Funding Dries Up: Pakistan’s Startup Ecosystem Suffers in Q3 2023

Pakistan’s Startup Ecosystem has faced a significant downturn in funding, with investments plummeting to a mere $6.8 million in the third quarter of 2023, spanning July to September. This figure reflects an alarming 87.7% year-on-year (YoY) reduction from the $55 million reported during the same period in the previous year.

This decline has led to a substantial contraction, with the cumulative funding for the first nine months of 2023 (9MCY23) plummeting by nearly 90% to a meagre $35.1 million.

Funding Dries Up: Pakistan’s Startup Ecosystem Suffers in Q3 2023

While there is a slight glimmer of hope with a 30.8% quarter-on-quarter (QoQ) increase, raising funding from $5.2 million in Q2, the overall landscape remains challenging.

The deal count also paints a sobering picture, recording just five deals during Q3, reflecting a 50% YoY decline and a 37.5% QoQ dip. In fact, the total number of deals for 9MCY23 stands at a mere 21, approximately equivalent to what was recorded in Q1 of 2022 alone.

One of the most striking indicators of the industry’s current state is the significant drop in the average ticket size, which has plummeted by 70.5% YoY to $1.36 million in Q3-2023, down from $4.26 million. Although there has been a slight uptick from the previous quarter’s $742,900, the decline remains substantial.

Breaking it down by rounds, the seed stage has emerged as the dominant stage, with five startups securing seed funding during Q3. In 9MCY23, seed funding accounted for the majority, representing 15 out of the 21 transactions, with edtech startup Taleemabad securing the largest share of seed funding at $2.6 million during the quarter.

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In terms of sectors, fintech has taken the lead both in terms of dollar amount, amassing $14 million, and the number of transactions, with a total of seven deals. Transportation and logistics rank second, securing $11.1 million across four transactions.

Among the investors, Indus Valley Capital stands out by completing two deals in the quarter, while Sarmayacar concluded one. On the other hand, Zayn VC, i2i Ventures, and Fatima Gobi did not publicly disclose any investments in Q3-2023, with each revealing only one investment in 9M2023.

Globally, venture capital investment experienced a significant dip, amounting to $60.5 billion in Q2-2023, reaching the lowest levels seen since the first quarter of 2018, pre-COVID.

The third quarter also witnessed the closure of Medznmore, one of the highest-funded startups, and Jugnu halted its core business operations. This year has seen a notable increase in startup closures, signalling the challenges faced by the ecosystem.

Despite these challenges, certain sectors like banking and the energy industry have managed to perform relatively well, capitalizing on Pakistan’s structural imbalances. However, the overall funding landscape for startups in Pakistan necessitates a strategic reevaluation of the ecosystem’s growth trajectory.