Sarmayacar Unplugged: Rethinking Startups and Launching New Climate Fund

The year is 2016. 3G and 4G mobile internet services have just launched. Smartphone adoption and broadband internet usage are growing by the millions monthly, and by all accounts, a tech revolution is brewing in Pakistan.

However, the country’s nascent start-up eco-system is still missing one crucial ingredient: Venture Capital. This is where Rabeel Waraich comes into the scene. A young Wall Street professional with experience in private equity and investment banking, Rabeel decides to ditch the suits and take the plunge, moving back to the Homeland to set up Sarmayacar, his very own VC fund.

Fast forward seven years, and Sarmayacar – which means ‘investor’ in Urdu – has established itself as the country’s premier venture capital firm. With successful funding across multiple verticals, Sarmayacar is now looking to the future, as it makes plans to launch a first-of-its-kind dedicated climate fund to support Agritech and Climate-tech startups, as the country navigates a multitude of climate-related challenges.

ProPakistani sat down with the Sarmayacar founder and CEO for a candid conversation about his journey, where the ecosystem stands as of now, and where he sees the future headed.

Risk, Capital, and The Road Less Travelled

An MIT graduate, Rabeel’s journey in global finance began much as any other, including roles at Morgan Stanley and the Government of Singapore Investment Corporation. Yet, after a decade on Wall Street, Rabeel started to wonder “What next?” and turned his gaze homewards. It didn’t take long for him to identify the gap in the Pakistani investment space.

“Investment trends in Pakistan traditionally focused on real estate and stocks rather than people. Our goal (with Sarmayacar) was to seize this opportunity and promote the idea that investors can support capable individuals in creating thriving businesses essentially shaping a new asset class in the country,” he said, adding, “I applied the knowledge gained from my career to ensure we did it the right way”.

Of course, throughout this time, Rabeel remained fully cognizant of the risks he was taking; however, he felt that he would be better served by taking that ‘road less traveled’. After all, even if he were to return to his previous job in case of failure, he would be in a stronger position having gained the experience of trying to launch a VC fund from scratch. As we all know, he did not fail – and today, the Sarmayacar story is an inspiring narrative of passion, dedication, and belief in Pakistan’s entrepreneurial potential.

To date, the firm has raised US$ 85 million in disclosed joint funding for 21 deals across nine verticals, including Fintech, Super-Apps, E-Commerce, Healthtech, Agritech, and Logistics. Some of the Fund’s picks, like SimPaisa, Bykea, Abhi, Oladoc, and TruckSher, have proven to be trendsetters in their spectrum.

TruckSher was successfully acquired by MENA’s biggest logistics start-up Trukkr in 2021; while SimPaisa is generating more cashflow monthly than its entire valuation at the time of funding.

Rabeel also reveals that one of their biggest endeavors, Bykea, is expected to become profitable by December 2023, which he said had seemed unlikely from their burn rate a year and a half earlier. In 2023, Sarmayacar has also decided to bet again on successful TruckSher veteran Abid Butt for his new LTL solution, Truckistan Technologies.

Supply chain technology companies have come out to be unexpected survivors of the post-pandemic economic shock and are being seen as more resilient to withstand the ups and downs emerging markets like Pakistan are prone to. But more importantly, Truckistan’s proprietary technology for solving Less than Truck Load (LTL) is also unique in the market.

Time Teaches, But Being A VC Teaches More

Of course, as with all journeys, this one has had its ups and downs and there are lessons to be learned. Some of Sarmayacar’s portfolio companies, such as Jugnu, have had to pivot; while others struggle as a slowdown in the global economy leads to a squeeze on funding.

Meanwhile, in Pakistan, the Holy Trinity of E-Commerce, Fintech, and Logistics has continued to fare well, raking in the major chunk of venture capital. And rightly so. Consumption patterns have been moving to digital-first avenues for years, and with an e-commerce store comes the need for online payments; after that, you need to ship your product through a service that at least gives a nice tracking service.

That said, all three verticals still have a way to go in gaining consumer trust, and some of the challenges are beyond their control. While telecom connectivity and institutional support for start-ups and venture capital firms have come a long way, national-level structural issues remain.

Tax-to-GDP ratio, fiscal deficit, circular debt, tax heavens, smuggling, and an informal economy double the size of the formal one are just the tip of the iceberg. So what are Rabeel’s thoughts?

