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Deep in the article the Investors names are revealed. You can find who they are. Investing $85 million and valuing a company $275 million in an economy of $275

Deep in the article the Investors names are revealed. You can find who they are. Investing $85 million and valuing a company $275 million in an economy of $275 billion. I cannot comprehend what the VCs were thinking, but if some who is seasoned in VC-land could chime, that would be helpful.

rwmj 4y ago
Did they only sell to Pakistan? If they did or could have sold into other markets then the size of the Pakistan economy doesn't seem that relevant.
- sremani 4y ago
  For an astute investor it matters even if global expansion is on cards in the future.
  - rwmj 4y ago
    I'm not a VC so I don't really know, but it seems that a valuation of 0.1% of the size of the economy of Pakistan isn't that relevant if the company could have sold into even just India or Arab countries, and would be completely irrelevant if they could eventually expand worldwide.
    - sremani 4y ago
      There are no natural advantages for Pakistani firm over other when it comes to global expansion. On top of it, this is a start-up with almost all operations in Pakistan. I am not VC either, but even I know that you have to size the market before making a valuation. If these investors baked in the international expansion in valuation, they got what they deserved.
- tptacek 4y ago
  Aa the article says, they planned to expand globally, and actually did expand into South Africa.
Someone 4y ago
I’m not seasoned in VC-land, but the fraction of income spent on food eaten at home is much higher in Pakistan than in rich western countries. It was almost half in 2012, versus about 7% in the USA (https://tribune.com.pk/story/744223/pakistanis-spend-nearly-half-of-their-income-on-food-report https://tribune.com.pk/story/744223/pakistanis-spend-nearly-...) With that, I think the math could be somewhat right, or at least made to look right. Let’s assume 30% spent on food, with this company eventually taking 10% of that. That’s 8 billion in revenues. With a 1% profit margin (profit margins are thin in this market), that would bring in 80 million a year in profits. That would easily be enough to value the company at 275 million. If you do the math more carefully, you likely will find dragons, though. Pakistani with low incomes will have more time than money, so they would never become your customers. So, that initial 30% will be lower, likely a lot. Also, it’s questionable whether the company would be able to grab that market without more investments. In the end it may have boiled down to “VCs have lots of money and no other places to use it than gambles like these”.

rwmj 4y ago

Did they only sell to Pakistan? If they did or could have sold into other markets then the size of the Pakistan economy doesn't seem that relevant.

sremani 4y ago
For an astute investor it matters even if global expansion is on cards in the future.
- rwmj 4y ago
  I'm not a VC so I don't really know, but it seems that a valuation of 0.1% of the size of the economy of Pakistan isn't that relevant if the company could have sold into even just India or Arab countries, and would be completely irrelevant if they could eventually expand worldwide.
  - sremani 4y ago
    There are no natural advantages for Pakistani firm over other when it comes to global expansion. On top of it, this is a start-up with almost all operations in Pakistan. I am not VC either, but even I know that you have to size the market before making a valuation. If these investors baked in the international expansion in valuation, they got what they deserved.
tptacek 4y ago
Aa the article says, they planned to expand globally, and actually did expand into South Africa.

Someone 4y ago

I’m not seasoned in VC-land, but the fraction of income spent on food eaten at home is much higher in Pakistan than in rich western countries. It was almost half in 2012, versus about 7% in the USA (https://tribune.com.pk/story/744223/pakistanis-spend-nearly-half-of-their-income-on-food-report https://tribune.com.pk/story/744223/pakistanis-spend-nearly-...) With that, I think the math could be somewhat right, or at least made to look right. Let’s assume 30% spent on food, with this company eventually taking 10% of that. That’s 8 billion in revenues. With a 1% profit margin (profit margins are thin in this market), that would bring in 80 million a year in profits. That would easily be enough to value the company at 275 million. If you do the math more carefully, you likely will find dragons, though. Pakistani with low incomes will have more time than money, so they would never become your customers. So, that initial 30% will be lower, likely a lot. Also, it’s questionable whether the company would be able to grab that market without more investments. In the end it may have boiled down to “VCs have lots of money and no other places to use it than gambles like these”.