Startups had attracted $172 million in the first quarter of 2022, but funding fell significantly (86%) from the same period the year before.
When compared to the prior three months (October-December 2022), startup funding of Pakistan rose by 55% to $23.1 million in the first quarter of 2023.
Startups had attracted $172 million in the first quarter of 2022, but funding fell significantly (86%) from the same period the year before. Since the first three months of 2022, quarterly funding has been declining, reaching a low of $15 million by the fourth quarter of that year.
Experts contend that the downward trend is due to both domestic economic problems in Pakistan as well as recent global events, including the Federal Reserve’s recent increase in interest rates by central banks.
Due to the current global economic climate, venture capitalists will be more interested in Pakistan in 2021 than they will be in 2023, according to Endeavor Catalyst Managing Partner Allen Kinsey Taylor. He claimed that interest rates had increased everywhere.
Interest rates were almost zero in 2021, so investors seeking yield in the global economy turned to countries like Pakistan, Egypt, and Nigeria. However, a relatively risk-free rate in the current environment is 5-6%.
Pakistan startups raised $366 million in 2021, according to data compiled by Data Darbar, a website that tracks investment flows into the nation’s tech ecosystem.
The year 2022 got off to a good start with an investment of $172 million in the first quarter, but the figures fell to $15 million in the following three months. The total came to $347 million, which was $3 million less than the previous year.
2023 got off to a slow start with just one deal signed in January, but by the end of March, there had been six new deals signed, suggesting a slight revival in the startup ecosystem. In the first quarter of 2023, startups in Pakistan were successful in attracting investment at the seed and pre-seed levels.
According to Sarwat Khan’s report for Alpha Beta Core, “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.”
With high value deals in B2B sectors like 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, Pakistan startup funding was skewed towards late-stage startups, according to her.
On the other hand, this year’s pattern thus far reveals a rising level of investor interest in financing early-stage startups. Due to investors’ continued caution with larger deals in late-stage startups, the average deal size during the quarter decreased to $3.3 million as a result.
The most popular industry this quarter was still fintech, which was joined at the top by logistics, e-commerce, edtech, and hospitality. AdalFi ($7.5 million) and Trukkr ($6.4 million) were the top two deals.
The CEO of Alpha Beta Core, Khurram Schehzad, told media that the unrest in the nation has hampered funding because “otherwise Pakistan has great potential in the startup space, and funding will flow in the country when the country comes out of this crisis.”
The startup sector in Pakistan will, however, continue to be in great need of funding until the country’s economic problems are resolved, according to Schehzad.