“Our approach has naturally evolved; in venture capital, it’s all about recognizing patterns. Initially, we drew inspiration from international trends, but we’ve come to understand that certain business models simply don’t fit within the context of our economy and demographics,” he said.

He clarified that Sarmayacar prefers using the term ‘business-model market fit’ instead of ‘product-market fit’ to describe a successful product or service. It goes beyond merely having demand, it also means having a sustainable business model that aligns with the local realities.

Regarding regulatory support, Rabeel mentions that the SBP and SECP have played a critical role in facilitating the establishment of holding companies, attracting capital, and introducing digital banking regulations and licenses. This is something that some countries, like Egypt, completely lack. However, there are still some other institutions that need to catch up with these advancements.

The Need For ‘Lean’ VCs?

For a while after Sarmayacar’s founding, it seemed like Pakistan’s startup scene had arrived. The COVID-19 pandemic saw even the most ‘Sethia’ businesses enter the digital realm; and with capital flowing at an all-time high, both salaries and startup valuations reached for the stars.

But after almost a decade of business-friendly dollars, which got a second wind courtesy of the Pandemic, it now seems the party is finally over. Pakistan’s quarterly startup funding ­­­– a metric that shows investor confidence in the long-term stability of the ecosystem – has dropped to historically low levels, and several startups have shut down, with more shutdowns likely in the coming months.

Rabeel’s view is that many business models that emerged in 2021 turned out to be unworkable in Pakistan. “We all learned these lessons the hard way,” he said, adding, “We’ve realized that there are more capital-efficient approaches to achieve the same goals. If a business depends on having ideal conditions to thrive and create value, it may not be a great business to begin with. The market is no longer about quick, short-term gains”.

Rabeel points out that startups don’t require large teams with high salaries when the same service can be delivered with just a quarter of the workforce. Additionally, businesses that are operationally intensive and require substantial capital are challenging to maintain.

In some other areas, like ride-hailing apps and edtech, breaking through is nearly impossible, especially with rationalized fuel prices and parental skepticism about the value of digital education for their time and money.

According to Rabeel, as these challenges thin out the competition, startups have the opportunity to gain a larger share of the market. This will serve as a valuable learning experience for the entire ecosystem, distinguishing between those who are genuinely building solid businesses and those who are not, separating the serious players from the less committed ones.

One look at all 21 startup funding deals that Sarmayacar has realized till 2023 so far, and you will see how a more targeted and niche approach in addressing problems is becoming more abundant than in previous years. E-commerce stores have a circular economy angle attached to them, while fintech startups are also geared around investing, taxes, and credit scoring, rather than traditional payment solutions.

In the current landscape, the market is no longer conducive to short-term gains; it demands a strategic approach. While occasional strokes of luck may come your way, relying on serendipity isn’t a sustainable investment strategy. It’s essential to build a robust investment thesis that withstands the test of time, avoiding the pitfalls of short-lived successes.

Climate Fund? It’s About Time!

A large part of clever investing is about knowing where and how to put one’s dollars to work. Enter the climate. Pakistan suffered more than US$30 billion in economic damages during the devastating 2022 floods; and still stands as the eighth-most vulnerable country to climate change, despite contributing less than one percent to global emissions. At the same time, we remain largely dependent upon traditional fossil fuels and the road to a clean energy transition stays long and arduous.

As an agribusiness journalist, I have long wondered when Pakistani VCs will get serious about all this. The number of founders and startups working towards a sustainable future is in the dozens, but the capital for support is not just there. It was with great relief then that I heard Rabeel outline Sarmayacar’s plans for an upcoming climate fund.

“We are partnering with the Green Climate Fund, the world’s largest climate fund,” he said, adding, “We are shifting our focus beyond tech ventures to explore new opportunities and invest in ways that make a real impact on the environment”.

Rabeel mentions that Sarmayacar has developed a new climate strategy for Pakistan; and while that might sound challenging, they want to take action now to create real value before everyone catches on, making it tougher and more competitive to find the right opportunities.

“We are convinced that, given the urgent necessity for climate action in Pakistan, we can effectively channel both funding and expertise towards promoting climate initiatives. These opportunities are the only ones that transcend economic cycles on a global scale,” said Rabeel.

