Fixing the Foundation — Rebuilding Capital Formation and Investor Confidence in Pakistan’s Startup Economy

This policy paper, titled Fixing the Foundation — Rebuilding Capital Formation and Investor Confidence in Pakistan’s Startup Economy, has been developed by The Pakistan Business Council (PBC) in collaboration with the National Science and Technology Park (NSTP) at NUST University. It falls under the “Make More/Make Better” pillar of PBC’s broader “Make-in-Pakistan” advocacy thrust. The paper addresses a critical but underexplored issue: the structural breakdown of capital formation in Pakistan’s startup ecosystem.

While startups in Pakistan have demonstrated entrepreneurial resilience and attracted foreign interest, their long-term growth is threatened by chronic undercapitalization, regulatory uncertainty, and an absence of credible exit pathways. Drawing on stakeholder interviews, policy analysis, and international models, the paper offers a diagnostic of the capital formation environment—how capital is raised, structured, and recycled—and why it has failed to take root in a sustainable way.

Key barriers explored include the near-total absence of domestic institutional participation, limited legal structures for pooled capital, procedural friction between regulatory bodies, investor trust deficits, and a missing mergers and acquisitions (M&A) and public exit landscape. The paper examines why family offices, banks, corporates, and pension funds have remained passive, and why attempts at regulatory facilitation have failed to convert legal allowances into operational clarity.

The paper also evaluates the promise and limitations of the Pakistan Startup Fund (PSF), arguing for its integration into a larger fund-of-funds architecture. It presents a set of actionable policy recommendations to activate domestic capital, streamline regulatory processes, restore investor confidence, and enable meaningful exits through IPO and M&A reforms.

At its core, the paper contends that the challenge of capital formation for startups is not niche—it reflects broader investment bottlenecks in Pakistan’s economy. Fixing it is essential for inclusive innovation and economic competitiveness.

The PBC is a private sector, not-for-profit business advocacy platform set up in 2005 by 14 (now 100) of Pakistan’s largest businesses. PBC’s evidence-based policy research supports reforms that enhance Pakistan’s economic potential, industrial competitiveness, and ability to generate employment and exports.