misaal

[00:00:00] Zahid: The startup ecosystem in Pakistan attracted a lot of venture capital in 2021 and the first half of 2022. Unfortunately, since Q2 deals and funding have declined, VCs are back to doing due diligence and shaking hands. So given the current economic environment, what can startups do to gain an advantage when it comes to fundraising?

And more importantly, what should startups understand before seeking VC funding? Zeshan Gondal joins me in this episode of misaal podcast to answer those questions. He is an investor and head of strategy at Zayn Capital, an early stage VC firm with $65 million in assets under management. Let's listen in.

Welcome to the misaal podcast, Zeshan, how are you?

[00:00:50] Zeshan: I'm great. Great. Be great to be here Zahid.

[00:00:53] Zahid: I was doing some research on you of course, but like unlike Faisal who is all over the place, all over social media, you have maintained a very low profile. So I would love to learn more about you. So if you could get started by, if you could just introduce yourself, how you ended up working at Zayn and what exactly do you do at Zayn Capital?

[00:01:08] Zeshan: Yeah, happy to do it. So, just a little bit of background. I've a lot of family in Pakistan, in, in Punjab, particularly in a small city called Mandi And my immediate family, so my parents and my siblings are all in, in the New York area. And so I grew up mostly in, in New York, in, in Brooklyn and would visit Pakistan every, you know, two, three years, sort of in the summers.

In the last four or five years, I started visiting sort of on an annual basis and. I started seeing certain changes in Pakistan. A lot of them were, were for the better. In the sense that for the first time, you know, our, our, our ancestral village finally got internet maybe five, six years ago.

For the first time. A lot of people that I do started getting smartphones for, for, you know, for the very first time. And started to use YouTube and WhatsApp and Facebook and these kinds of things. And in many ways, a lot of the changes of, of digital transformation that we saw in other emerging markets started to play out in Pakistan.

And you know, we always hear about the demographic sort of advantage that Pakistan has, and in many ways that that advantage is a bit overblown. And some of the statistics are, you know, empty statistics we could say. But there is something to be said about internet connectivity in part. And in my mind, you know, there would be a certain point where Pakistan was viable as a venture ecosystem or a startup ecosystem, or so I hoped, Right?

Obviously not every ecosystem that has ingredients ends up becoming a viable startup and venture ecosystem. And, and in my mind that that time is actually a bit further away than, than it ended up being. You know, if I were to predict back in 2019, I would've said you maybe five years from now, right?

Maybe in 2024. And it was something that I wasn't set on working in the ecosystem, but it was something that I was, I was deeply interested in. And in terms of the opportunity at, at Zayn Capital I joined Za yn basically at the time of its founding. And at that time it was essentially the, the two Faisals.

So Faisal Aftab and, and Faisal Choudhary. At that time, you know, things were just, just getting started. In many ways we were still choosing a direction for the. And I initially joined thinking that it was going to be something that I did for just the summer and because I was wrapping up a role at, at Yale University and I was about to start my MBA at Harvard Business School.

And I had the summer off. And so my friend Rabii Malik, who is well known in the startup ecosystem in Pakistan reached out to me and said, hey, I know you know a couple of guys are starting a firm called Zayn Capital. I'm sure they could use your help. Why don't you help them out and just get them help them get set up you know, since you have the summer off and you're interested in the ecosystem.

And that's essentially what I did. So I, you know, last summer I was with them, you know, thinking about a lot of the firm strategies, sort of the direction that the firm would go in different areas you would invest in and. In my mind, I was blown away because I felt like the ecosystem was much further along than I had thought it, it would be at that point in time.

And part of that, you know, there were different reasons for that. Part of that was a covid boost. Part of that was a lot of people coming back to Pakistan, you know, after having gotten experience. Abroad, mostly in, in Dubai, you know, in companies like Careem and companies like Swvl. Part of that was, you know, net different network effects of, of international investors having, having extra capital and, and wanting to deploy the n Pakistan.

But it felt a lot more viable than I thought it would be. And essentially what happened is, you know, I had a really great experience that summer and, and got to do a lot of really impactful work. And the firm asked me to come back full time, even, you know, when I was doing my MBA. And I thought about it for quite a bit because, you know, I'd never Worked in Pakistan before.

This is my first time working in Pakistan, and, and I basically thought about if I can manage it while I'm being at Harvard Business School, then I, I should do that because this is something that I could see myself doing, you know, for the years to come, you know, after business school and beyond. And that's essentially what I've been doing.

So I've been with the firm since, since this founding. Plan to continue with the firm moving forward as well.

[00:05:06] Zahid: Do you like split your time between the US and Pakistan, or how does that work out?