When discussing the verticals they plan to pursue, he said that Sarmayacar’s strategy is to align with Pakistan’s National Adaptation Plan. Key areas of focus include clean energy generation and transition, infrastructure, and water conservation, while also exploring specific areas with a greater emphasis on mitigation, acknowledging that adaptation often requires behavioral changes.

“My biggest concern with Pakistan’s ecosystem is that many individuals, including myself, are hesitant to share because we are apprehensive about what others might do with our ideas. This issue also extends to those covering this asset class in the industry. Due to the scarcity of information, people attempt to piece things together, and when done inaccurately, some individuals criticize publications and start attaching labels.,” he said.

Highlighting the difference between Silicon Valley and Pakistan, Rabeel mentions that when founders meet in Silicon Valley, they openly discuss their challenges, successes, and failures. In contrast, in Pakistan, if one founder spots another in a coffee shop, they might opt to move elsewhere, fearing the other person might overhear their conversation; an approach that stifles learning. That said, Rabeel believes that with time, this too will improve. Ultimately, we all share the responsibility for making that change happen.

Source: Pro Pakistani

SECP Proposes Issuance of Subordinated Debt by Insurance Companies

The Securities and Exchange Commission of Pakistan (SECP) has proposed the issuance of subordinated debt by insurance companies to significantly support the development of the corporate debt market of Pakistan.

According to a document of the SECP on “subordinated debt securities,” the subordinated debt as a new instrument would attract a broader range of investors.

The SECP said that investing in insurance subordinated debt is an interesting opportunity because it allows the possibility to invest in a sector that has some external supervision, which is not the case for most non-financial corporates. Additionally, subordinated debt’s distinct risk profile offers investors more options, contributing to a more mature market. This also encourages conservative investors to participate, providing a crucial risk buffer. Moreover, the pricing of subordinated debt sets a benchmark for riskier assets, establishing clearer pricing standards for various debt instruments.

It is important to note that the specific investors in subordinated debt can vary depending on the issuer, the terms of the security, the prevailing interest rates, and market conditions. Additionally, regulatory requirements and investor preferences can influence the composition of investors in subordinated debt of banks and insurers

At present, insurance companies in Pakistan are not involved in the issuance of debt securities, especially subordinated debt securities, one potential reason is the lack of benefits in the existing solvency regime. The proposed subordinated debt framework has been thoughtfully designed to offer insurance companies several advantages, including the ability to maintain solvency margins, engage in cost-effective capital raising, enhance creditworthiness, and provide the capacity to absorb risks during financial stress.

Moreover, the issuance of subordinated debt by insurance companies has the potential to play a pivotal role in the growth of the corporate debt market in Pakistan, with insurance companies emerging as new players in the domain of debt instrument issuance, SECP said.

The SECP stated that the issuance of subordinated debt securities represents a strategic financial move that empowers insurance companies to enhance their financial standing and actively pursue growth opportunities while adeptly managing risks as well as the applicable solvency requirements. Issuance of subordinated debt can play a pivotal role in elevating the overall stability and competitiveness of insurance entities in the market.

Under the current solvency requirements applicable to insurers in Pakistan, no allowance and/or benefit is available against any subordinated debt issued by an insurer. This may be one reason why insurance companies have not ventured into the issuance of subordinated debt, since it would be considered as a normal debt liability and no benefit is allowed, in respect of its subordination and loss-absorbing capacity, in maintaining required solvency margins.

The issuance of subordinated debt by insurance companies can bring about financial stability, enhance their risk management capabilities, and provide insurance companies with an alternative source of capital, whilst focusing on meeting solvency requirements effectively. Further, the SECP aims to propose a regulatory way forward to allow insurance companies to leverage the subordinated debt to meet their solvency requirements effectively.

The universe of international subordinated financial debt is growing and now has a market cap in excess of $1 trillion split between banks ($700 billion), insurance ($250 billion), and corporates ($120 billion). As of March 31, 2022, insurance companies operating in India had raised a total of INR 9,345 crores (life insurers: INR 4,194 crores; Non-Life and Health: INR 5,151 crores) as other forms of capital i.e. including subordinated debt and preference shares.

The SECP is of the view that in line with the prevalent practices in international jurisdictions as well as the guidance available in the ICPs of IAIS, the insurance industry in Pakistan should also reap the benefits of having subordinated debt in the computation of solvency.

Source: Pro Pakistani

Philip Morris Pakistan Appoints Sarfaraz Ahmed As Board Chairman

Philip Morris Pakistan Limited (PMPKL) has announced the appointment of Sarfaraz Ahmed Rehman as the new Chairman of the Board.

