Driven by the Government of Pakistan's commitment to economic liberalization Pakistan is forecast to grow at around 7% per annum, exceeding the Asian average. Moreover, Pakistan's strategic geographic location makes it a trading and energy bridge for Asia and the Middle East.

So far, there are no tangible results or notable success stories of Venture Capital funds in the Pakistani venture capital market. The reason is because of underlying factors both on the demand and supply side that need to be addressed in order to make venture capital industry a success in Pakistan. Pakistan's economy has yet to reach its full potential and growth of the Venture Capital industry may help it reach this potential. The country's investment policies are generally recognized as some of the most favorable in the region. In short, Pakistan presents a number of investment opportunities that are supported by very favorable and rapidly improving conditions in the marketplace.

The concept of "venture capital" is well-established in developed countries, but far less so in Asia. CSF resembles a venture capital company (VCs) that has a fund (or sometimes several targeted funds) of their investors capital to invest in specific enterprises which have good market potential, usually in the very early start-up phase. In some respects, these VCs resemble small (and not so small) banks, but they differ from banks in not making loans which are repayable in full with interest, but in taking a share in the new enterprise. It is a high-risk, high-return investment. The VCF would typically invest $500,000 and expect after 2-5 years to exit the business, probably by a share float on a stock exchange realizing a return 10 times the initial investment. Furthermore the facility aims at setting up a VC Fund company with a paid up capital of US$ 50 million.

CSF will also support the Securities & Exchange Commission of Pakistan in its efforts to improve the legal framework surrounding Venture Capital.

•  Our Findings

So far we have identified the following findings that need immediate action:

• Insurance companies and Pension funds in Pakistan are not allowed to invest in high risk sectors such as the venture capital Industry.

• Minimum capital requirement to set a Fund Management company in Pakistan is US$ 4,200,000 compared to US$ 100,000 internationally.

• Annual renewal of licenses is required by the SECP for Fund Management companies.

• No 'practical' implementation of Intellectual Property Protection rights exists in Pakistan.

• Lack of 'business angel' networks that can act as a matching facility for funds and entrepreneurs.

Currently a Task Force for Venture Capital is being set up, which will be chaired by the Ministry of Finance and CSF will act as its Secretariat. It is expected to achieve the following objectives within one year:

• Strengthen the small and medium sized enterprise sector.

• Act as a Catalyst to Promote Venture Capital & Take SMEs To Higher Level of Growth.

• Identify Priority Areas for Policy Level Issues On Supply & Demand Side.

• Draft Policy Recommendations for Effective Operations of Venture Capital.

CSF will operate according to established principles of venture finance with investments targeted to specific start-up enterprises, or those existing enterprises where it is considered that a great potential for value-added and increased competitiveness. In return for a stake in the specific BU, CSF will catalyze and coordinate entrepreneurs with partners in the private and government sectors. Following the example of other venture capital companies, the CSF will not seek a permanent stake in its subsidiary enterprises, but will actively plan to remove itself once the venture is able to stand alone. Our experts have also identified priority sectors and key policy recommendations that will help boost the VC investment in Pakistan. For details of these please see the following papers

• Venture Capital in Pakistan.

• Venture Capital Action Agenda Situation Today and Opportunities for Tomorrow.