The startup ecosystem of Pakistan has seen significant highs and lows over the last 5 years. Rising amid the VC funding rush in 2021 and 2022, the sector slipped into a lull in recent times – as far as VC funding is concerned. Overall, in a year of economic uncertainty and political instability, Pakistan’s startup ecosystem faced significant hurdles in 2023. Last launched in 2021, the i2i recently launched Pakistan Startup Ecosystem Report 2024, which provides a detailed overview of where the country’s entrepreneurial landscape stands today and what can be done to foster sustainable growth.

One of the most striking findings of the report is the sharp decline in startup funding. In 2023, startups in the country raised only $37 million, a stark contrast to $136 million in 2022. This drop reflects not just local issues but also global macroeconomic challenges that have dampened investor sentiment. Political uncertainty and economic instability within Pakistan have further compounded these struggles, making it difficult for startups to secure the capital they need to scale. Despite this decline, early-stage funding continues to dominate, while late-stage investments remain scarce. Interestingly, recently local investors participated in 97 percent of deals but contributed significantly less capital compared to international investors, signaling a shift in investor dynamics.

The e-commerce sector continues to lead the way, attracting $527 million in cumulative funding since 2015. Meanwhile, fintech has emerged as a strong contender, raising $277 million, driven by the rapid adoption of digital payment solutions and efforts to promote financial inclusion. The report pins hope to Pakistan’s youthful population—more than 60 percent under the age of 30—and increasing digital adoption.

While opportunities abound, the report identifies several systemic challenges as well that continue to hinder progress. Startups face reduced capital flows, especially for Series A and late-stage funding. It shows that securing financing has become increasingly difficult, with 80 percent of startups reporting challenges. Poor energy infrastructure, unreliable internet connectivity, and inefficient logistics networks increase operational costs and limit growth. Women-led startups struggle to raise funds, receiving disproportionately less investment compared to male-led ventures. The report also highlights valuation resets, where startups are shifting their focus toward profitability and cost efficiency, reflecting global trends in a post “growth-at-all-costs” era.

Nonetheless, the i2i report says that Pakistani startups have demonstrated remarkable resilience: many have adapted their business models to prioritize profitability, cost-cutting, and niche market exploration. This pragmatic approach reflects a maturity within the ecosystem that bodes well for future growth. Additionally, notable mergers and acquisitions (M&A), such as Cloudways’ $350 million exit, showcase the potential for strategic opportunities within Pakistan’s startup landscape, even amid funding slowdowns.

The report outlines key recommendations to address systemic challenges and unlock the ecosystem’s potential. For government bodies, there is a need to streamline regulations, improve tax incentives, and invest in critical infrastructure such as energy and digital connectivity. Support organizations should strengthen mentorship programs and build sustainable funding models to reduce reliance on donor funds. Academia must promote entrepreneurship education, foster industry-academia linkages, and support university incubation centers. The private sector can play a role by encouraging corporate partnerships, developing co-investment opportunities, and targeting industry-specific solutions. Investors are urged to increase local investor participation, address gender disparities in funding, and explore alternative financing options like blended finance and debt funding.

The Pakistan Startup Ecosystem Report 2024 paints a picture of both challenge and opportunity. While the road ahead is challenging, the spirit of Pakistan’s entrepreneurs offers hope. Their ability to adapt and innovate, even in the face of adversity, underscores the potential of the startup ecosystem to become a cornerstone of Pakistan’s economic transformation. The report also emphasizes the urgent need for investment in digital infrastructure. It highlights significant challenges related to internet connectivity and its impact on the country’s startup ecosystem as unreliable internet remains a persistent issue where inconsistent access limits the ability of startups to scale and deliver services effectively. Additionally, the high cost of internet services presents a further obstacle for startups that rely heavily on affordable and reliable connectivity for operations, marketing, and customer engagement. Although there has been some growth in telecom infrastructure, mobile internet penetration still lags behind regional peers, and the quality of service remains inconsistent. These connectivity challenges disproportionately affect startups in sectors such as e-commerce, fintech, and digital services, disrupting operations, delaying transactions, and increasing costs. Hopefully, the authorities realize the real cost of internet slowdowns and network restrictions—if not, they may soon learn it through the dwindling prospects of a tech-driven future.