Rehman’s career spans various sectors, with key roles at Unilever, GSK, Jardine Matheson/Olayan JV, and PepsiCo, where he served as Country Manager for Pakistan and Afghanistan.

Notably, he led Engro Foods as CEO, earning the company the G20 Global Top 15 Companies award. His return to Engro Foods in 2015 culminated in the sale of a 51% stake to Royal FrieslandCampina, marking a historic investment in Pakistan.

“In welcoming Mr. Sarfaraz Ahmed Rehman as Chairman of the Board, we gain a visionary leader with a rich and diverse background that aligns perfectly with our commitment towards a sustainable future. His impressive track record in driving transformative change will be instrumental as we advance on our journey,” said Roman Yazbeck, Managing Director of PMI.

Rehman expressed his enthusiasm, stating, “As I take on the role of Chairman of the Board at Philip Morris Pakistan Limited, I am honored to be a part of an organization committed to transforming for a sustainable future. The journey ahead is not only exciting but also holds the promise of contributing positively to its consumers. I look forward to the challenges and opportunities that lie ahead, and I’m dedicated to driving PMPKL’s vision and mission”.

In his most recent role at Fauji Fertilizer Company (FFC) in 2021, Rehman steered the company toward a dynamic future, making his appointment as Chairman of the Board a significant milestone in PMPKL’s ongoing commitment to providing better choices and driving the transformation journey.

Source: Pro Pakistani

RDA to Take Action Against Dozens of Housing Societies That Lack One Feature

The Director General of Rawalpindi Development Authority (RDA) has been directed to serve show-cause notices to housing societies under their control.

The directives were issued by Commissioner Rawalpindi, Liaqat Ali Chatha. Show-cause notices will be served to societies that lack designated dumping sites.

They will be asked to explain their alternative arrangements for managing their waste.

Furthermore, the Rawalpindi Waste Management Company (RWMC) has been ordered to sign a contract with approximately 74 housing societies in the division, to ensure they properly dispose their waste at the Losar landfill site.

Such housing societies have been warned that failure to comply with the orders will result in the cancellation of their registrations.

Additionally, the RWMC has been tasked with locating another suitable landfill site for the construction of an additional transfer station.

Recently, the Joint Task Force of District Administration, Rawalpindi Development Authority (RDA), with assistance from local police destroyed different constructions of unauthorized housing schemes such as Qaswa Town in Mauza Thoha Khalsa and Tehsil Kallar Syedan.

The Director General RDA reiterated his commitment to take strict action against all illegal housing societies without any discrimination.

Source: Pro Pakistani

Honest Talk On Pakistan’s Kharif Crops Performance

The Federal Committee on Agriculture (FCA) recently reviewed the performance of Pakistan’s major Kharif crops during 2023-24 and set the production targets for the ongoing Rabi Season.

But the government and its numbers game can only tell so much so I for once decided to do a SWOT analysis (strengths, weaknesses, opportunities and threats) for all four major Kharif crops to lay out the real picture of where the country stands and where it needs to be.

The knowledge gap is the biggest challenge the agriculture sector faces at the moment driven by the government data that alone paints a murky picture and more focus on the semantics rather than the structural issues of the sector and this is a small attempt to bridge the gap and guide the agribusiness and agritech industry towards the problems worth solving.

Cotton: A Revival But Nothing to Be Excited About

Pakistan, the world’s 5th largest cotton producer, boasts a robust textile industry contributing 8 percent to the GDP and driving 60 percent of exports.

But Pakistan lost the prime place on the global stage in the last two decades as the government failed to effectively exploit the potential of BullGuard seed technology and an energy crisis in textiles during the late 2000s left farmers growing a crop with a lot more care and trouble but not so much of demand leading to shrinking to acreage and production.

Pakistan’s cotton production declined by 34.7 percent between 2014 and 2022 from 12.7 million bales to 8.3 million bales with a 31 percent drop in acreage and a 6 percent reduction in productivity.

Though cotton production fell to an all-time low of 5 million bales in 2023 due to floods, FCA expects the crop to continue the revival with a production forecast of 11.5 million bales. Independent experts put the forecast at 9-10 million bales in light of the recent slowdown in arrivals.

