In a bid to facilitate dwindling startup investment in the country, the interim government has formally launched the ‘Pakistan Startup Fund’ (PSF) under which the government will invest up to Rs2 billion a year in the sector.

“Today we launched the Pakistan Startup Fund (PSF) which will invest up to Rs2 billion every year in Pakistani startups,” said Dr Umar Saif, caretaker minister of IT & Telecom, and Science & Technology.

“The PSF is designed to help a startup raise its first external investment,” he added.

The caretaker minister shared that over $800 million had been invested in Pakistani startups in the last few years. “Some of these startups are certainly on a journey to become unicorns.”

“Pakistan is the fifth largest country in the country, every household has a smartphone. There is no reason why we won’t have them (unicorns),” said Dr Saif.

Last year in October, Dr Saif, in a conversation with Business Recorder on the sidelines of GITEX GLOBAL 2023, said the caretaker government is establishing a ‘Pakistan Startup Fund’, using revenue from IGNITE – which in turn is funded by a portion of the federal government’s telecom receipts.

“We will use IGNITE, which gets a portion of the telecom revenue and a few billion rupees go into it every year,” Dr Saif had told Business Recorder at the Dubai World Trade Centre.

“This funding will be converted into a ‘Pakistan Startup Fund’.”

Dr Saif back then said the government would then become the “last check of equity-free capital in a venture capital round”.

What is PSF?

Explaining the PSF, the caretaker minister, in a tweet post on Tuesday, said that the fund is structured as an equity-free capital to help close a VC (Venture Capital) round for a startup.

“If you are a startup in Pakistan and a foreign VC is evaluating your startup for a $1 million investment, the VC only needs to invest $700,000 — the Pakistan Startup Fund will give you a grant of $300,000 to help close the round,” Dr Saif wrote in a tweet post.

“We won’t take any equity/shares in your startup or a board position etc. PSF is designed to lower the risk for international investors to invest in Pakistani startups; once we have written you a cheque, we won’t hassle you at all .. betting on you and your VC investors to drive your success,” he added.

“With PSF we hope to create a value of at least Rs50 billion per year in the startup ecosystem in Pakistan.”

Startups dismal run in 2023

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.

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.