The amount of funds allocated to Pakistani startups in the first quarter of 2024 faces an unexpected crash. Pakistani startups received $0 in funding from any publicly confirmed deals after raising $75 million in 2023, as reported by Invest2Innovate. However, The first quarter of 2024 has been surprisingly optimistic for US startups. While global economic uncertainty lingered, US venture capital (VC) activity demonstrated resilience, with over $44.5 billion invested in startups.
There are several reasons behind the decline of funding for Pakistani startups, including the country’s political instability and poor economic conditions, leading to the termination of the funding processes during this period.
The International Monetary Fund (IMF) has played an essential role in stabilizing the macroeconomic conditions in Pakistan. Moreover, the government recently announced the Pakistan Startup Fund (PSF) with PKR 2 billion set aside by the government annually. According to Business Recorder, the fund is intended to support startups in raising their first external investment where it will contribute 30% of the expected funding, with 70% contributed by the VCs.
Startups actually play a critical role in revitalizing economies, particularly those that are teetering on the edge of default. They are usually at the forefront of innovation, attracting investment, creating wealth and thus building a strong economic foundation.
In 2023, Pakistani startups from areas such as fintech, e-commerce, and logistics became successful in attracting financing. Notable companies like Apollo Group, GoldFin, and EasyFresh collected significant amounts of funds which showed the investors’ support in technology based solutions during this time.
Considering the overall investment landscape, Q2 of 2024 looks more promising. Since the federal cabinet’s formation, the influx of foreign investments into capital markets has significantly increased to $38 million since February 8th of this year. This change shows that businesses are now considering alternative ways in which startups can raise funding. One possible substitute is debt financing which is less volatile and, hence, less risky than equity funds. The Board of Directors of International Finance Corporation approved debt financing to PTCL of up to $400 million for the acquisition of Telenor Pakistan Private Limited with the finalization of the workstreams to secure IFC financing on or before 31 July 2024. Other financing alternatives that are being considered by startups are neolenders, microloans, business partnerships, and bootstrapping.
On the other hand, the US market is about to witness a surge in funding. Although the rest of the world is waiting for encouraging news, the global investment landscape continues to be difficult for startups and entrepreneurs.
In its investor note, Zayn Capital stated:
“We have urged all of our portfolio companies to plan for a runway through Q2 2024, as those who survive will be the gateway for the next round of investments”
The lack of funding in the first quarter of 2024 is undoubtedly worrying. Startups in Pakistan are essential for innovation and revitalization of the economy. Hopefully, this decline is not permanent but rather, a temporary lull. Initiatives like the Pakistan Startup Fund (PSF) and the involvement of the International Monetary Fund (IMF) offer a glimmer of hope for future stability and investment.
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