How Laws Safeguard Tech Startups

Pakistan is producing some of the brightest minds and most innovative ideas, globally. The ready and cheap availability of a young and skilled population is second to none whilst the local dynamism, social cohesion and patriotism make for high-energy workplaces. The passion of tech entrepreneurs in Pakistan is noteworthy for constantly bringing innovations to the market. The only shortage that Pakistan’s tech sector has been facing is the lack of financial capital.

The tech sector of Pakistan requires 5 basic ingredients to create and thrive successful ventures which are (a) Knowledge Capital (b) Human Capital (c) Social Capital (d) Entrepreneurial Capital and (e) Financial Capital.

Instead of fixing the crisis of finance for startups, Pakistan’s government has maintained oppressive policies towards the technology sector in general and startups in particular. By contrast, the Governments of Israel, India, and Bangladesh turned their countries into mini superpowers by capitalizing on startups. Israel passed the R&D Law early on in 1984 to skyrocket tech startups. Startup India was a government initiative made possible by amendments in their Companies Act 2013 that brought unprecedented ease of business and compliance, along with tax breaks, that led to the likes of Google and Oracle investing billions of dollars. The Idea program of Bangladesh fostered startup education and culture in every university with the government actively funding hundreds of startups.

Recently Pakistan has taken baby steps by announcing Rs. 2 Billion for the development of Tech and a prize of 5% cashback for IT exports. There have also been minor tax cuts for IT companies but non for startups who need them most. There is to date no financial support from the Government and barely any access to knowledge networks and mentorships. The backbone of the tech policy is still the Digital policy of 2014 that is in dire need of an update. In such an apathetic policy environment the best way forward for Pakistani tech startups would be to apprise themselves of the local laws and ensure strict compliance with the same for these reasons.

  • Strong legal structures are a primary attraction for foreign and institutional investors who are used to seeing similar legal structures in their own countries. Solid agreements and compliant mechanisms drive up the valuation of companies by as much as 100% because the law firms advising the investors look favorably upon such startups. Any business, bank, or private investor would first look for well-drafted foundational documents before placing their bets on the company.
  • Ensuring quality compliance saves money from exploitative government authorities who misuse the smallest mistakes to extract massive sums. It is much cheaper to be safe than sorry because fixing problems cost ten times as much as preventing them.
  • Legal protection for shareholders through robust structures ensures that members of a company are protected by fraud and deception from other members who sometimes take advantage of their positions.
  • Protection of intellectual property allows the bright minds conceiving ideas the benefit of reaping the rewards rather than losing them to thieves.
  • Building better business partnerships in every professional relationship because good agreements make for a foundation of security and trust amongst business partners.

The last few months have seen huge investments being made into Pakistan’s tech sector making it a substantial source of FDI for Pakistan. Tech Startups make headlines every day as they break geographical boundaries and reach across multiple jurisdictions for rapid growth. Countless Pakistanis are standing at the brink of an explosion that can propel unprecedented development within the country and ensuring legal compliance will be a determining factor on who spearheads the progress.