Pakistani Startup Investments Rise to $178 million

The startup ecosystem in Pakistan is continuously growing with new ideas and innovative use of technology. 122 deals worth $178 million were made from 2015-2020 in Pakistani startups, according to the Deal Flow Tracker by Invest2Innovate (i2i).

The Deal Flow Tracker by Invest2Innovate showcases investments made in Pakistani startups from 2015 to 2020. It creates a database of details for over 140 startup deals that took place in the last six years, disaggregated by type of Investment, stage of investment, founder(s) gender and amount raised among other factors.

Number of Investments in Pakistan have been increasing since 2016, however, a decline was observed this year owing to the uncertainty in the business environment due to COVID-19.

However, Kalsoom Lakhani, the Founder and CEO of Invest2Innovate says that there is a lot of exciting activity happening in the investment landscape these days, especially in terms of local investors and women-led entrepreneurs.

“Deal flow is not a challenge in the market anymore like it might have been before,” Lakhani adds.

Female Entrepreneurs left behind in Startup Growth

Analysis of the data generated by i2i’s Deal Flow tracker shows that 75% of the startups had a male founder, while only 9% of the startups were founded by female entrepreneurs.

Kalsoom Lakhani comments that “75% of the investors didn’t see a difference in the quality between companies run by men and companies run or co-founded by women, but they just didn’t see enough women-led companies.” Hence, challenge exists in terms of the quantity of women-led businesses operating in Pakistan's startup ecosystem.

Lakhani also points out that a lot of women do not raise later stage capital and they tend to raise angel, pre-seed or seed investment. “We haven’t yet seen a Series A happen,” she adds. The Deal Flow Tracker data also shows that female-founded startups only made 2% of the total investment amount raised during 2015-20.

As rounds raised by female-founded startups are considerably smaller than those raised by male-founded and mixed-gender founded startups, a major gender gap exists in the startup ecosystem. This raises concerns about the efforts made to support and encourage female entrepreneurs in Pakistan.

Lakhani believes that a lot of opportunities are opening up for women entrepreneurs. Invest2Innovate is working on two major projects with the World Bank and other partners under the Women’s Entrepreneurial Finance Initiative. Moreover, other players such as Karandaaz, She Loves Tech and Standard Chartered also have initiatives to support women entrepreneurs.

She says “I think for us the biggest thing right now is to really work on how to support women in the capital raising process because there are a lot of reasons why women-led companies don't raise later funding - whether it means that there is some unconscious bias that exists or perhaps some women-led companies aren't venture style deals and there aren’t much options in the market beyond venture capital funds.”

Hence, there needs to be more diversity when it comes to the types of funding that exists in the market as well.

Rising Local Investment in Local Talent

Local investors fuelled the largest number of startup deals in Pakistan and most of the deals were made at the seed stage of investment. This indicates the willingness and ability of local investors to support and finance local innovations. However, international investors were able to make larger sizes of investments, despite having fewer deals with Pakistani startups.

Moreover, 59% of the startups that raised investment were associated with an incubator/accelerator, indicating the role incubators/accelerators play in connecting local Pakistani talent with prospective investors.

According to the i2i founder, even though local investment deals are less in value, most international deals tend to be a co-investment with a local investor because Pakistan’s investment landscape is tricky to navigate and it tends to be not very transparent.

“So a lot of outside investors are really looking to partner with local investors in order to find the best deals,” she says.

Where is this investment going?

Data from Invest2Innovate’s recent insights suggest that the highest number of deals were made for e-commerce startups. E-commerce startup deals added up to 30 deals during 2015-20, amounting to $76.6 million in investments.

In addition to this, e-commerce, mobility, edtech, fintech, healthtech and gaming particularly have made more deals through local VCs than any other sector.

i2i has been supporting startup communities in Pakistan’s growth markets since 2011. Its Deal Flow Tracker hopes to address the heightened levels of information asymmetry by empowering all stakeholders in the startup ecosystem, including entrepreneurs, investors (especially beginning investors), and support organizations with means to track trends, measure progress, devise solutions and predict future outcomes.

The Deal Flow Tracker is an open source, evolving source that will be updated as new deals and information is reported.