Startups are the new common in today’s world where people have loads of different ideas in their mind. Our young generation has access to almost every kind of information through the internet and social media therefore, they tend to have an open mind about innovations and development in the world. By getting inspired by all those crazy ideas they move towards starting their own business and implementing the idea in their head. And Pakistani youth is not behind either. According to Pakistan’s consultancy firm, there were 83 new startups in Pakistan in the midst of the global pandemic.
Invest2Innovate Graphics on Startups in Pakistan
In 2021, Pakistani companies raised $350 million in 81 agreements, more than in the entire year of 2020 ($65 million). Bangladeshi businesses raised $166 million in 2021, whereas Nigerian startups raised more than $1 billion.
The funding landscape has shifted significantly with
- Startups raising significantly larger rounds at pre-seed & seed than before.
- Startups that raise subsequent rounds of funding (Airlift’s $85 million Series B is ideally not an aberration, but rather a sign of things to come).
- Sectors such as fintech are finally opening up, thanks to regulatory improvements implemented by the SBP and SECP that have allowed this field to flourish.
In fact, the top three sectors for 2021 are predictably e-commerce, fintech, and logistics, as these three industries complement each other in every market. Other regulatory improvements, such as the possibility for entrepreneurs to establish holding companies abroad, aided this expansion by lowering the risk barrier for funds wishing to invest in Pakistan for the first time. Funds such as 20VC, Kleiner Perkins, Tiger Global, and others entered the market in 2021.
Analysis of the Funding
The year 2021 is shaping up to be a watershed moment for Pakistani tech companies. Technology companies have already raised $278 million by the end of the third quarter of this year, more than triple the amount raised in the preceding five years combined. In terms of per capita, this is still barely over $1 per person, a far cry from neighboring India, where entrepreneurs drew $20 per person.
During the third quarter of 2021 (July-September), 17 agreements totaling $172.6 million were closed by startups. The biggest deals closed in the third quarter, according to Kalsoom Lakhani of i2i ventures, were:
- Airlift $85 million series B
- Bazaar is a $30 million series A film.
- QisstPay has raised $15 million in a seed round
E-commerce businesses received the most money ($117 million), followed by Fintech ($35 million) and trucking platforms ($13.6 million). Male-founded startups earned 46.5 percent of the funding, while female-founded startups received 1.7 percent, with the remaining funds going to startups with both male and female founders.
According to the Global Gender Gap Report, Pakistan has one of the greatest gender disparities in the world, ranking 153rd out of 156 nations.
Because much of it is unskilled or unpaid labor, female participation is often unaccounted for. Women in the formal workforce have less opportunities for advancement since their families feel uncomfortable with their leaving the house or traveling long distances. As a result, many people opt out of the labor or refuse to take on jobs that require more hours. However, there has been progress in terms of women having access to the internet. Women in metropolitan areas have been able to develop to become business owners thanks to entrepreneurship.
Trend of Technology Exports
Pakistan’s IT industry is seeing unparalleled growth. The country’s burgeoning human capital and increased investments in technology firms are fueling it. New rules have made it easier to start a business and given investors more security. With over 100 million cell phones and an equal number of internet users, the digital infrastructure has grown significantly.
Pakistan is experiencing a surge in venture capital streaming into technology businesses, thanks to its expanding Internet infrastructure and quickly growing user base. In 2021, Pakistani businesses have already raised more than $278 million in funding, surpassing the total amount raised by startups in Pakistan in their entire history.
Kalsoom Lakhani, the founder of Invest2Innovate and a general partner at its sister firm, i2iVentures, an early-stage investor, believes 2021 will be a record-breaking year, but that the momentum will be tested.
“What’s really important is for the ecosystem to be building overall health,” she told Al Jazeera, referring to startups and investors preparing for things like how to expand the talent pipeline to meet the needs of these fledgling businesses, or how to improve the policy and regulatory environment to help them grow. “While this momentum is great, these pillars must be strengthened in order to ensure the startup ecosystem’s sustainability and longevity, as well as its further expansion,” she said.
Lack of Investors
International angel investors outnumber local angel investors, with the number of international angel investors increasing from 5 in 2015 to 37 in 2021. In 2021, there were 11 local investors, up to 10 in 2018. Furthermore, local investor investments totaled $6.9 million, accounting for 1.9 percent of total funds raised at pre-seed and 21.8 percent at the seed. International investors, on the other hand, made 14 deals worth $147 million.
As we look forward to 2022, we recognize that we are still in the early stages of the startup landscape. While unicorn valuations are significant, exits are even more so for our ecosystem and industry as a whole. There is plenty to be said about the macroeconomic situation, but for now, here’s to a more prosperous 2022 for Pakistani startups.
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