Consider a startup in Pakistan making software to help textile exporters keep track of production and meet buyers’ requirements. The company has an innovative product but lacks collateral and money to hire developers and sell its products. Thus, it will be hard to obtain a loan from a bank. Venture investor will be willing to take the risk in return for equity, but he will first need to be sure that the venture has growth potential and ways for its liquidity. It is necessary to consider the proposed venture capital laws in Pakistan in light of such decisions. Simplifying the process of registering funds would be useful. A more demanding test is whether investors who invest in a Pakistani venture fund are ready to invest in its follow-up.
Venture firms compete for capital from investors and for finding high-growth ventures. Entrepreneurs need to evaluate the experience of a manager in a certain area, his reputation and ability to raise next funding rounds. The ability to connect companies with customers and with experienced advisors is at least as valuable as the capital raised. The fund which can raise capital but cannot find and promote talented entrepreneurs will not earn enough to raise another fund.
Funding and implementation become important policy considerations in Pakistan, in addition to licensing. Who will provide the capital that may stay locked up for long periods of time? Will local management be able to put it into use? Will good businesses find buyers?
In the US, Sequoia Capital backed businesses like Apple and Google in a context where there is an interaction between entrepreneurship, research and financial institutions. Even public research plays its role in the process because according to the National Science Foundation, companies that received seed funding through its program later got additional investments and exited.
In Singapore, the government has established Startup SG Equity with both public investment and private partners whose commercial capabilities were one of the criteria. Enterprise Singapore reports that this program managed to attract investments from private companies along with public money. This is the main idea that Pakistan should consider while choosing commercial and valuable investors in terms of clear rules of public participation. A subsidy alone cannot reproduce those institutional strengths.
The current draft of Venture capital bill shared by the SECP on 25thAugust 2026 already considers the aspects of investor protection and disclosure. In turn, SECP can supplement this process with an actual application checklist, realistic processing timeframes, and detailed descriptions of how the operations of funds work. It is crucial that the manager knows what is expected from him before any fundraising starts and that the investor understands his rights.
The private capital industry association in Great Britain has developed templates for venture investing that correspond with the existing British legislation. Thus, the relevant Pakistani associations and attorneys could prepare similar templates for the local legal environment. Setting the terms of ownership, board composition, and share transfers could save many negotiations. Founders need to know what is negotiable with the investor and what is not.
Funding needs to be consistent with the development path of the young company. For instance, the investor can first pay for the product testing and then continue financing when the clients start paying for the product. The milestones need to be realistic and adaptable to changes in the situation. Moreover, the fund manager needs to say if there are still some funds available for following rounds. A good company can face problems because of its first investor spending all funds and not being able to finance further.
SECP, FBR and the State Bank must develop joint guidelines that will spell out how the investment is taxed and what documentation must be submitted to the banks for transferring profits abroad. Clarification of procedures will help to lessen unnecessary confusion, even if this won’t shield investors from currency risks and unfavorable business conditions.
Local business families in the country and qualified institutions may be sources of more reliable funding, but only if they have a commercial interest in investing. It should be clear to fund managers what fees they charge and how profits are divided and to what extent the capital invested has been repaid to investors. Existing companies can make contributions without establishing a dedicated investment fund. For example, a company that exports textiles can finance the trial use of the software and provide feedback to its developers. If the pilot project succeeds, a commercial deal will make it easier for the startup to prove to other customers and investors the demand for its product. Industrial organizations can coordinate such pilots for their members. The contract must allow the founders to keep the intellectual property and serve other clients.
Government support should follow the same commercial discipline. Where public money is committed, managers should be chosen openly on the basis of proven experience and the capability of bringing in private financing. Investment judgments should stay within the purview of competent professionals, and the conditions of public involvement should be known. The purpose is to finance sound businesses which experience a real funding shortage; subsidizing businesses that would otherwise have been started without government assistance would result in little.
Investors must also have a way of selling off their equity holdings. For numerous start-up ventures, a transaction where the business becomes owned by an existing business or another entrepreneur may be easier than going through the process of becoming a listed stock. Reliable financial information and clear ownership records make such transactions easy. Regulators should make sure that legitimate transactions take place while preventing abuses and making sure that public money is not stolen. They must also realize that some businesses are bound to fail no matter how hard everyone works.
The implementation of a new legal structure would be a sensible first step. What will happen next will be determined by how well the founders can arrange workable arrangements, how well the managers can develop the new companies, and how well the investors can turn their profits without interference. What will show whether the project is working will be whether the investors, seeing how things go, decide to invest in future venture funds in Pakistan.
Copyright Business Recorder, 2026
The author is an Associate Professor at PIDE. He can be reached at Email: ahmad.fraz@pide.org.pk