Pakistan’s startup funding has seen a slight increase after a downward trajectory for the last four quarters, with $23.1 million raised in Q1-2023, marking a 55% increase from the previous quarter, according to a report by ICT analyst at Alpha Beta Core, Sarwat Khan. The startup ecosystem is showing signs of revival, with six new deals in the following months after a slow start with only one deal in January.
Speaking to the Express Tribune, ICT analyst Waqas Ghani Kukaswadia said, “Although global economic activity has visibly stalled, investors remain cautiously optimistic in Pakistan. Businesses may see lower valuations, smaller round sizes, and fewer transactions. Entrepreneurs will now clearly have to demonstrate to investors that their company is worth investing in.”
Investor confidence on the rise
According to Sarwat Khan, despite the economic challenges, investors continue to show interest in the country’s startups, with all the deals in Seed and Pre-Seed levels. There has also been a surge in investor confidence, with 23 venture capitals (VCs) participating in the funding rounds, of which 74% are foreign VCs.
There was also an uptick in deal sizes as both the average and median levels posted some recovery and reached $3.85 million and $3.25 million, according to Data Darbar, respectively. This is one of the lowest gaps between average and median, which had widened significantly during the period of capital frenzy.
Early-stage startups flourish
During Q1-2022, Pakistan’s startup funding was skewed towards later-stage startups, with high-value deals in the business-to-business (B2B) segments such as Bazaar, Retailo and Jugnu. However, this year shows growing interest from investors in funding early-stage startups, indicating their willingness to take risks associated with investing in new startups.
Most of the money in 1Q23 went towards transport and logistics startups, which raised $10.1 million across 2 deals, according to Data Darba. The sector’s share in overall funding had declined from the highs of 2019, when it made up almost three-fourths of the total.
Fintech remains the most favourite sector, sharing the stage with logistics, e-commerce, edtech, and hospitality following closely behind, according to the Alpha Beta Core report. The top two deals were AdalFi at $7.5 million and Trukkr at $6.4 million. Transport and logistics startups received the most funding, with $10.1 million across 2 deals.
According to Data Darbar, six of the eight deals in Q1-2023 were at seed stage and accounted for the entirety of disclosed funding, with the pre-seed and accelerator rounds never disclosed and thus not reflected in the amount.
“Despite the external challenges faced by the startup ecosystem in Pakistan, there remains a strong sense of perseverance and resilience,” said Khan, adding that, “Going forward, founders must adapt to the changing landscape, manage their cash burn carefully, and focus on profitability to attract investors.”
Looking ahead, experts expect the startup ecosystem in Pakistan to continue to progress and pick up pace as the global economy stabilises in the latter half of 2023 and begins to recover in 2024. According to Khan, Pakistan is considered a frontier market that is heading towards the emerging market, owing to its young population, growing middle class, and rate of urbanization and population growth.
However, as compared to global quantum, Pakistan’s quantum is always small funding size-wise, said ICT analyst at Topline Securities, Nasheed Malik Textile. Pakistani companies have witnessed downsized valuations, even listed companies. Investors have given them investment on cheap valuations, which is a good thing in the long run, he added.
Pakistan’s emerging market status presents a long-term opportunity for investors in the startup and venture capital sector. According to experts, this sector regards long-term opportunities more than any other sector.
Published in The Express Tribune, April 2nd, 2023.
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