[00:05:11] Zeshan: Yeah, so nowadays I visit Pakistan about twice a year usually in the winters and the summers. I am planning on shifting to Pakistan full time around next summer. And then I'll, I'll, I'll be on the ground, you know, the vast majority of the time except for travel to Middle East and U.S.

[00:05:29] Zahid: Lately I've seen like, you know, Zayn venturing out a little bit more from, you know, from Pakistan to like other middle, looking at other Middle Eastern countries. So can you talk a little bit about the thesis, like, you know, or the average check size? You know, what, what's, what, what sectors is Zayn, you know, basically looking at when it comes to investing?

[00:05:46] Zeshan: Yeah. I would say we've done a few opportunistic deals outside of Pakistan. Our core focus and the vast majority of our portfolio is Pakistan focused. If you, you look at our portfolio, you know, I would say 20 plus portfolio companies are, are, are Pakistani companies and across vertical. So we don't have any strong push for, for only sort of a single vertical or, or a very narrow investment thesis. I think our investment thesis is that Pakistan is on the cusp of a digital transformation, and in many, many sectors, areas that were previously not digitized or not. Transparent in that way will come online and it's going to open up new forms of business and it's going to change other forms of business. And so, you know, the, the economy will adapt and the business environment will adapt. And that's why we've invested in across, you know, many, many verticals from AgriTech to B2B commerce, you know, to logistics, to travel and, and others and our thesis essentially get in early. You know, pre-seed to seed is where we did most of our deals. And then continue double down on, on the companies that are performing really, really well. And really where at the early stages where we're backing founders, right? A lot of times it's pre-product, a lot of times. When it's just the founders, they don't really haven't built out a team yet, and a lot of what we do is trying to help founders go from idea and from the previous experience they have into actualizing the project they're building and, and helping them think through strategy and helping them think through hiring and the businesses environment and everything else that goes along with running startups.

[00:07:29] Zahid: So, of course right now we are facing certain issues with the economy, especially in Pakistan. Plus like, you know, overall like, you know, the stock market is not doing that great, tech stocks are down, valuations are low, etc., etc. So because of all that is happening have you seen the deal flow slow down or are you still, you know, getting as many pitches as you were before?

[00:07:51] Zeshan: Yeah, I would say deal flow has slowed but it's still healthy. The one thing that has changed quite a bit is the appetite of international investors in the Pakistan ecosystem, and there's a few reasons for that, but overall, the investor appetite or international VCs to invest in Pakistan has gone down considerably. One of those reasons is we're away from the period of easy money of 2021, where VCs had lots of money to deploy and, and extreme competition in in the U.S. And so, you know, a lot of them started looking at new emerging markets for the first time. And not just Pakistan, but other emerging markets did quite well in terms of relative performance of, of fundraising. You know, India hit an all time high of $30 billion plus last year in terms of venture funding. A lot of other ecosystems, Indonesia, Brazil, and others, did quite well as well. And so Pakistan was a beneficiary of that in that a lot of international VC money that was previously allocated to the US and Europe, they, they took opportunistic sort of bets on the Pakistan ecosystem and, and invested in a whole host of. But again, as the domestic ecosystem in the US experienced a slow down, then a lot of investors sort of decrease their risk tolerance. And obviously Pakistan, given its economic condition and its currency depreciation and others. Is quite a risky investment from their perspective and from the perspective of their investors, their limited partners and to a lot of them have cut back on investing in Pakistan.

[00:09:23] Zahid: If a startup is trying to raise VC money right now, what is something that you feel like they should understand before trying to raise?

[00:09:30] Zeshan: The market in September, 2022 is not the market in September, 2021, and a lot of people are benchmarking as if, Oh, I heard that this company raised this much with this product or this lack of product. So therefore I should be able to do the same because I have the same experiences as they do, or I have, you know, a better team than, than they did at that time. And in the venture ecosystem, things change really, really fast. This is not just a Pakistan, I'm thinking this, Oh, this is also in the Bay. And in the Bay area. I know many, many startups who, you know, again, if they were raising in January of this year raising would've been a piece of cake they probably could have raised without even going through formal due diligence with some of their investors. You know, maybe check within a week. But now things have changed and you know, now there's a lot more. Sort of stringency in terms of investment requirements and the balance of power has shifted more in the side of the investor once again, whereas in, in the last, you know, year and a half during Covid, the balance of power has certainly shifted much more towards the founder, which is not necessarily a bad thing. But it, you know, that's just the reality of, of where we are today, where the, the investor again, has, has the, the majority of, of sort of decision making in terms. Doing things on their face and, and, and at, in their way. and I think a lot of founders still aren't, aren't fully aware of how that environment has changed. And so we, we've start to see it where, you know, funding grounds are going to be a bit harder, especially in the later stages especially after, you know, the, the, the fall of airlift in that sense as well. So, you know, I think later stage deals in Pakistan are always going to be more difficult because finding growth capital in emerging markets is.

