In 2023, startups across the globe suffered one of the lowest investment years in modern times, with venture funding in Asia dwindling to the lowest level since 2015, as reported by Crunchbase. In our mid-year report, international and local investors alike displayed optimism for the market stabilizing in 2024, encouraging investors to once more dispense the dry powder they’ve been cautiously guarding in recent years.
But now, as pre-seed and seed rounds also seem to shrink, will this optimism and resilience carry the startup ecosystem through the new year?
Internationally, Q4 of 2023 has seen the biggest dip in investment yet. In Pakistan, however, there’s been an uptick in startup funding, reinvigorating founders. According to Invest2Innovate, Q4 saw startups raise $38 million, a 150% growth in the fundraising amount and deal count when compared to Q4, 2022.
In part, this might be because of Pakistan’s status as an emerging economy, luring disillusioned international investors at the prospect of higher though riskier returns. This is showcased by Orbit Startups, a global venture capital firm that scales companies across emerging and frontier markets, having the highest deal count in Pakistan this year.
According to Atif Awan, Founder and MP at Indus Valley Capital, “Long-term opportunity for Pakistani startups remains as exciting as ever, despite the local challenges. It is one of the largest markets untapped by VC. Seed round valuations have reverted to $4-5M, the norm in 2019-2020 which is the right place to be… We see opportunities across many sectors and want to continue investing in Pakistan throughout the market cycle.”
Investors like Indus Valley Capital and Zayn VC continue to boost the ecosystem by exclusively investing in Pakistani startups.
Despite the hopeful increase in funding in Q4, it's hard to decisively declare whether this momentum will carry forward with Pakistan under continuous economic and political turmoil including but not limited to record high inflation, political arrests and rapid government handovers. In contrast, a lack of governmental support continues to be a major hindrance to the ecosystem.
“We need political stability and we need to create an environment ripe for investment,” said Muneeb Shaukat, Country Head of Global Financial Media, “There’s great lag in the system. It took me 12 months just to register my foreign investments company in Pakistan.”
In order to bridge this gap, the government, led by the Minister of IT, Dr. Umar Saif has launched the Pakistan Startup Fund, an equity-free capital to help startups close VC rounds, set to allocate Rs 2 billion per year.
Ali Najam, VP at Amaana Capital, commented “It’s going to provide a much-needed impetus to the market by improving the risk profile for early stage investments by subsiding investors’ entry cost. The impact though will largely depend on how successfully the plan is brought into action.”
As the global market undergoes a process of rebalancing, the Pakistani startup ecosystem emerges as a resilient player, buoyed by a notable surge in governmental support. This shift not only signifies a recovery from the challenges posed in the wake of the 2021 funding spike but also presents a unique opportunity for strategic investors.