The cotton sector still grapples with low productivity, inadequate research and development, and financial crises in top research institutions. The menace of unapproved varieties, mixing, and over-regulations on private seed imports add complexity.

Despite these challenges, opportunities arise with new triple gene technology, a growing need for self-sufficiency, and trends in traceability for international competitiveness. Embracing organic cotton and sustainable practices presents a pathway forward, although threats loom large, including the whitefly pest, climate change, no enforcement of government-announced support prices and uncompetitive textile exports.

Pakistan’s cotton production has witnessed a rebound in recent years due to new triple gene varieties and record-high textile exports boosting demand and prices, bringing lost acreage back. Punjab on the other hand is set to post the lowest yield per hectare average in the last decade with arrivals from Sindh poised to account for a major share of production.

While this is attributed to Sindh’s climate and cropping patterns better suitable for early cotton cultivation that saves the crop from floods and pest attacks, it needs further investigation at the institutional level.

Rice: A Water-Intensive Rise

As the 4th biggest exporter and 9th largest producer globally, Pakistan’s rice sector holds a strategic position. A strong export value chain, diverse long-grain varieties, and a solid research base underscore its strengths.

Pakistan’s rice production witnessed a 37 percent rise in production between 2014 and 2022 from 6.8 million tons to 9.32 million tons with a 27 percent rise in acreage but only a 4 percent rise in productivity. Production dropped by 21.5 percent in 2023 due to devastating floods but FCA expects the production to rebound back to over 8.6 million tons during 2023-24 with rice exports forecasted to fetch record $3 billion on the back of all-time high prices.

Lower productivity, high water intensity, competition with other grain crops, slow adoption of Alternate Wet and drying (AWD) and direct seed rice technology and the need for quality controls for exports with the application of banned pesticides in practice pose challenges. Opportunities abound with new hybrid cultivars, Chinese-Pakistani collaboration in seed production, and rising international demand.

Technology adoption, value addition, and a sustainable rice program provide avenues for growth. Yet, threats such as uncompetitive exports due to energy tariffs and high-interest rates, climate change uncertainties, and escalating irrigation costs, and pesticide MRL (maximum residue limit) detection due to conventional pesticide usage warrant strategic attention.

Sugarcane: A Sweet Spot with Bitter Challenges

Pakistan’s sugar industry, valued in billions, faces both sweetness and bitterness. With the 5th rank in cane acreage and 9th in production, government support and a strong demand base both domestic and industrial, fuel its strengths.

Pakistan sugarcane production increased by 30.42 percent between 2014-2023 from 67.4 million tons to 88 million tons coupled with a 12 percent and 20 percent rise in acreage and productivity, respectively. But FCA expects the sugarcane production to drop by 10.7 percent to 78 million tons during 2023-24 with an 11 percent decline in acreage and a 3 percent reduction in productivity.

Water-intensive cultivation, limited resistant varieties to red rot and whip smut, long duration compared to other crops, delayed payments, low tech adoption, high dependency on labour, no implementation on recommendation by sugar sector, Reforms Committee and legal troubles pose significant weaknesses. Opportunities lie in ethanol production, research and development, and diversification.

Meanwhile, non-existent regulatory environments, climate change impacts, and unaffordability relative to other crops pose formidable threats.

Corn- A Success Story Biting Back Farmers

With the strongest RandD base and significant profitability, Pakistan’s corn industry is a key player. Providing multiple crops annually, strongest RandD base of all, and supporting billion-dollar poultry and dairy industries, corn’s strengths are noteworthy.

Pakistan corn production rose by a massive 122 percent between 2014 and 2023 from 4.9 million tons to 10.98 million tons with a 47 percent and 40 percent increase in acreage and productivity. However, the FCA expects the production to decline by percent to 10.3 million tons with a 2 drop in acreage, though productivity is expected at a 4 percent ascent.

Challenges include high expenses, lack of an established export value chain, dependence on US/LATAM Corn Grain Market Trends and a dearth of government support. Opportunities lie in value addition, corn use for ethanol and biofuel using GMO varieties, exploiting huge corn silage demand in GCC and tapping into more domestic and regional markets.

Threats such as high land rents, storage issues, and the ever-present fall armyworm pest require strategic mitigation. Corn is Pakistan’s one of it’s kind success story of the last decade but the surplus production and not enough avenues explored are driving down the prices this year and significantly hitting the farmers’ margins.

Source: Pro Pakistani