And that's especially the case now at the early stage, we still are seeing pretty healthy deal flow and, and I've been glad to see that we're still seeing, you know, several pre-seed deals being funded. We're still seeing solid fundraising numbers overall. But the market today is not what it was 12 months ago.

[00:11:31] Zahid: If there is a startup that is trying to raise money right now, like is there something that you feel like they don't understand? Like when it comes to maybe like fundraising, this has, doesn't have to do with like maybe the market economics, but like just the, the idea, maybe the presentation, maybe the way they approach a problem. Is there something that you see in startups, there's something that is recurring every startup and you feel like, you know, maybe someone would, you know, help these guys out, like figure this thing, this part out.

[00:11:57] Zeshan: Yeah, I think what would be really helpful for the ecosystem in Pakistan. And honestly, it's something that I could probably do is explaining in a little bit more detail what makes a good venture investment in the eyes of an investor. And I'll give credit also to Mubariz is on this because he's done a lot of very informative Twitter threads on, you know, thinking about the perspective of the vc. What is a vc? Who are they getting money from? What are their sort of goals in, in terms of an investment? What is their mandate? Because a lot of people in Pakistan think that VC investment is for any type of business and, you know, I have a business that I wanna scale. It's doing pretty well, it's profitable, and, you know, I own a fast food restaurant and I want to create five more therefore I should get VC funding. That's probably a great business. You know, a lot of services, businesses are great businesses, but that's not a VC business. Right. And so just explaining why that's the case. Right. You know, given that VCs are looking for tech enabled businesses, they're looking for businesses that can scale and generally are asset light. You know, those kind of asset heavy businesses where there's a lot of operational costs involved, there's a lot of, you know, you have to rent real estate and you have to actually, you know, build physical infrastructure. Those are usually not the best VC businesses, but they might be great businesses in general. And explaining that distinction I think is really helpful for people. You know, unfortunately a lot of people come to us saying that I have a business idea. You know, can we fund it? And there is a world in which that idea would be funded in, in developed, more developed countries like the US and often that could come from private equity investors or other types of investors but Pakistan's capital markets are, are, are not nearly as developed. And so unfortunately those people, while they have great business ideas, it's not really a, a way for them to get funding for it. And, and venture capital is also not the right funding mechanism for it either.

[00:13:56] Zahid: The lack of understanding about what a VC, you know, VC business could be a VC funded startup is, and why we see would fund a startup. So I'm trying my best to, you know, work on that in terms of content to create content around that so that, you know, we can educate, we can inform and maybe hopefully, you know, prepare more startup founders to pitch properly.

[00:14:16] Zeshan: Yeah, absolutely. And on that point, you know, I think it's, it's great what Techshaw is doing on that front. Previously MENAbytes was also doing some of that, but that's sort of taking the back. And we need more, right? It, it's not, it's not just any one sort of publication's responsibility. And, you know, I think Mubariz is doing a great job of educating the market. You know, Rabii has his newsletter Notes on Pakistan, which I would highly recommend. And, and I think, you know, the more we have on the content side, the more people are aware, because I can't blame someone who comes and wants venture funding for, you know, their services. Because how are they supposed to know what venture funding is appropriate for or not, given? The venture ecosystem is so new in Pakistan, and so I think the impetus is on the people in the ecosystem to give a little bit more clarity on where we're coming from and explain a little bit more. What is venture and what are we looking for? Right? I don't think the onus is solely on the founder trying to raise money. And part of it is there's a lot of great resources already out there, right? Where there's great resources on what is a startup, you know, what is sort of the, the mindset of a startup founder? What is a mindset of a startup? What is equity? How does it work, right? Because for many people in where employees at in Pakistan, this is the first time that they're ever dealing with equity. So again, how are they supposed to know? And I think part of that, that's something that, you know, I wanna spend some time on in the coming year is, you know, if I have a certain vantage point into the ecosystem, then I should share some. The learnings that, that we've had and some of the thought processes that we've had, because ecosystem is pretty small. And so if it's useful for, you know, an aspiring founder that, Hey, this is what a seed stage startup is, and here's how it's different from a series B startup. Or, you know, here's what a, a CTO looks like, which is different from when an engineering leader is like, and these are things that we, I think we often take for granted. You know, if we're, we have work experience in New York or the Bay Area. Again, this is a new ecosystem and we shouldn't expect people to know these things. Right. This is, this is probably the first time they're hearing it.

