Survival Year: Pakistan’s Startup Scene in 2024

The Pakistani startup ecosystem, despite its burgeoning potential, has shown a mixed track record. While mirroring global trends with a high failure rate (around 90% within two years), the industry has garnered only $750 million in funding over its 15-year history, a figure significantly below its potential. This capital shortage hinders startups from scaling and achieving commercial success, with only a handful securing substantial funding.

Notably, only five or six startups have reached Series A funding, and a solitary one has secured Series B funding in the past 15 years, highlighting the challenges faced by Pakistani startups in attracting and securing necessary capital for growth.

Headwinds for Pakistani Startups in 2024

2024 has been a particularly challenging year for the Pakistani startup ecosystem. The economic downturn, coupled with a global slowdown in venture capital funding, has created a tough environment for startups to survive. Many startups have struggled to secure funding, leading to layoffs, downsizing, and, in some cases, complete closure.

The devaluation of the Pakistani rupee has further exacerbated the situation, increasing the cost of operations and making it even more difficult for startups to compete in the global market. While some resilient companies have managed to adapt and navigate these headwinds, the overall outlook for the Pakistani startup ecosystem remains uncertain.

Economic Challenges: A Hurdle to Growth

Unlike previous years, Pakistani startups have faced significant economic challenges in 2024. Rising inflation and currency fluctuations impacted operational costs, making it difficult for early-stage startups to scale rapidly.

Inflation and currency volatility raised operational costs, including raw materials, rent, and salaries. Additionally, fundraising became more stringent as global investors adopted a cautious approach due to economic uncertainty. Venture capital and other funding sources were harder to secure, forcing many startups to delay expansion plans or seek alternative funding routes.

While the third quarter of 2024 saw some promising funding rounds, totaling $15 million, this was lower than anticipated. The amount raised fell short of the optimism projected at the beginning of the year when expectations for startup growth and investment were high.

This shortfall highlighted the impact of global economic conditions on local investment climates. Despite these hurdles, some startups managed to secure significant investments, but overall, the economic challenges tempered the growth and expansion ambitions of many Pakistani startups in 2024.

Funding Highlights: A Mixed Bag

Despite the economic constraints, 2024 still witnessed some noteworthy funding rounds by Pakistani startups. Local investors, such as Sarmayacar and Zayn Capital, continued to play a crucial role in supporting early-stage ventures. Their contributions provided essential capital and confidence for new businesses navigating the challenging economic landscape.

International investors also showed interest in a few promising Pakistani startups. Venture capital firms like MENA Venture Capital and Singapore-based Golden Gate Ventures saw potential in the market and invested in various sectors. These investments underscored the global appeal of Pakistani startups and highlighted the potential for growth despite the broader economic challenges.

The combined efforts of local and international investors helped sustain the momentum of the startup ecosystem in Pakistan. While the total funding in 2024 did not meet the initial high expectations, these investments were crucial in keeping the entrepreneurial spirit alive and driving innovation forward. The ongoing support from both domestic and foreign investors indicated a resilient belief in the long-term potential of Pakistani startups, even amid economic uncertainties.

Sector Focus: Where the Money Flowed

Fintech remained the most attractive sector for investors in 2024, with digital payment platforms and alternative lending solutions attracting significant funding. Investors were particularly interested in startups offering innovative financial services that could increase financial inclusion and streamline transactions. This sector’s growth was driven by the increasing adoption of digital financial services among the Pakistani population.

Health tech companies leveraging telemedicine and AI for diagnostics also saw a rise in investor interest. These startups provided essential healthcare solutions, making medical services more accessible, especially in remote areas. The use of AI in diagnostics promised improved accuracy and efficiency in healthcare delivery, which attracted considerable attention from investors looking to support impactful ventures.

Edtech continued to receive funding as it catered to Pakistan’s growing education needs. Startups in this sector developed platforms and tools that enhanced remote learning and provided quality education resources to a broader audience. The demand for innovative educational solutions was particularly high due to the ongoing digital transformation in the education sector.

