Pakistan’s startup funding increased 55% to $23.1 million in the first quarter of calendar year 2023 compared to the previous three-month period (October-December 2022). However, in comparison to the same period of the previous year, funding declined by a significant 86% as startups had attracted $172 million in the first quarter of 2022.
Quarterly funding has been falling since the first three-month period of 2022 and even hit a low of $15 million by the last quarter of 2022.
According to experts, the downward trend is not only because of economic issues facing Pakistan but also because of global developments as central banks, especially the Federal Reserve, have been jacking up interest rates.
Endeavor Catalyst Managing Partner Allen Kinsey Taylor told Business Recorder last month that venture capitalists were more interested in Pakistan in 2021 compared to 2023 because of the global environment.
He said interest rates have gone up globally. In 2021, interest rates were nearly zero therefore the VCs were investing in markets like Pakistan, Egypt and Nigeria because they were looking for yield in the global economy.
However, in today’s environment, a rather risk-free rate is 5-6%.
According to statistics compiled by Data Darbar, a website that tracks investment flows into the country’s tech ecosystem, Pakistan’s startups raised $366 million in 2021.
The year 2022 started off well with an investment of $172 million in the first quarter however, the numbers dropped to $15 million in the last quarter. Cumulatively, the number came at $347 million which was 5% lower than the previous year.
2023 and funding
Following a slow start in 2023 with only one deal in January, the pace of funding grew as six new deals were inked till the end of March, indicating slight signs of revival in the startup ecosystem.
Startups in Pakistan have managed to attract investment at seed and pre-seed levels in the first quarter of 2023.
“The country is seeing a surge in investor confidence, with 23 venture capitalists participating in the funding rounds, out of which 74% are foreign VCs,” wrote Sarwat Khan in her report for Alpha Beta Core.
Pakistan startup funding was skewed towards late-stage startups, with high value deals in B2B segments such as Bazaar, Retailo, and Jugnu, having an average deal size as high as $15 million at Series A and B levels in the first quarter of 2022, she said.
In contrast, the trend so far this year shows a growing interest from investors to fund early-stage startups. Due to this, average deal size during the quarter was down to $3.3 million as investors remained cautious on bigger deals in late-stage startups.
Fintech remained the most favoured sector, sharing the stage with logistics among the top this quarter, along with e-commerce, edtech, and hospitality. The top two deals were AdalFi at $7.5 million and Trukkr at $6.4 million.
Alpha Beta Core CEO Khurram Schehzad told Business Recorder that the turmoil in the country has disrupted funding “otherwise Pakistan has great potential in the startup space and when the country comes out of this crisis, funding will flow in the country.”
However, until economic issues prevail in Pakistan, the startup space in the country will largely remain thirsty for funding, said Schehzad.