The startup space in Pakistan, which was seen booming in 2021, had a fair share of ups and downs in 2022 as both domestic and global economies remained subdued despite a rapid drop in COVID cases. Nonetheless, the startup space has been progressing with increased funding and the number of deals. In 2022, the country raised close to $350 million in disclosed funding. As per Invest2innovate, this figure stands at $355 million across 57 deals, while Techshaw – a blog that explores the startup economy in Pakistan – shows $346+ million across 42 deals.
While the difference could be because of disclosed/undisclosed deals or the time lag, a trend that stands out is the sluggishness set in the VC funding. The growth started picking pace in 2019 and 2020, but the increase in 2021 was massive – funding for startups in the country grew by more than 5.5 times from the funding in 2021.
Techshaw highlights that the rise in deals in early 2022 was due to the time lag of 2-3 months for the round to be announced after it is closed. Quarter-on-quarter stats also show that funding started to taper in each progressive quarter. For example, 1QCY22 attracted almost half the financing in 2022 - $172 million; second and third-quarter CY22 funding declined by over 40 percent and 36 percent, respectively, while the fourth quarter funding plummeted by 77percent as per i2i’s recent startup recap.
The same can be seen in the number of deals that dropped from 22 in 1QCY22 to 15 in 2QCY22, 14 in 3QCY22, and 6 in the last quarter. Techshaw shows an even more vivid declining trend in monthly stats.
In terms of sectors that remained the top attractions for funding and deals included, e-commerce was the single most significant player, followed by Fintech. Transport & logistics and healthcare were also among the noticeable ones. Despite the higher share of the e-commerce sector, its deals and funding declined overall in 2022. However, there was growth in Fintech, and transport/logistics witnessed an increase in funding in 2022.
These trends also coincide with the global startup landscape, where recession kicked in post-COVID pandemic with the Russia-Ukraine war, commodity super cycle, and other inflationary pressures. The slowdown in the local startup ecosystem was fueled by depreciating domestic currency, rising inflation and interest rates, political unrest, and an economic downturn. These problems have multiplied, and 2023 is anticipated to be a more challenging year!