Sectors like AI and green energy witnessed increased activity, indicating a shift towards future-oriented solutions. AI startups explored various applications, from data analytics to automation, contributing to advancements across industries. Green energy startups focused on sustainable solutions, addressing the country’s energy challenges and aligning with global environmental goals.

A Few Success Stories

Not so several Pakistani startups emerged as success stories in 2024. But some have dug their flags in the industry effortlessly. Among them were e-commerce platforms like DealCart, which secured significant funding and expanded its product offerings. DealCart’s success was driven by its ability to cater to the diverse needs of Pakistani consumers, offering a wide range of products and a seamless shopping experience. The platform’s growth highlighted the increasing importance of e-commerce in the country.

Fintech startups like NayaPay, which provided digital payment solutions, also gained significant traction. NayaPay’s innovative approach to digital payments attracted a large user base and led to partnerships with major financial institutions. These collaborations helped to enhance the platform’s credibility and reach, making it a key player in Pakistan’s fintech landscape. DealCart and Nayapay, were also featured on Forbes ‘Asia 100 to Watch 2024’ list, marking a significant achievement for the country’s entrepreneurial landscape.

Zyp Technologies, a Pakistani electric mobility startup, has secured $1.5 million in Series Pre-A funding from Shorooq Partners and Indus Valley Capital. This investment enabled the company to expand its operations in Lahore, deploying 1000 electric motorcycles and establishing 60 battery swap stations. Zyp’s smart motorcycles are equipped with advanced features like fleet management, accident alerts, and anti-theft systems.

Furthermore, Qist Bazaar, a Pakistani BNPL startup, secured $3.2 million in Series A funding. Led by Indus Valley Capital, the investment will fuel product development, technology upgrades, and nationwide expansion. This funding highlights a rise in international VC interest in Pakistan’s growing fintech scene.

These success stories not only inspired aspiring entrepreneurs but also served as a testament to the growing maturity of the Pakistani startup ecosystem. They showed that with the right support and innovative solutions, Pakistani startups could compete on a global stage. But unfortunately, these were the only few startups that managed to make their mark in 2024.

Government Policies Choking Pakistani Startups

It is unfortunate that the limited progress made by Pakistan’s IT sector is primarily due to the enthusiasm and efforts of the private sector and the country’s young, tech-savvy population. The government has contributed very little to support the growing industry. Representatives from the current administration often talk about the industry’s potential and the great plans they have, but they lack a clear understanding of how to move it forward.

A key issue is that appointments to key positions are often made on a political basis rather than for technical expertise or experience. The current Minister of IT and Telecom exemplifies this, frequently making controversial statements about industry matters without a clear grasp of the issues at hand.

The challenges faced by startups in Pakistan are deeply rooted in structural and policy-related issues. For instance, the inconsistent taxation regime for the tech industry has been a significant deterrent to investment. For example, startups have struggled with abrupt policy changes, such as the imposition of a 15% withholding tax on freelance IT exports. Frequent internet shutdowns and bans on social media platforms disrupt business operations and isolate startups from global markets.

These measures have often been criticized for their negative economic impact, as they restrict the flow of information and limit opportunities for businesses reliant on digital platforms to reach customers and investors. The installation of controversial firewall and VPN blocking has also created cyber insecurity among individuals and businesses alike. These unexpected moves have forced many entrepreneurs to consider relocating to countries like the UAE or Singapore, where the tax policies are more stable and favorable for innovation​.

Moreover, while initiatives like National Incubation Centers (NICs) show promise, their impact is often diluted by a lack of follow-through at the policy level. For instance, startups often face delays in accessing essential resources, including funding and mentorship, due to bureaucratic inefficiencies​.

Despite these hurdles, Pakistan’s startups have shown resilience. Some companies have achieved significant success, but they serve as exceptions rather than the rule. Without substantial reforms, such as consistent policies, improved infrastructure, and reduced bureaucratic barriers, Pakistan risks stifling the potential of its burgeoning entrepreneurial ecosystem.