Informal venture capital in emerging economies: a case of Pakistan

Venture capital in emerging economies is part of the shadow economy and consequently under-explored. The paper attempts to disentangle the hidden operations of informal venture capital (IVCs) in emerging economies such as Pakistan. Moreover, the study examines the impact and consequences of the un-documented economy, the role of IVCs and networks that give rise to the shadow economic systems. Using 21 semi-structured interviews, (1) we developed a conceptual framework to study the presence of IVCs; (2) the analysis suggests that IVCs fill the finance gap where formal financial institutions and government funding schemes failed to meet the needs of high-growth entrepreneurs; (3) IVCs have a significant presence in case of Pakistan and serve a vital role in promoting economic well-being; (4) the findings suggest that government-sponsored schemes give rise to favouritism and malpractices in the distribution of funds give rise to “Hybrid” IVCs operation; (5) finally, our results suggest rationalisation of IVCs promote sustainability and agenda for entrepreneurial growth. The findings have implications for policymakers to develop venture capital markets and facilitate the transition of IVCs to formal capital markets.