Pakistan’s startup ecosystem is not as robust, with investors being less enthusiastic about funding new ventures led by young entrepreneurs. In 2023, Pakistani startups may face increased difficulties in securing funds due to a global investment slowdown, rising interest rates, and economic uncertainty within the country.
The funding for Pakistani startups saw a decline in the third quarter (July-Sept) of CY2022, with only $65.5 million raised compared to $177 million in the same period in 2021.
Syed Azfar Hussain, the Project Director of the National Incubation Centre (NIC) in Hyderabad, mentioned that, “The slowdown in funding for Pakistani startups was influenced by both the global economic conditions and unfavorable local circumstances. Startups did manage to secure decent funds in the first half of the year.”
Despite the global economic slowdown and the challenges posed by high business costs, Pakistan has remained an attractive market for investors interested in innovative business models, with total startup funding reaching $350 million by November 2022 according to Data Darbar.
TechShaw, a research source, indicated that investment in Pakistani startups increased slightly to $5 million or 1.4%, totaling $345 million by November 2022 compared to $340 million in a corresponding period the previous year. However, discrepancies in data exist due to the absence of a centralized government system to track such deals.
Although Pakistani startups attracted substantial investments in the first 11 months of 2022, the investment trend declined with each passing quarter due to uncertain macroeconomic conditions and the escalating political unrest within the country.
Various factors such as rising fuel prices, economic downturn, local instability, limited foreign direct investment, and difficulty in finding sponsors have significantly impacted the startup industry, leading to operational cutbacks, staff layoffs, and service reductions.
“The recent financial turmoil has forced SWVL to discontinue its intercity transportation services in major Pakistani cities. SWVL confirmed the cessation of these services in Multan, Faisalabad, Islamabad, Lahore, and Karachi,” stated sources.
Pakistani startups have been striving to adapt to the evolving economic landscape by streamlining their offerings, reducing workforce, and enhancing resilience to attract additional investments.
Following similar steps taken by Swvl and VavaCars, the bus company Airlift has also permanently halted its operations in Pakistan after transitioning to last-mile deliveries, further unsettling the already fragile startup sector in the nation.
Numerous startups struggled to secure funding or establish a sustainable revenue model, grappling with the repercussions of lockdowns and changing consumer behaviors. Additionally, mismanagement of funds or non-pandemic-related issues further contributed to their failures.
Another significant reason for startup failures in Pakistan is the concentration of fundraising in B2B or B2C e-commerce, fintech, and logistics sectors. This trend is common among emerging markets as digital adoption and expanding consumer demographics drive growth in these areas.
Investors often prefer proven business models from comparable countries to minimize risks. This familiarity with successful models from other markets makes investors more comfortable, as stated by Syed Azfar Hussain.
“Pakistan remains an appealing destination for both foreign and local investors willing to explore funding opportunities across various startup sectors. However, sluggish inflows from Venture Capitalists (VCs) were observed in the latter half of 2022 due to the global economic slowdown and domestic political turmoil, a trend likely to continue into the next year,” he highlighted.
“Startup founders must focus on consistent innovation, adopting technology, and implementing sound business practices to ensure sustainability and competitiveness in the local market,” he added.
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