The startup hiatus

It wasn’t mere hyperbole that Pakistan’s startup scene was booming before COVID-19 - not only in terms of increased number of businesses in various verticals, but also in terms of raising funding. According to Invest2innovate’s startup ecosystem report 2019, Pakistanis startups raised over $32 million in funding in 2019, versus $24.5 million in 2018. However, as everything came crashing down in the COVID-19 struck world, and so did the startups and businesses; from falling demand and operations to layoffs, and squeezed finances and investments the impact in of the pandemic in Pakistan is no different than what startups are going through around the world.

i2i’s Insights Lab conducted a survey in early April 2020 when the country was in lockdown. The survey was conducted in good 101 early-stage companies operating in Pakistan that showed that companies in the travel/e-tourism, e-commerce, mobility (transportation), and on-demand were some of the sectors hardest hit by the pandemic. During the lockdown, 49 percent of the startups suspended their services on a temporary basis, which included all 5 transportation startups, 83 percent of tourism/travel startups and 67 percent of on demand startups. On the other hand, startups that did well and did not suspend operations included businesses in the verticals like EdTech, HealthTech, and those operating in essential services.

The i2i survey also highlighted that majority of the startups had put their growth plans on hold and were saving on all the financial resources as they were hit by the pandemic. 52 percent of startups postponed their expansion plans, and 61 percent cancelled already scheduled hiring decisions. Moreover, the slowdown in startup activity also resulted in waning investment activity and fundraising efforts - half of the 101 respondents were facing delays in closing investment deals, while 37 percent hadn’t started raising investments. However, since coronavirus spread was just picking pace in the country, laying-off and pay cuts remained significantly low - 69 percent of the startups did not lay off any personnel or administer any pay cuts to their employees.

The situation seems to have only worsened as a more recent survey conducted by National Incubation Centre in 86 local startups released in early June show that 50 percent of the startups halted operation while 21 percent shut down completely with most prominent sectors being e-commerce, travel and tourism, and agriculture. the NIC survey also showed that 20 percent of the startups had to lay off workers. The survey also shows that investment climate that had picked up pre-COVID has started to deteriorate; 28 percent of startups claimed investors are backing off, while 22 percent of startups reported delays in transfer of funds. The cash situation of the startups has also gone downhill; where 64 percent of the startups in the i2i survey reported cash runway for 6 months or less, these were almost 90 percent startups in the NIC survey.

As businesses and economy face the wrath of COVID-19, it is inevitable that some startups will die out and some will survive the onslaught. In these precarious times, they are demanding government support in shape of loans on relaxed terms, cash injections, custom duties and tax exemptions etc. But they also need to do some reinventing in the post COVID world. Among the many recommendations, one that is common in the two surveys and seems crucial for surviving is diversifying and pivoting where possible. From revisiting the business model for sustainability to offering alternate products and services to expand portfolio, startups’ got to find opportunities in this crisis.