“Booming startup funding; VC interest burgeoning in Pakistan’s tech startups.” Such were the headlines back in 2021 when the startup landscape in the country was attracting record VC funding. During 2021 and 2022 startup landscape largely led by tech startups in terms of both funding and growth witnessed Increased venture capital interest, which brought noticeable funding to early-stage startups. However, with the economic distress of the country increasing post-2022 and the global tech industry also falling into a slump, startup funding, and deal activity took a blow in 2023-24.
2023 was a slower year than 2022 in terms of investment activity primarily due to uncertain macroeconomic environment and political unrest. As per i2i data, the startups in Pakistan raised $74 million in 2023 versus $350 million plus raised in 2022. The VC funding crunch has traveled into 2024 now. The global tech landscape and startup industry particularly led by the United States has been reeling from rightsizing, downsizing, layoffs, and consolidation – the effects of which have been felt across the globe including the funding crunch in Pakistan’s startup space. The budding tech startup sector and the entrepreneurs in Pakistan have been facing many challenges of late where the global funding crunch just adds to the indigenous problems like political uncertainty, economic volatility, and regulatory bottlenecks. Global venture funding has been the weakest since at least 2018.
The inherent weaknesses of the system along with the externalities worsened the funding situation for startups in Pakistan. According to i2i, fundraising by startups has hit historic lows with zero deals and zero fundraising in the first quarter of 2024 (Jan-Mar). This comes after two years of weak flows. Why is this news so unsettling? It’s the first time when there has been zero funding and deals for at least 9 years.
Though 2023 did see a significant decline in overall funding, it was still better than 2024. The SrartupBlink’s report, Startup Ecosystem Report 2023 mentions that Pakistani cities had a great year in 2023 with all cities showing growth. As the main startup hub, Karachi jumped 56 spots, and Lahore jumped 57 spots to be among the world’s top 250 cities. The report also highlights that while the country has seen improvement in digital infrastructure and legal framework, many areas still need more clarity including taxation, incentives for domestic investment, political climate, policy stability, absence of success stories, and availability of qualified and trained personnel.
Does this mean it’s over for the once-budding sector? The economic challenges of the country are far from over. The shutdowns and layoffs might become more frequent as the global VC market is also not looking bright – be it the US or Europe. From the government’s perspective, all hopes are pinned on the Pakistan Startup Fund (PSF). It recently announced PSF, particularly targeting to offset this challenging fundraising environment. Introduced to bolster venture capital investment in the startup ecosystem, the government has set aside Rs2 billion for the PSF annually.