Startup funding plummets by 95%

The startup ecosystem in Pakistan has experienced a drastic decline in funding during the second quarter of 2023, marking its worst performance since Q1FY2020. Data Darbar reports that funding plummeted to a mere $5.2 million, reflecting a staggering 95% decrease compared to the previous year and a 77.5% decrease compared to the previous quarter when funding amounted to $104.1 million and $23.1 million, respectively. With the number of deals remaining stagnant at 8, unchanged from the previous quarter but down by 65.2% compared to the previous year, these alarming figures shed light on the challenges faced by Pakistan’s startups in attracting investments.

The decline in funding can be attributed to various factors, including the macroeconomic crisis that Pakistan has been grappling with. The country’s looming threat of default has created an atmosphere of uncertainty, discouraging investors from making significant bets. However, recent developments, such as the finalisation of an International Monetary Fund (IMF) deal, offer some respite. The pending IMF agreement, subject to board approval, promises $3 billion in funding, providing hope for stabilising the economy.

Pakistan’s startup funding woes are not isolated, as the global venture funding landscape has also witnessed a slowdown during the same period. Crunchbase data reveals that global funding reached nearly $22 billion in May 2023, marking a substantial 44% decrease compared to May 2022. This cautious approach from investors reflects their response to the uncertain economic climate prevailing worldwide.

Speaking to the Express Tribune, analyst at Alpha Beta Core (ABC), Sarwat Khan highlights the global nature of the funding slowdown. She states, “The scenario in Pakistan is not completely in isolation. Notably, the global venture funding landscape has also seen a slowdown during the same period.” The decline in Pakistan’s startup funding aligns with the global trend. Major markets such as the US, the UK, and China have witnessed significant drops in both volume and value of VC funding deals. From January to April 2023, the US experienced a 44.3% decline in deal volume, while the UK and China saw decreases of 29.4% and 19%, respectively. The decline in value was even more pronounced, with reductions of 51%, 53.2%, and 44.3% for these markets, respectively.

The challenging macroeconomic situation in Pakistan has played a significant role in deterring potential investors. Khan explains, “Pakistan has endured what many consider its most challenging year yet, marked by the looming threat of default.” In such an uncertain environment, investors naturally shy away from making substantial bets.

With the country recently reaching staff-level agreement with the IMF for $3 billion of funding, pending board approval, the inflation rate in Pakistan, which had reached a record high of 38% showed signs of relief in June 2023. Khan points out that the annual inflation rate decreased to 29.4%, marking the first decline in seven months.

Published in The Express Tribune, July 11^th, 2023.

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