[00:16:13] Zahid: Yeah. So I have made that mistake a lot of time where I'm just assuming things and like, you know, because it's so commonplace, these commonplace things, right, ESOPs and like RSUs and like, you know, ISOs and all those things. Like, so common here, it's like, you know, when, but when you're talking to someone in Pakistan, it's, it's a completely different thing for them. It's like, you know, what the hell is equity? Like, you know, why am I getting paid so less and you're telling me like, I'll be, be owning a company.

It's like, I don't wanna own a company. I want a bigger paycheck. And it's like, okay, well this is how it works. You know, you get like a, you know, maybe not that crazy of a paycheck, but you do get a lot of equity if you're an early employee and you know, that's how you build your equity. And I know if the startup does well, everyone wins. So that's something that, you know. It's gonna take some time. So, so since you mentioned that, like, let me ask you this, like, is, is the, is the way we approach ESOPs and, you know stock options and all that, is it exactly the same as the way US does it? Or are there some nuances?

[00:17:08] Zeshan: Yeah, I think there are some differences and a lot of that has to do with the cultural mentality of people in Pakistan. And it's not good or bad, it's just what, what is the case? I don't think there's anything wrong with that. And, and, and honestly, I think sometimes it is a little bit naive to think we can just ship Silicon Valley or New York sort of mindsets and import them mean into Pakistan. This is not how any other venture ecosystem in the world is developed, right.

In the Indian ecosystem has certain nuances based on Indian culture, which is far more similar to, to Pakistani culture in that. Chinese ecosystem is unique. You know, the, the Brazilian ecosystem is unique, as is the Indonesian one, and the Pakistan one also has, has some sort of unique factors as well.

I think one of the things in Pakistan in particular is people are far more interested in increasing their cash compensation versus equity. And this is by and large the case. Often what you have is sort of the senior executives of a startup they basically made the decision that, you know, if the startup does well, then I want to put my eggs into this basket and I'm willing to take a pay cut and take higher equity compensation.

But the mid-level manager or the entry level employee is often banking more on job security and on a steady paycheck. And so they'd be willing to give up some shares for, for additional cash, even though on paper the value of those shares. Is pretty significant if the company continues to raise, but that's the thing, right?

Shares are always on paper. And so in, in a place like Pakistan, People don't want wealth on paper. They want wealth in their bank account. And even that is, you know, not not always a fair estimation of, of their true wealth because of currency depreciation. Right. Just in the last couple of months when I first came to Pakistan you know, this summer for this trip in July the Rupe was 208 and when I was there last summer, it was, you know, 157.

So someone who's just sitting on rupees, which again is the vast majority of people, right? Where are you gonna invest your money if you, if you have savings? They, they lost, you know, a good 30% of the net worth through no fault of their own. And you know, just in that course of those seven weeks, the PKR went from 208 to 240, and now is sort of in the 220 range.

And so people in Pakistan are extremely sensitive to, you know, the safety of their investment and startups. Startup investing is a, is a risky business, and equity is a risky proposition. So obviously for founders and for senior executives, they know what the risk is. They, they fully understand what they're getting into, or I hope they do and they're willing to take on that risk.

But for a lot of other employees in the organization, they're, they're banking on making a steady paycheck so that they can pay their bills and they can save up and they know how much their, their, their worth is, or in terms of like the money that they're getting from the company.

[00:19:51] Zahid: Well, one thing you, you mentioned about the currency depreciation. So my question to about that is, I've always wondered this, that, you know, startups are raising money in US dollars, right? So they're like, you know, $2, $3, $4, $5 million raised, and of course they're being valued in also in US dollars, but when they earn revenue, they're earning in rupees, right? So if they're earning in rupees and Rupe keeps depreciating during a due diligence, do you look at what the startup, what the currency fluctuation should be for you to basically. Two or three X on an investment once the startup exits? Like is there some sort of analysis done on that part?

[00:20:26] Zeshan: Yes, absolutely. I think the most important sort of benchmark for valuation is always going to be dollarized. You know, people want to know their dollarized rate of return. And often startup founders in Pakistan will show GMV growth in PKR, and internally we always convert that to dollars because, you know, PKR revenue growth that is going up and to the right, it might be, you know, flat or.

Heading sort of in a negative trajectory once you convert that into pkr, And again, a lot, a lot of it is just the, the macroeconomic factors of Pakistan. And this is actually one of the reasons why valuations have come down from last year and why investor appetite from international VCs has gone down because their LPs, their limited partners, were giving them money to invest in startups are reporting returns in dollars. And so even if your PKR returns are great, you know, if I had 30% PKR returns last year, my dollar returns would still be negative. And at the end of the day, you know, if, if, if I am a limited partner, if I'm an investor into a venture fund, And I have pension obligations that I have to pay, you know, for firefighters or teachers or, you know, I have a family office that, that who's and the client is hoping for a certain type of return, then negative dollarized returns aren't gonna work.

