The year 2021 has witnessed record levels of funding pouring into Pakistani startups. This has signalled a bright outlook for the economy. By the end of Q2 2021, Pakistani startups have amassed a whopping $85 million in funding.
The sentiment echoed by startup founders and industry experts is positive which is showcased in the funding obtained. Islamabad-based SadaPay raised $7.2 million, the largest seed round in the country. SadaPay offers a personal debit card and e-wallet which is still awaiting regulatory approval. Similarly, Silicon Valley-based Kleiner Perkins made its $17 million investment in Tajir, a B2B marketplace based in Lahore that connects small business owners with manufacturers and wholesalers.
DigiKhata, aimed at creating a financial ecosystem for the informal sector, raised $2 million in seed investment.
Pakistani startups have seen remarkable growth despite the Covid-19 pandemic. Instead, many startups were able to raise significant funding on the back of increased digitisation. The rapid development encouraged investors to invest in startups that were leveraging a broader shift to ‘online’. Companies that were able to sell themselves as ‘covid proof’ attracted higher interest from potential investors. This is evident by the boom seen in grocery delivery and B2B space as early as 2020, prominent ones of which accumulated millions of dollars in funding. While correlation might not equate causation, there is speculation that this increase resulted from people willing to minimize physical contact to limit exposure to the Covid-19.
There are also structural reasons for a boom in start up growth, funded by Venture Capitals. Pakistan’s technology sector has had a visible impact on this growth. The domination of smartphones and the internet in the daily lives of people has played an important role. With an estimated 100 million smartphones with broadband subscriptions and exceptional growth of 3500% in broadband subscriptions (source: Google-Kantar), the potential for ecommerce businesses to offer products and services is limitless.
Faraz Azhar, Industry Head, Performance, South Asia Frontier Markets, Google had stated back in August: “With half of its population on the internet – Pakistan is now online! This is the first time Google and Kantar released a study to understand more about Pakistan’s internet population. But it’s not only about people getting online, this research has uncovered new insights and behaviors that show how COVID is impacting online behaviour and the digital opportunities waiting to be unlocked.” Untapped market potential, rising population, and gaps left open by traditional businesses has meant that Pakistani startups have a unique opportunity to excel.
The combination of these factors has not only resulted in the rise of Pakistan focused Venture Capital funds like Indus Valley and Sarmayacar but has prompted financial services professionals situated abroad to enter the startup landscape in Pakistan. The story of Bazaar’s co-founder, Hamza Javaid, a former McKinsey consultant is similar. Bazaar, a B2B marketplace, raised 6.5 million $ in seed funding.
Pakistan continues to excel in technology exports, which amounted to $2.1 billion in the fiscal year ended June. However, there is deep seated fear amongst investors and the startup community about digitisation. While countries like India and China have propagated digitisation such as promoting fintech across industries, Pakistan still lacks behind in that department. A majority of Pakistanis still don’t have a bank account hence use of credit cards and online payment remains very low.
The vast majority still conducts transactions via cash. However, Reza Baqir led State Bank of Pakistan (SBP) is pursuing policies to digitise financial services in the country which can yield positive results in the short to medium term.
Kulsoom Lakhani, founder of i2i ventures, has displayed optimism in this regard. Noman Ahmed Said, CEO of SI solutions called for wide ranging and far reaching changes to promote creative ideas and startup mentality, as early as final projects & thesis submissions in university.
There also remains a gender gap in the level of funding raised by startups. While female founded startups have raised significant funding in early stages, they have been unable to raise funding in Series-A round. Consequently, Kulsoom Lakhani of i2i ventures is combating this by collaborating with the World Bank and providing tailored coaching & consulting for women led companies looking to raise capital.
All evidence points towards the fact that the time is ripe for startups to take a number of sectors in the economy by a storm. However, there remain challenges in terms of digitisation and overall lack of government support.