Pakistan Startup Ecosystem Appears to be Reviving in Q1 of 2023: Source

The startup ecosystem in Pakistan was badly affected in the last 2 quarters of the previous year, with a number of startups forced to shut down. This was because of the worsening economic conditions, the global recession, along with the LC ban. However, now there seems to be a sigh of relief. As per a report, if we compare the first quarter (Q1) of the calendar year 2023 to the previous quarter, startup funding in Pakistan surged by 55% to $23.1 million (October-December 2022). However, given that startups had brought in $172 million in the first quarter of 2022, funding fell significantly by 86% in comparison to the same period a year before.

After the first quarter of 2022, quarterly funding had decreased, reaching a low of $15 million in the final quarter of 2022. According to analysts, the negative trend is not just attributable to Pakistan’s economic woes, but also to global events as central banks, particularly the Federal Reserve, have been increasing interest rates.

Last month, Allen Kinsey Taylor, managing partner of Endeavor Catalyst, told a source that venture investors were more interested in Pakistan in 2021 than in 2023 due to the global climate. He stated that global interest rates had increased. In 2021, interest rates were close to zero, so venture capitalists invested in economies such as Pakistan, Egypt, and Nigeria searching for yield in the global economy. Yet, a risk-free rate in the current economy is 5-6%.

After a sluggish start to 2023 with only one agreement in January, six new deals were signed by the end of March, exhibiting minor indications of the resurgence in the startup environment. It is a positive step in the right direction because the startups today are the businesses of the future that can help rebuild the economy.

Startup Funding Trend is Evolving:

During the first quarter of 2023, Pakistani startups were able to attract seed and pre-seed funding. In this regard, Sarwat Khan for Alpha Beta Core said,

The country is experiencing an increase in investor confidence, with 23 venture capitalists participating in the investment rounds, 74% of which are foreign venture capitalists.

In the first quarter of 2022, Pakistan startup investment was directed towards late-stage businesses, with high-value deals in B2B categories such as Bazaar, Retailo, and Jugnu, averaging $15 million at Series A and B levels, she added. In contrast, this year’s trend thus far indicates increasing investor interest in funding early-stage startups. As a result, the average deal size for the quarter decreased to $3.3 million, as investors remained wary of larger investments in late-stage businesses.

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