Over the past three decades, the world has seen an exponential increase in capital formation through the formation of idea-based businesses by young, crazy enthusiasts who dared to think differently, challenged the status quo with their ideas incredibly disruptive and made the impossible possible.
I’m referring to entrepreneurs like Gates, Jobs, Bezos, Zuckerberg, Page, Jack Ma, Musk and countless others – who have created businesses valued at trillions of dollars in addition to fundamentally changing the lives of the company. all of humanity.
Much of this revolution has happened thanks to the exponential technologies that have emerged, starting with a phenomenal and relentless increase in computing power, the connectivity of billions of people via the Internet and social media, and the endless amount of data available free of charge. These developments have produced an entrepreneurial culture of thoughtful thinking leading to a continuous transformation of conventional forms of business and lifestyle – a process that continually lowers costs, enhances the customer experience, and creates a world of abundance.
This culture spawns thousands of new entities called start-ups, based on innovative ideas from entrepreneurs who are constantly turning old practices into new and effective ways of solving some of the biggest problems facing humanity. In the process, the speed of wealth creation multiplies to unimaginable levels.
Let me illustrate how this system works from conceiving ideas, forming start-ups, some of them becoming unicorns (a unicorn is a private tech company valued at $ 1 billion or more) and their exit on the stock market (IPO), via the example of an innovative health insurance company that I met, formed by a few colleagues of my younger brother, a professional actuary based in San Francisco.
This company, Alignment Healthcare Inc, engaged in providing unique healthcare plans, products and services for seniors in the United States through a technology platform with 24/7 access at low cost, was conceived in 2013 by its founder and CEO John Kao based on an idea that came to him due to the personal dissatisfaction he felt with the fragmented healthcare system that existed while caring for his ailing mother . With a small team, he partnered with healthcare leaders from across the industry to create a new kind of patient-centric healthcare business that envisioned a connected approach to care and coverage ( hence the name “Alignment”), leveraging innovative technologies and best practices. to achieve better outcomes for patients and families.
The company has had remarkable success in growing its members / clients and revenue over the past seven years, reached nearly $ 1 billion in the past fiscal year, and achieved unicorn status there. about a year. Through an IPO in March 2021, it raised $ 390 million by selling just 14% of its shares at a price of $ 18 per share compared to the book value of just $ 0.02 per share, although the company remained in loss (net losses for CY 2020 and 2019 of $ 22 million and $ 44 million, respectively).
At the IPO price, the company’s market cap was $ 3.5 billion, which rose to $ 24 per share on May 25, 2021, with a reported market cap of $ 4.5 billion. This means that a seven-year-old loss-making company, which has just been listed on NASDAQ, has a higher market value than the combined market capitalization of the largest Pakistani company OGDCL ($ 2.5 billion), the most large HBL bank ($ 1.2 billion) and the Pakistan Stock Exchange ($ 085 billion). ).
This is just one example of how value is created in innovative, technology-based businesses virtually every day in the new world. The story of Amazon, which continued to suffer losses for several years after its inception – listed in 1997 with a market cap of around $ 300 million – has and has now reached a market cap of $ 1.6 trillion. dollars is no different. At present, there are around 600 known unicorns in the world with an overall valuation of $ 2,000 billion; most of them are based in the United States, China, Europe, India and Israel. There are hundreds of unicorns that have come off this list either through IPO / listing or merger / acquisition, whose values have mushroomed.
Today, eight of the ten largest companies are related to data and technology: Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Alibaba and Tesla, Tencent with an aggregate market capitalization of over $ 10,000 billion . The startup ecosystem and unicorn training is also growing in India, which boasts more than 50,000 startups and around 100 unicorns with a combined value of $ 240 billion, according to a report from the Credit Suisse Group.
Although we have seen some increase in this activity in terms of conferences and webinars, setting up of incubation centers and hundreds of start-ups established in Lahore, Islamabad and Karachi, relatively few of them have obtained significant funding or valuation. Global funding mobilized for start-ups, and most of it comes from venture capital (VC) firms outside Pakistan, has hovered between $ 50 million and $ 70 million per year for the past two years, which is far too low for the fifth largest country in the world. Compared to this, the level of funding in India through PE / VC activity has remained around $ 10 billion per year.
So far, although there have been few significant entities like Afiniti, Careem & KeepTruckin with Pakistani founders that have achieved a valuation of over $ 1 billion, not a single unicorn has been produced. in the Pakistani ecosystem or any large publicly traded company. Obviously, Pakistan is seriously behind most of the world in the new economy. In terms of India-Pakistan comparison, in the year 2000 India’s economy was five times the size of Pakistan’s. Over the past 20 years, this equation has changed dramatically as the Indian economy, with its current GDP of around $ 3 trillion, is now more than 10 times the Pakistani economy.
The bad news is that this equation is continually deteriorating at a very rapid rate, because in the new ecosystem of technological innovation, Pakistan is only a small fraction of India. In a following article, I will discuss in more detail why Pakistan’s share remains negligible in the new economy and what needs to be done to improve its scale and dynamism.
The author is a former managing partner of a leading professional services firm and has done extensive work on governance in the public and private sectors.