- Company says it will ensure all of its employees are 'sufficiently protected' with two months of payroll, setting up platform for job placement, and creating support systems for aspiring entrepreneurs
Less than two months after slashing its global headcount, Airlift Technologies, the darling of Pakistan's startup scene that was responsible for the country's largest single private funding round in history, announced it is shutting down operations permanently.
“While the global recession and recent downturn in capital markets has affected economic activity across the board, it has had a devastating impact on Airlift and rendered its shut-down inevitable,” it said in a statement posted on its LinkedIn page.
"On July 12, Airlift’s operations will shut down permanently. This has been an extremely taxing decision that impacts a large set of stakeholders and an emerging technology ecosystem."
News of the company reducing headcount back in May implied it was struggling, but the decision to wrap things up permanently seems to have taken place only during the previous week, according to the statement.
Airlift explained that it was planning a Series C1 financing round, in which First Round Capital, Indus Valley Capital, Buckley Ventures, 20VC and others had agreed to participate “with sizable checks”.
As recently as early July, it said it had “a clear path forward to close the round”.
However, “amidst rapidly deteriorating conditions in the global economy, several participants shared uncertainty in wire schedules and their disbursements” and ultimately, the round was unsuccessful.
On July 10, the '30-minute' grocery delivery company told customers to use their service for the Eid holidays. However, the app said: “Due to public holidays, Airlift’s services will not be available in your area over Eid.”
According to market experts, several factors have played a role in Airlift’s demise including the deteriorating state of the local economy, with record high inflation and petrol prices impacting not just the population’s purchasing power and ability to spend extra on quick delivery but also the company’s own costs and margins.
The popularity of q-commerce, which soared during Covid, has also taken a hit since SOPs have eased and people are less worried about stepping out of their homes.
Airlift explained in its statement that along with reducing headcount and shutting down all operations save for those in Karachi, Lahore and Islamabad, its restructuring strategy also included introducing higher prices and delivery fees.
Through these changes, “Airlift was able to achieve order-level profitability, maintain reasonable scale, and reduce financial burn by 66%,” it said, claiming that as of July, it was about three months away from operating profitability (i.e. positive cash flow from operations), and about 6-9 months from company-level profitability (i.e. free cash flow).
“With the above clarity, a complete shut-down was inevitable, Airlift could not risk leaving its employees unpaid or reneging from its commitments,” it said.
Airlift added that it will ensure that all of its employees are “sufficiently protected” – this includes supporting teammates with two months of payroll for July and August, setting up a platform for job placement, and creating support systems for entrepreneurs from within its team that may be interested in starting new ventures.
Back in May this year, Airlift Technologies, the startup that in August 2021 raised a record $85 million in a fundraising round, said it is slashing its global headcount by 31%, and pulling out of several markets both in and outside of Pakistan as it realigns its strategy amidst a global recession.
A rough estimate, based on the database it put up of its laid-off workforce now 'open to new roles', suggested more than half the cuts were in Pakistan.
This was quite an about-turn from a company that in its fund-raising announcement said it had lofty ambitions of creating 200,000 jobs in Pakistan within the next five years and wanted to set a new precedent to bring world-class investors to the country.
What does this mean for Pakistan’s startup scene?
Last year was a record one for Pakistani startups. The sector saw 81 deals worth $350 million, according to Invest2Innovate.
Airlift’s $85-million Series B financing round - the largest single private funding round in Pakistan’s history - made up almost 25% of the amount (the only money investors can now hope to get back will be from the sale of assets such as inventory and office equipment).
Back then, Airlift said it wanted to show that great technology and consumer products can be built in the country, and that this region has some of the best talent.
However, with its closure, questions are being raised on several startups and their viability.
Earlier, Salman Sattar, co-founder and CEO of e-commerce startup Bagallery, had told Business Recorder that “in general tech startups are not in trouble.”
"The startups who were spending keeping in mind that their next round will happen before July 2022 are the ones taking correction as they know fund rounds will be difficult for next 6 to 9 months so they are trying to ensure they have fuel to run for another 12 months.”
Hammad Amjad, SME trainer and business consultant, had told Business Recorder last month that startups in Pakistan often have a funding and growth-based business model akin to providing a subsidy to attract more consumers by either offering hefty discounts or taking on high marketing costs and “humungous” operational costs.
But he remained positive about the startup scene in Pakistan thanks to a constantly growing consumer base.
Airlift itself said in its statement that “as a pioneering technology startup in Pakistan that had established a new precedent, Airlift’s success was viewed as a milestone for a burgeoning technology ecosystem in emerging markets.
“We believe that the ecosystem will continue to thrive and that some of the most valuable technology companies in emerging markets are still yet to be started.”