And so that's why I think there, there's an extra onus on Pakistan startups. To do, well, not just in PKR terms, but in dollar terms because the international business community operates in dollars and you know, that's why as until we have sort of stable. Foreign exchnage, foreign exchange, it will be more difficult for Pakistan startups to do well in, in that dollarized phase.

And honestly, what will happen with a lot of startups is they'll, they will either try to get sort of safer forms of revenue by expanding outside of Pakistan as well. So you start in Pakistan, you build a product and there's a lot of advantages to building in Pakistan in terms of cost, in terms.

Scalability, and once you've proven the model in Pakistan, then you can go to Saudi Arabia or you can go to Dubai, or you can go to Egypt, or you can go to Bangladesh and other places. And a lot of those places have much. More stable sort of for an exchange. And so it becomes easier in that sense to, to get those dollarized returns for your investors.

[00:22:34] Zahid: Since we are talking about due diligence what is the process like at Zayn Capital? Like are you doing due diligence for like a couple weeks, couple of months, and what's the process like?

[00:22:42] Zeshan: Yeah, the timeline can vary. It, it more so depends on the stage of the deal and the complexity of the deal. Usually in early stage due diligence is a lot quicker and there's a lot less of it to.

Because in early stage, you know, there's, there's usually no real financial model. And this is a big difference between sort of what we'd say, standard private equity. And I'll even sort of clarify that because I think private equity is also a concept that people in Pakistan are not as familiar with.

So it, and sometimes venture capital is, Sort of considered part of private equity, meaning private equity being anything that's not in the public market. But in my mind, I would say, you know, venture is, is one core part of it. It's sort of on the earlier stage, you know, pre i p and, and traditional private equity, what we would call leverage buyouts in, in the us is is much leader staged and, and often much larger in.

And so in traditional private equity, you do a lot more due diligence because you have years and years of financial statements. You know, you have forward looking projections, you have historical data. There's a lot more financial sort of modeling that you would have to do. lot of sensitivity analyses and in early stage venture, a lot of that doesn't exist because you have projections, but there's no real basis on which to, to create a financial model, you know, through 2027 given how little we know about what the Pakistani economy will look like in 2023. And so obviously you, you should have a view on it. It's, it's good to, to have that model and to go through the exercise. But it's not the primary factor on which we're, we're you know, looking to invest or not. Right?

It's not that the DCF, the discounted cash flows of, of this company are attractive and so, You know, that's the only reason we did it. At the early stages. It's, it's a lot more for, due diligence on the founders themselves. Looking at their past experiences, looking, you know, talking to people who have worked with them.

You know, are these people that you enjoyed working with? What are their strengths? What are their weaknesses? How are they as a team? You know, is this the first time they're working together? So those founder dynamics are really, really important because if the founders are, are aligned with one another and they're well positioned to build, they'll find a way to make it work.

But if the founders. , you know, already have sort of some communication gaps between them or they're not fully aligned, you know, with, with their investors or with other people sort of in management. Then, you know, that's, that's a red flag for us. And the due diligence projects process. I think in early stage it could be, you know, as short as one to two weeks.

But sometimes for a more complex deal or for a vertical that we haven't previously invested in, we'll spend a little bit more time and, you know, really try to go deep and try to understand it. Because a lot of times with verticals, you know, there are parallels in, in other markets, right? Maybe there's a US startup or an Indian startup or a Chinese startup that has done something similar. But again, there's going to be local nuances that you're not going to be fi able to find online. You'll just have to talk to people in that industry, right? Because Pakistan has its own regulatory environment, you know, especially on the FinTech side.

It's got it, it has its own sort of ways of doing business. And so it's important not just to say that, Hey, this worked in, you know, in China, therefore work in Pakistan. You know, China's a very different. And scale then Pakistan is. And so, you know, if we feel that it will work in Pakistan, we would be happy to invest in it, but we have to make sure of that first.

[00:25:47] Zahid: So let me ask you this what exactly do you see in the market right now where, where you wish you know, someone was solving a problem that you don't see anyone solving? Like is there something specific that you can talk about where you're like, you know, why, why isn't anyone building this? It worked in, you know, XYZ market, maybe it might work in Pakistan.

[00:26:07] Zeshan: Yeah, I would say there's a couple of areas that we've been particularly focused on in, in the last year. Not just not because it's our, our mandate necessarily. We have a, a broad mandate we can invest across sectors, but these are just areas that we think are, are, you know, very ripe for innovation.

