Pakistan's startup ecosystem entered 2025 under a cloud of uncertainty, yet with signs of resilience beginning to surface. According to Invest2Innovate's 1QCY25 Deal Flow Update, just $196,000 was raised across three publicly disclosed deals. Yet this figure, modest as it is, marks an improvement over the complete funding drought of 1QCY24.
The prior year was particularly punishing total startup funding plummeted by 77 percent compared to 2022, with only $75.6 million raised across 37 disclosed deals. Global market contractions and Pakistan's macroeconomic turmoil—rampant inflation, a volatile rupee, and persistent political instability—hit the ecosystem hard, particularly at the early stage where pre-seed and seed rounds nearly vanished. In response, many founders downsized, paused fundraising efforts, or pivoted business models in a recalibration that continues into 2025.
In comparison to regional peers, Pakistan's funding landscape remains starkly underdeveloped. While its startups raised under $200,000 in 1QCY25, India secured $3.1 billion during the same period. Cumulatively, Pakistan has attracted less than $1 billion in venture capital since 2015, compared to India's $161 billion haul since 2014.
However, the potential for a rebound may be emerging. Investor sentiment was initially hesitant through the first quarter of 2025 as the country awaited clarity on the IMF's Extended Fund Facility. A breakthrough did arrive with the signing of a Staff Level Agreement securing $1 billion, followed by a second agreement for $1.3 billion in climate resilience funding.
These developments and the State Bank of Pakistan's decision to cut its policy rate to 12 percent offer hope. Although current interest rates remain too high to significantly boost high-risk investments, projections of further cuts could create a more accommodating environment later in the year.
While 2025 remains challenging for startup fundraising in Pakistan, the ecosystem sees pockets of growth through new funds, inclusion-focused programs, fintech innovation, and international expansion, indicating a resilient and adaptive entrepreneurial environment. Pakistani startups have increasingly turned to alternative financing models due to the constrained capital environment.
According to the latest quarterly deal flow update by i2i, some are leveraging impact investment vehicles aligned with sustainable development goals, while others are pursuing strategic partnerships with fintech and logistics players or eyeing regional expansion into the UAE and Saudi Arabia. Yet the rush for capital must be tempered by caution. I2i highlights this concern that raising funds on unfavorable terms or simply to survive may stall long-term viability.
It further points out that several startups have opted for strategic down rounds—lowering their valuations to extend the runway without compromising operational integrity. These down rounds, while reducing the company's valuation, can be a strategic move to ensure the company's survival and future growth.
Amid the broader turbulence, the insights from i2i also highlighted that there were modest signs of progress, particularly in gender diversity. The male-to-female ratio among funded startups stood at 2:1 in 1QCY25, an improvement over past quarter - signaling a slowly shifting narrative around female entrepreneurship in the tech space.
Despite persistent challenges—including underdeveloped domestic capital markets, regulatory bottlenecks, and macroeconomic fragility— the overall sentiment is that of guarded optimism for a recovery in late 2025. Improving fundamentals, easing interest rates, and growing interest from regional investors are expected to contribute to a more robust ecosystem.
But to unlock this potential, Pakistan must prioritize regulatory reforms, create incentives for local investment, and forge strategic international partnerships. According to i2i, the path forward remains rocky, but if there’s one theme that defines Pakistan’s startup space, it’s resilience—startups in the country have weathered tougher times and many are prepared to adapt once again.
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