Funding attained by Pakistani startups on a quarterly basis fell to the lowest level in three years during April-June, with just eight deals over the three-month period.
During the quarter, startups attracted only $5.2 million, a decline of 95% year-on-year and 77.5% quarter-on-quarter.
Startup funding stood at $104.1 million during the second quarter of 2022 and $23.1 million in the first quarter of 2023, according to the statistics compiled by Data Darbar, a website that tracks investment flows into the country’s tech ecosystem.
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“The last time Pakistani startups attracted below $5.2 million was three years ago during the first quarter of 2020, when they got $5.025 million in 11 deals,” Mutaher Khan, co-founder of Data Darbar, told Business Recorder.
“The decline in startup funding is not surprising. Pakistan’s economy has gone through arguably its worst year with looming fear of default. In such an environment, most investors would naturally not be too excited about making bets,” he added.
However, the problem is not just with Pakistan. Startup funding has dropped around the globe, particularly in Asia.
“Fundraising across the world has been gloomy, particularly in Asia where venture capital investments slipped below pre-Covid levels sometime back and they have yet to recover,” Data Darbar’s report read. “Global data for the latest quarter is due to be released but Crunchbase reported that global startup funding fell 44% year-on-year to $22 billion in May 2023.”
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The average deal size also fell to just $743,000 in the outgoing quarter from $4.7 million the year before and the lowest since the first quarter of 2019.
Sector-wise, fintech was the most dominant during the quarter as it accounted for half of the deals, and $4 million of the disclosed funding.
In the first half of 2023, total startup funding stood at $28.3 million, 60% less compared to the July-December period when it was $70 million. The decline was far steeper, at 90%, compared to $276.9 million raised in the first half of 2022.
Deal count also fell substantially to 16, from 26 in July-December, and 46 during January-June period of the previous year. These are the lowest figures since the second half of 2020 by amount least number of deals since the second half of 2019.
“The next half (year) might fare slightly better than this outgoing one,” Alpha Beta Core CEO Khurram Schehzad told Business Recorder.
“The news of another $3 billion funding from the International Monetary Fund (IMF) will stabilise sentiment.
“However, there are liquidity issues around the globe. Venture capitalists don’t have as much liquidity. Startups that have good revenue and prospects to become profitable will get funding,” he added.
The seasoned tech sector investor and advisor added that there are people working on great ideas in Pakistan and low funding doesn’t mean that the startups ecosystem has issues.
“It’s just due to lack of liquidity on the back of surging interest rates. Startups need liquidity from venture capitals to scale which is achieved by burning capital. Lack of liquidity means venture capitalists can’t bet as much on startups as before.”
Schehzad said it will take over a year for the ecosystem to start attracting the same kind of funding as before.
Pakistan also needs to resolve its macroeconomic issues to make things viable for people to enhance investment in the country, he added.
“Pakistan’s tech ecosystem is also not as good as other countries. There’s a lack of digitisation. Mobile phones and laptops are expensive. The Internet is expensive. These things also need to be resolved among other major issues such as political instability to attract any type of investment in the country including startup funding,” he added.
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