And in particular, I'm interested in FinTech. And I think one of the great things about startups is. They are not tied to doing business the way that traditional businesses have always operated. And in many ways that that is a very liberating thing in, in Pakistan. You don't have to, you know, just a lot of times you'll hear from people in the industry that, Oh, well we've always done it this way.

But I think one of the point of a startup is you have the, the luxury, the, the privilege of trying to do things a different way and to disrupt right to. And, and again, that doesn't mean necessarily going against the banks in May. In many ways, you know, banks are, are the natural partners of fintechs, right?

They, they can compliment one another and fintechs can take on the areas that maybe the banks find too risky or not, not as appealing. And I would say, you know, what I want to see more in Pakistan is platforms, you know, FinTech and otherwise that are solving issues for the everyday Pakistani. And, you know I understand why it's the case, but I don't agree with this idea of.

We're only going to create products for sort of the, the elite of society, the wealthiest people of society. In many ways. They do have more purchasing power, but they're smaller in number. And the, the ability to scale a product then becomes very limited because yes, in your pilot or in your first six months, you know, you showed really great growth because you were sort of operating within that what we would say the serviceable addressable market, of, of a, a wealthy population that is looking for a certain need, and you're fulfilling that. But the TAM, the total adjustable market is not much larger than that small elite class. And so unless you're building for, you know, the, the small but growing middle class or, or people who, you know, 2, 3, 4, 5 years from now will have that purchasing power.

I think you'll quickly hit a, a wall in terms of how, how much you could continue to grow in Pakistan. And that's, in my mind, one of the point of startups is to make life easier for the everyday person. And, and we see this in many ways, right? So in the FinTech side, you know, mobile banking has taken huge leaps, you know, the last few years, both on the incumbent side and on on the FinTech startup.

And, you know, that's the point of of apps like NayaPay and SadaPay is, you know, you've had severe, significant difficulty in, in operating in the conventional system. Let's make this a little easier for you. Let's make this, you know, less of a chore and a burden and, and more of, you know, something that is not occupying sort of a is, that is not a source of stress for you.

And I think that that's really powerful and the fact that, you know, startups can also create. Job opportunities. And they can also create mechanisms for people to want to stay in Pakistan rather than, you know, your alums or an IBA grad. And immediately you're thinking about how, how can I make it to Dubai or do a Masters in the US?

And again, I don't blame you for that, right? Because at the end of the day, like what are those training grounds in Pakistan where you are a graduate from? And a, a reputable university and, you know, you want to stay in the country. What are your options really? Right. In the past it's mostly been mnc, so mostly national corporations like Unilever and Engro which is mostly Pakistan focused Coca-Cola and others.

And, and those are great training grounds in many ways, but they're, they're very different than what we would say in the US is, you know, you have, you have a lot of people will be training at Morgan Stanley and Goldman Sachs. McKinsey and Google and Facebook and these kind of companies, and the amount of learning you'll have at those companies is extremely rapid.

And so, you know, many, many people for, for decades have basically gone to these companies to learn as much as they can, as quickly as they can. And then they'll go off and, and do new things and, and I think startups in many ways represent that in Pakistan as well. You know, I'm glad to see that for a lot of university grads, not just from the alums and IBAs, but also from other universities, they see startups as a very viable option for them after graduation.

And in many ways, it's their preferred option, right? They, they don't want to go to an MNC and they don't want to go abroad. They wanna stay in Pakistan and build something. So one question that I, you know, we touched on this a little bit earlier where we talked about like, you know, it's getting difficult for startups at later stage to raise funding.

[00:30:35] Zahid: I wanna talk about more about like, okay, so series A, series B, C, C eventually you got exit, right? Look, so where exactly do you feel the exit opportunities are gonna come from? Because it's not gonna be on the Pakistan stock exchange, right?

[00:30:50] Zeshan: Yeah. This is a great question, and honestly, again, it goes back to the root of what is the VC looking for.

At the end of the day, a VC is looking for outsized returns to provide to their limited partners, to their investors. And this is why growth is, is important for any startup definitely. But path to profitability and a path to exit is even more important. And that's more so the case in any market like Pakistan than it is in the US.

In the US the, the capital markets are sufficiently developed and there's sufficient investor appetite that you can continue to burn cash for several. And keep raising more and more cash. And, you know, profitability does not have to be something that you worry about, you know, in the first few years of your business necessarily.

