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About three years ago, the tech startup scene in Pakistan was so grim that investments were almost unheard of. There was hardly any incubator to mould and encourage budding talent.

But the scene is gradually changing. From just two incubators in 2012, the country has grown to house more than 50 incubators, even though funding activity is yet to pick up pace.

Karachi-based DotZero Ventures is working towards the mission of making Pakistan a major startup destination. This co-working space-cum-angel fund has already backed half-a-dozen early-stage tech ventures.

e27 met with Farzal Dojki, Co-founder of DotZero Ventures, to better understand Pakistan’s startup ecosystem.

Here are the edited excerpts:

What is DotZero Ventures all about? Apart from a co-working space, what else do you provide startups in Pakistan?

DotZero is a curated co-working space, a project of our not-for-profit called Foundation for Information Technology which I set up in 2013.

Over the past two years, we have partnered with 12 organisations such as Founder Institute, TiE and OPEN, conducted approximately 100 events, graduated 50 companies that raised US$20 million in early-stage funding, and created 250 engineering jobs. Overall, it was a great success as the first privately-run incubator of Pakistan.

DotZero Co-founder Farzal Dojki

DotZero Co-founder Farzal Dojki

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At any given time, 10 to 15 highly innovative founders and companies work out of DotZero with over 100 employees.

In the summer of 2015, our Board and Advisors decided to take the next step of the journey — beyond office space, mentoring and networking – and decided to start investing in pre- and early- revenue startups: Hence DotZero Ventures [was born]. It is an angel fund that has so far invested in six companies.

We offer investment, day-to-day assistance, shared facility and shared services (software, corporate affairs and digital marketing) to startups.

How many cities are you currently operating?

Our passion is to work alongside entrepreneurs to convert their pilots into industry-leading companies. We’re located in Karachi, but we invest in companies across Pakistan, with two of our current investments outside Karachi.

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What kind of startups do you provide the co-working space to — only tech startups?

Our criteria for admission to DotZero is innovation and impact. Technology is a big part of even non-tech DotZero startups. For example, those in the spaces of solar lights and content publishing.

Can you explain the working model?

For the curated co-working space, we are an NGO that aims to be sustainable. We raised seed money of US$150,000 to launch it, but we have been cash-flow positive for over two years. Half our space is given out to late-stage companies that pay us a service fee. The fee from these companies subsidises the space for early-stage companies, students and other non-profits.

DotZero's co-working space in Karachi

DotZero’s co-working space in Karachi

For the angel fund, we make investments against equity but have recently committed to convertible notes.

How many startups can you accommodate at a time?

At DotZero, we have space for about 125 engineers, 4 conference rooms and a 60 seat events facility. Our second facility is in the setup phase, which will be ready by October 2015. It will have space for another 100 engineers.

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Who are the people behind DotZero?

As I mentioned, DotZero is an early-stage angel fund, built by founders for founders.

The NGO was set up by myself, Atif Azim, Imran Moinuddin and Yusuf Jan. For our angel fund, we added three more people from the industry – Nadeem Elahi, Suhail Younus and Zahid Haleem.

Working with entrepreneurs and new business ideas has been a lifelong passion for us. Pakistan presents a large pool of excellent talent and technical skills and we feel the time is just right for us to make a mark, with technology being the great enabler that will break entry barriers across a wide variety of sectors in the country.

What is the size of the fund?

The investment activity is very new in our region, and we haven’t set any boundaries. We are looking for opportunities and we have enough funds and pledges to invest in 30 companies over three years.

When our portfolio startups are in need of Series A funding, we will evaluate if there are partners whom we can work with, or we have to fill that gap in the supply chain by ourselves.

What is your average investment size. Is it equity funding? What kind of startups do you partner with?

We don’t have a fixed investment size. Yes, all six of our investments have been equity investments, but we’ve recently signed convertible notes with the Karachi chapter of Founder Institute and offered it to other incubators and accelerators.

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At the moment, we are open to any Internet-based idea that has the potential to become a billion Pakistan rupee revenue business in five years.

We will also look at impact investments (patient capital) next year when we have a larger pool of funds to invest from.

How is the startup funding ecosystem evolving in Pakistan?

Three years ago, there were only two incubators in the country and the word ‘startup’ was limited to business plan competitions. Compare that to over 50 incubators and hundreds of funded startups now.

Even just six months ago, before the launch of DotZero, angel investors used to demand up to 85 per cent equity in startups. After our launch, the same investors are now asking for 40 per cent of equity, and we hope the pipeline we are building keeps increasing the equation in favour of the founders.

We understand that the VC funding ecosystem in the country is still in its infancy. Are the government and private sector doing something to change this?

I think the private money will follow once the seed-stage companies funded by the likes of DotZero have proven themselves.

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Which are the current hottest tech verticals in the country? Can you share the names of a few hot startups in Pakistan?

E-commerce is definitely the hottest. For me, e-commerce also includes services such as food delivery and car maintenance.

In the software space, we are seeing startups in the SaaS space solving traditional problems like accounting, ERP, school management, human resource management systems, hosted e-commerce. There aren’t too many investments happening yet, but this is an area of interest for us.

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