Pakistan’s startups attracted a meagre $75.6 million in 2023, 77.2% lower year-on-year, as experts termed the drastic fall to the ‘normalising’ situation where high interest rates and a global tight-fisted environment took toll on fund-raising endeavours.

The amount was in stark contrast to the funds attracted in 2021 and 2022 when they stood at $365.8 million – the highest ever – and $332.4 million, respectively.

Experts said the decline in startup funding was not just restricted to Pakistan, attributing the fall to a global phenomenon amid rising interest rates as the world started to recover from the pandemic from 2021 onwards.

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Higher interest increases the opportunity cost of investing in startups. Simply put, investors tend to invest in much-less risky government and private interest-based instruments such as T-Bills and bonds.

According to data shared by Data Darbar, a website that tracks investment flows into the country’s tech ecosystem, there was funding across 37 deals. This was 47.9% lower on a yearly basis. The average ticket size also plunged to $2.4 million in 2023, down 60% over the year before.

Over half of the money came during the fourth quarter, which saw 15 investments worth $38.6 million.

Most of the startups that raised funding during the year – 21 of the 37 deals – were at seed stage, raising $46 million. Accelerator rounds were a distant second at 6 while their amount of $1.8 million was even further behind.

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Meanwhile, $19.2 million was deployed at Series A though $16.5 million came from Retailo’s bridge.

“This signifies the capital crunch at growth stage where deals aren’t either closing or investors aren’t following through on their commitments, as reportedly happened with Jugnu,” Mutaher Khan, co-founder of Data Darbar, told Business Recorder.

Sector-wise, e-commerce grabbed the largest chunk of startup funding at $23.95 million, continuing its dominance for another year.

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Yet again, Retailo’s round, given its size, pumped up the numbers. On the other hand, fintech dominated deal count at 7 ($19.6 million) while transport and logistics bagged $13.6 million across 6 deals.

“It was also the best year on record for female-founded startups which recorded funding of $10.5 million. This took their share in overall investment to 13.9% and well above the average of 1.34% between 2019-2022,” Khan said.

“On the other hand, female co-founded companies saw a decline in absolute dollar value to $11 million. However, it still represented 14.5% of the annual total amid a much lower denominator.”