But we don't have that luxury in Pakistan, and I think we, we start to see it where, you know, you can't be like an Uber and burn cash for 10 years and raise billions and billions of dollars. And then, you know, now in 2022, We like, Okay, you know, we're gonna try turn a profit now. So we're gonna sell our, you know business divisions that aren't gonna going to make money.

We're gonna sell our, basically our moonshot projects, right? We're not gonna, we're not going to build driverless cars anymore. And, and that's because the public markets in the US, you know, investors are are telling Uber either turn a profit or will sell. Right? We don't, we're not interested in funding your your ambitious R&D projects.

And I think in Pakistan people who think that, you know, if, if we just follow the Silicon Valley model that it will work. The, the big difference here is we don't have capital markets that are as deep as the US. And so when you're raising, you know, tens of millions of dollars or even hundreds of millions of dollars the question then becomes, well, who is going to have the investor appetite to fund that?

Because a local VC probably can't go, you know, much more than Series A at this stage, or, you know, is not going to write a $10 million check or more. And so if you're trying to raise, you know, a $50 million round or a $100 million dollar round, well that money has to come from somewhere. And I think the idea in Pakistan that we can just keep growing and as long as we're growing and we'll continue to be funded that is not going to be the case like growth is fantastic but profitability is or a path to profitability is, is I think, far more important.

[00:33:02] Zahid: Yeah. As far as Uber goes I think it's still like half the price it was at IPO. I haven't sold my RSUs so I'm still holding onto them. See where it goes. But the only way Uber goes above the IPO price is if it has a Indian CEO, cuz there is no other way , there is no other.

It's going anywhere near IPO price, and it definitely.

[00:33:21] Zeshan: Elon Musk decides he wants to take over Uber and you know, then he, the, the investors are left holding their breath whether he goes through with the purchase or not.

[00:33:30] Zahid: Exactly. Yeah. Yeah. I mean, so I personally have always felt like Uber could have been a, you know, if it, if there's another, you know, company tech company that would acquire Uber, I think that would make a lot more business sense. But I can see a lot of company Uber can purchase, but I just don't see what exactly would be a, a, you know, a ideal match for Uber in terms of like acquisition. But I see a lot of companies and, you know, travel space and other mobility space that can acquire of course.

But anyways, so. One last question before I let you go. What is the best way to pitch you? Is it just you know, submitting the contact form on Zayn Capital website or is there another way to pitch you?

[00:34:09] Zeshan: Yeah, that's the best way. In the sense that we read all the emails that come through to us. And we don't respond to everyone, but where we aspire to respond to everyone.

I, I should say you know, I think usually if there's, if there's a sufficient interest, we will try to respond quickly and, and, you know, get a initial meeting set up. And we try to be as transparent as possible if something's outside of our. Sort of our investment interest, then we will tell you immediately.

And we will say that, hey, this, you know, country is not a country we're looking at. This vertical is not a vertical we're looking at because our, our job is to make this process. You know, raising, raising capital is not easy and it's often a painful process. So we try to, reduce that, that burden on on founders a little bit and just be upfront, right?

If we can invest in something, then we wanna let you know as soon as possible. And if we can't, which is you know, more often the case, then we want to let you know as soon as possible. I think the other way is and it's always good to do this, is to have a warm introduction if you can, in the sense that often when you get emails, you know, it's, it's easier for those emails to, to just, you know, become another one of the pile. But often, you know, if, if you're introduced via, via a mutual contact or you meet in person at, you know one of the sort of startup events and Katalyst Lab does great, great events in Pakistan, which are, you know, great for people in the ecosystem to meet one.

Then I think that that's something that's a little bit more memorable in, in the mind of the investor. And again, when you're seeing, you know, dozens of, of pitches every week or or month, then. Being memorable is important. But you know, there's no real there's no real sort of secret to, to getting a meeting.

You know, if, if you have the right experience and, and interesting idea, then we probably will set up a meeting. I think the other thing is realizing that the meeting is just the first part. And again, venture capital firms need to be very selective in, in what they invest in because at the end of the day, there's, you know, hundreds and of potential investment opportunities even in Pakistan.

And we're going to invest in a very small percentage of the ones we see. And so I, I know that every founder obviously should believe that their idea is the one. And you know, we, we, we would love to continue to invest in, in, in founders sort of, you know, pushing the envelope across, across verticals.

And this is one of the reasons that our portfolio is very it sort of goes across the sectors in Pakistan because, you know, anywhere we see a viable business opportunity we're, we're happy to invest in. But with that being said, we are also pretty selective in our investment. And we try to be very upfront with people who are pitching us that, Hey, these are the reasons that we are able to invest or we're not able to invest so that there's no feelings of.

That we, you didn't get your fair shot in that sense.

