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The rise and fall of Airlift

Structural issues with VC funding explains why Airlift, despite receiving the largest funding last year, had to close

By ALI ASAD SABIR |
PUBLISHED July 24, 2022
KARACHI:

Pakistan experienced a surge in venture capital (VC) funding, with the peak occurring in 2021. Globally, funding is drying up with the goal of increasing profits. Airlift Technologies' reverse sailing and now shutting down is a perfect example of VC funding drying up in Pakistan. But this is not the case with decentralised autonomous organisations (DAO). Aside from DAO and crowd funding platforms, Pakistan does not have any crypto regulatory framework.

In August, Airlift raised $85 million in the country's largest Series B funding round, valued at $275 million, the highest for any Pakistani venture. That round was led by Harry Stebbings of 20VC and Josh Buckley of Buckley Ventures. Almost two months ago, Airlift was halting its operations and pulling out of several regions, MENA being one of them. But, recently, due to drying up of VC funding, Airlift decided to end its operations. It is important to understand the structural issues behind VC funding drying up that left Airlift with no option but to halt and eventually shut down its operations.

 

Fractional ownerships: low risk for startups

Funding is necessary to run a startup. When VCs lose interest in a startup, funding dries up. That is main the reason behind the failure of Airlift, one of the few startups that raised the highest amount in round B. Relying on just one source or a major portion of funding coming from one entity make a startup financially vulnerable. To eradicate the threat of complete financial ruin, fractional ownership could be a great idea for future startups.

It is important to understand the concept behind fractional ownership. The goal of a DAO is to create a forum for block chain entrepreneurs to seek investment for their initial ventures, a process that is decided by DAO members. Performance of enterprises that receive funding is evaluated at each stage, and funds are only released after the approval of the programme committee. Actions of DAO are defined by a set of hard-coded rules.

There are no leaders in these member-owned communities. A DAO is a self-governing cooperative that governs itself using block chain technology. Block chain networks are used to manage the group. A native token is typically created for a DAO and used by electors to vote on proposals. DAOs, a type of digitised crowd funding, have removed some of the constraints of the fundraising form. Because of its simplicity, it poses a threat to the existing crowd funding methods.

Some of the obstacles to crowd funding can be addressed by decentralized autonomous enterprises. This revolution was ready and open to everyone. The crypto currency market grew by leaps and bounds in 2021. Non-fungible tokens (NFTs), decentralised finance (DeFi), and game space have all become household terms, with the market steadily rising to more than three trillion dollars in November 2021. NFTs altered people's perceptions of art and how they acquired it.

 

Greater reach and low protocols

The low exposure structure of crowd funding is primarily responsible for the massive upward growth trends of digital crowd funding platforms. The primary reason is that all members of a team working on a project or a company share the risk. Platforms such as GoFundMe, Patreon, and Kickstarter have seen tremendous growth in recent years. One of the largest crowd funding platforms, GoFundMe, does not accept or process payments from China, Nigeria, Russia, Lebanon, Iran, Pakistan, and several other countries. Even though Nigeria has the largest economy in Africa and China has the second-largest economy in the world, residents of these countries are unable to access the world's largest crowd funding platform. These countries can easily invest in a DAO that makes use of block chain technology. That is the USP of block chain technology.

 

Global acceptance of DAO

DAOs are a relatively new concept that has finally found a footing globally. Because of the decentralised nature of crowd funding, DAOs have grown in popularity over time. As of April 2022, globally, there are approximately 6,000 DAOs with $10 billion in liquidity. DeFi revolutionized the way we borrow and lend money. Metaverse has created a parallel realm in which we could all live and work virtually. Play-to-earn (P2E) games reward players for doing something they enjoy.

DAOs such as PropTech have also received great attention. According to Deep DAO data, DAOs have over $10.5 billion in various repositories with over 1.7 million unit holders. But how exactly these companies work is still difficult for many to understand.

 

Will Pakistan’s retail investors participate in crowd funding platforms?

As cryptocurrency acknowledgement grows in Pakistan, it is hoped that this field will gain more recognition. In terms of implementing a digital platform, they are inversely related to one another. Investors will look for relatively undiscovered business territories. With multitudes of DAOs still in emergence and more starting on a regular basis, many people are wondering when and if the DAO bubble will burst. The so-called 80-20 rule may be applied. However, for Pakistan, it is a pipe dream, too good to be true.

“We have to separate a DAO from the fractional investment theme,” said Habibullah Khan, founder of Penumbra Digital. “A lot of clever products, services, and startups in the West take off from crowd funding. In Pakistan, this is only allowed for real estate using REITs. Crowd funding platforms are going to be critical for raising money, and they have a part to play in the innovation ecosystem. We need to have regulations to broaden that for the entire economy. This can be done through various channels and models like DAOs, but it should be done. We need regulations to make it happen.”

In Pakistan’s uncertain landscape, there is always resistance to accepting a new concept or framework. Given State Bank of Pakistan’s regulations and framework regarding fractional ownerships and digitalized currencies, even crypto is still a myth in Pakistan. “The startup ecosystem in Pakistan should not create a DAO for fractional startup investment,” said Ammar Habib Khan, chief risk officer at Karandaaz Pakistan. “There is literally no point; why bother converting cash into crypto and then creating a DAO when you can just give cash and invest in a startup? No point in adding another layer that doesn’t have any value.”

One of the many benefits of block chain technology is that it is censorship-proof, making all block chain-based apps immune to censorship. Nonetheless, it doesn’t make block chain prone to Pakistan’s investment ecosystem. A long road lies ahead.

 

Ali Asad Sabir is a freelance writer. All information and facts provided are the sole responsibility of the writ