Just a year ago, I was invited to this fancy graduation day of a renowned incubation center in Islamabad. The event was top notch in terms of execution and networking opportunities it provided. The graduating startups were trying to impress the handful investors present at the event. During the course of these pitches, one thing caught my attention — a startup that mentioned their valuation to be $3M. One of the investors present, countered the startup’s valuation and inquired how they figured out this value? To my surprise, the founders were unable to answer. It should be noted here that this popular startup had gone through not one but two incubation programs and was still unable to tackle the question.
This led me to ponder that probably valuation, legal rights, company registration exercises are not part of the curriculum of local incubation centers or if they are, for the lack of insights, they are not considered important. Which is why, as a journalist, I often come across devastating stories of startups giving up the majority of their stake in seed and even angel funding rounds. Giving a major stake away in early funding rounds can prove to be problematic for startups when they are ready to scale up and raise further investments. Owing to these mistakes or yet unawareness, several startups have shut down before even getting on the high road of growth and scale.
It is important that current and upcoming startups understand their legal rights, equity, valuation, dilution and formal structure. Today, Invest2Innovate is announcing a toolkit for startup founders which will provide answers to all these questions. The toolkit, more of an informal legal handbook, is available publicly and can be downloaded free of cost. Think of the toolkit as a ‘101 legal guide for startups’. Anyone about to kickstart a startup or currently pursuing one should make time to read this guide in detail.
I believe there should be a constant collaboration between entrepreneurship programs in Pakistan especially in terms of information sharing. This guide can serve as a blueprint for other up and coming programs in the country. I have noticed that local entrepreneurship program are not very fond of sharing data-driven insights and guides for non-incubated startups. International incubators such as YCombinator are doing things differently by making the information available for all. Most recently, we have seen several such initiatives in Pakistan too. The previous year, Invest2Innovate, has also launched an Investor Toolkit and today the launch of this toolkit for startup founders is a testimony of their ambition to help the local ecosystem. Earlier this year, Social Innovation Lab, a social enterprise, also launched an ecosystem guide Beyond the Buzz.
What should you expect in Pakistan startup toolkit?
Answers to all the burning questions a young startup shall have:
- How and what kind of startup registration should you go for?
- What are different investment vehicles in Pakistan and which one is best for you?
- How can you protect your idea legally?
- How does vesting works? What is equity and how it is diluted?
- and many more legal queries …
The toolkit has taken a user-friendly approach to explain all the mechanisms for legal protection of a startup. In the coming days. I will go through the guide in detail and share my feedback with TechJuice community.