[00:36:48] Zahid: Sounds good. So let's, let's switch sides now. What, if you had to pitch someone as a venture partner, what would you say, where is the value add that comes by being part of Zayn Capital portfolio?

[00:37:01] Zeshan: Yeah. I would say in many ways our, the founders of our portfolio companies are some of our best advocates and we often what we will do is, you know, we will have people who are pretty far along our investment process, talk to founders we worked with, and they can choose a founder, right? We're not going to give them, you know, one or two founders in particular and say, you know, talk to these people because why shouldn't we bias their thinking, right?

They should. They can look at our portfolio, it's online, and they can reach out to anyone if they, you know, whoever they want to reach out to. We're happy to connect. Because I think it's really important to, to know who your investor is, just, just as much as it's important for us to know about the founders we're working with.

And, you know, we are in the business of trust, right? This is a relationship business. And if you, you know, if you try to take advantage of a founder and give them unfair terms, then the market will know, right? The ecosystem will know, and it's a small ecosystem. And so for us, we try to be extremely careful in terms.

Being very professional in terms of of maintaining the reputation of our firm. And, you know, I hope that then capital continues to have a great reputation in the market because that's what we wanna do. And so I, I would say that it, it for any foundry, you know, you should ask around in the ecosystem you should talk to.

Who have taken investment from us. You should talk to people who haven't and you should get their thoughts right, Because at the end of the day how else are you going to know about the quality of investor? For us, we also try to do a lot of work with our founders in terms of helping them through product Strat, think through product strategy in terms of thinking through regulations and hiring.

And I think this is something that is a bit unique in the sense. Especially on, on the FinTech side, I would say, you know, we have some really great experience on the FinTech side that. Not that common in Pakistan, right? So, so Faisal Choudhary should who is one of the co-founders of Zayn, spent, you know, 16 years working at Goldman Sachs, there's not that many people who have that kind of depth and breadth of experience in financial services.

Faisal Aftab has incredible experience across a whole variety of, of industries. You know, he, he's done consulting, he's running an investment firm, and bringing that experience to your founders is extremely valuable. You know, one, one key example I'll give Faisal Aftab has a great insight into sort of the global macro the global macro economy.

And it's one of those things where, you know, if you look at some of his posts and tweets like late last year, he was given the warning signs that, hey, once the Federal Reserve starts to raise rates, the funding ecosystem globally will change. And therefore, you know, it's better to raise capital now.

And to conserve you know, to reduce your burn so you can, you can preserve your runway. And if you look a lot of the Zayn portfolio companies did exactly that, right? Postex did that. And, and, you know, Postex recently just acquired Call Courier became, you know, the largest player in their vertical, which is, you know, phenomenal achievement for a startup.

This is a short amount of time. Tazah did that and, you know, Truck It In did that. And it's good because that means the, the health of those businesses, even, even this downturn is still very sound because they have, they have runway. And it's one of those things that, you know, given Faisal Aftab's macroeconomic expertise he was able to advise them on that, you know, be it before the market as a whole sort of lon and, and it, it shows in that, you know, now they're not as worried about trying to find ways to stay alive. They're still focusing on, you know, sustainable growth and a path to profitability.

[00:40:20] Zahid: Thank you so much for being on the misaal podcast. I appreciate your time. And this, I think this is like, you don't, you have, like I said, initially, you have very low profiles and I'm learning a lot more about you.

So it was wonderful meeting you and learning more about yourself as well as Zayn capital.

[00:40:34] Zeshan: Yeah, and I think that's something that will change over time, right? As the ecosystem develops, you know, there'll be more content put out. There'll be, you know interviews, more podcasts and things like that.

Again, I'll, I'll give do credit where credit is due. You know, I think Techshaw has been fighting the good fight for many, many years. So before Pakistan had, you know, a booming startup ecosystem, you know, you were out there and you were making sure that people knew who was getting funded and what was going on in the ecosystem.

And I think we need more of it, right? I think Techshaw is a great platform and we need other people to, to come in and play this role as well because in a new ecosystem, like everyone has their share and there's, there's a lot of work we have to do in terms. You know, sharing, sharing our views on things, you know, sharing what we've learned so that you know, the next batch of founders, they don't have to go and learn everything from scratch, right?

They can. Sort of just pick up, pick up and, and get up to speed as soon as possible, right?

[00:41:21] Zahid: Yeah. Maybe I should consider creating a pitch deck and start pitching investors and see if there is any interest in, so I can go full time. But until then, like thank you so much for the kind words and I'm trying my best one man.

Sure, of course. Doing whatever I can. And hopefully it works out for the greater good of the ecosystem.

[00:41:39] Zeshan: Yeah, definitely. Thank you so much for having me.

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