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I first wrote about Pakistan’s entrepreneurial potential for NextBillion back in January 2012, when the ecosystem was still relatively nascent. As the founder and CEO of Invest2Innovate, we were one of the first major players in the country, supporting startups through an annual startup accelerator, building a local angel investor network, and ultimately tapping into Pakistan’s “untapped potential.”

Fast forward nearly three years later, and the ecosystem is fairly unrecognizable. Today, entrepreneurship competitions, co-working spaces, university incubators and organizations are not just a rare occurrence but are becoming the norm. On any given weekend, a would-be or current Pakistani entrepreneur can attend an array of events and gatherings – from Google Developer or Business Group (GDG and GBG) meet-ups to local hackathons. Since 2011, Startup Weekend, TEDx, Startup Grind, and Lean Startup Machine have all launched local chapters in the country – further encouraging idea generation, collaboration and innovation. Just last month, participants in 17 cities around the world gathered for the Pakathon to design and launch products to solve Pakistan’s most pressing problems.

The increased entrepreneurial activity in Pakistan is not only exciting but also worth documenting. Last month, Invest2Innovate released the 2014 Pakistan Entrepreneurship Ecosystem Report, a comprehensive study commissioned by the Consultative Group to Assist the Poor (CGAP), that maps the players and stakeholders in the current environment and delves into the gaps and challenges entrepreneurs continue to face in Pakistan.

Our findings were optimistic, but still cautious. Despite the increased number of players in the ecosystem, a number of macro challenges persist for entrepreneurs – from complex and opaque policy regulations to the overall security environment and infrastructure. For example, the complex regulatory environment ultimately encourages criminal conduct and corruption in the business community, given that entrepreneurs will have to bend or break laws to keep their businesses running and be successful. As a result, Pakistan’s current environment criminalizes good actors rather than enabling them.

This environment is not only challenging for entrepreneurs, but also presents an obstacle for investors. There are few institutional funds in Pakistan, and the due diligence process for early-stage companies is expensive thanks to a number of factors, such as a lack of transparency, industry data and infrastructure. This translates to funds investing in later-stage companies, and results in a significant capital gap for startups in Pakistan.

While there are challenges for entrepreneurs in Pakistan, there are also solutions. In fact, Zahid Jamil, a leading lawyer in the country, recently told us at Invest2Innovate that policy reform of business regulations does not require legislation or millions of dollars, but just “simple administrative sign-offs.” What is needed is the political will to reform, and the federal push to have a long-term vision when it comes to long-term growth in the country. Ultimately, the Pakistani government can and should play a major role in encouraging entrepreneurship, innovation and investment in the country.

(The first and current class of entrepreneurs at the i2i accelerator. The author is pictured in the first row, second from the right).

There is also a major role incubators, accelerators, co-working spaces, competitions and other support organizations can play in building a more robust ecosystem in Pakistan. By coordinating efforts and building a strong value chain for entrepreneurs, support organizations can ensure that great startups don’t die on the vine. Even better, these groups can and are helping companies put measures in place to be more attractive and less risky for investors. For example, the Lahore Civic Hackathon in January 2014 (organized by Code for Pakistan) honored an innovative idea called Savareee, a ride sharing application similar to Sidecar and Lyft in the United States. Following the competition, the idea was then incubated at the Lahore University of Management Sciences (LUMS) new Centre for Entrepreneurship, where the co-founders received mentorship and enjoyed free space to build and test a prototype. Now positioned to go to market, Savaree has entered the i2i Accelerator, where we will focus on helping these entrepreneurs attain market fit and traction, and get them ready for investment.

Savaree is just one example of how support organizations can help a great idea come to fruition, particularly in a more challenging environment like Pakistan. Other success stories from Pakistan include Groopic, a startup born from a Startup Weekend at LUMS, which was incubated at Plan9 – the Punjab Information Technology Board (PITB)’s technology incubator. The startup’s managers then attended the Blackbox Connect program in Silicon Valley, and recently announced a seed investment round from Kima Ventures, a global angel investment fund. Markhor, which was also incubated at Plan9, is in the middle of an extremely successful Kickstarter campaign (and was plugged by renowned marketing thought leader Seth Godin). Popinjay, which was part of i2i’s first class of the Accelerator, recently launched their new line of high-quality handbags and are stocked around the world, including in large retail stores like Anthropologie.

The potential and talent from Pakistan is enormous – and while the ecosystem activity is exciting and encouraging, much needs to be done to improve the macro-level challenges. At i2i, we believe that a strong ecosystem is key in enabling incredible entrepreneurs. We hope this report will not only serve as a resource for those looking to understand the nuances of the entrepreneurial environment, but will also encourage the collaboration necessary to improve the space and put Pakistan in a positive spotlight.

Kalsoom Lakhani is the founder and CEO of Invest2Innovate. i2i supports early-stage entrepreneurs and the broader entrepreneurial ecosystem in developing markets, beginning in Pakistan.