invest2Innovate accelerator and other support programs. Its gender-lens strategy also partly stems from the founders’ own experiences business-building and fundraising.
“I always feel like we have one shot,” Lakhani says. “We don’t have nine lives like our male colleagues. They can mess up so many times and people just give them more money. We don’t have that luxury.”