THE party seems to have cooled considerably for the Pakistani start-up scene. With some of the world’s biggest technology companies taking massive hits to their valuations this year, capitalists no longer seem as keen to shower funds on up-and-coming ventures. In a sign that investors are clutching their purse strings ever tighter, start-ups in Pakistan managed to raise only $103.8m in the April-June quarter — a 40pc decline from the preceding quarter, when flows had touched $173m. The Pakistani start-up scene has recently been rattled by a series of disappointing developments. Some of the biggest names in the nascent industry have announced retrenchments and lay-offs to cope with industry headwinds. Companies that became household names as the economy boomed in recent years — Careem, Swvl, VavaCars, Airlift etc — have either rolled back services or even suspended operations, leaving customers in the lurch.
It is understandable why both proven and unproven ventures are facing challenges in raising funds. The Pakistani economy is headed into a period of painful course correction, which is likely to result in lower consumer spending on the type of value-added, lifestyle improvement services offered by many start-ups. Several of the biggest ventures had grown rapidly during the pandemic era — for example, grocery and food delivery start-ups, which benefited from lockdowns by offering users the convenience and safety of shopping from home. Such companies are now facing new questions regarding the sustainability of their growth model as the world adjusts to the post-lockdown realities. As mentioned in a report yesterday on our business pages, investors are now reportedly asking enterprises to hit their break-even point as soon as possible, instead of focusing solely on revenue mobilisation. This indicates a shift in investors’ priorities from wanting to see companies ‘grow at all costs’ to pushing them towards a ‘grow at reasonable cost’ model. Start-up funding is a risky undertaking, and with the cost of funding going up as the US and major global economies jack up interest rates, it has become riskier still. However, periods of adversity such as the one being faced right now are sometimes also a great opportunity for growing industries. Difficult conditions push entrepreneurs to work with more efficiency and adapt in order to survive against the odds. The Pakistani tech industry has great potential to create a mark on the global IT market, but it must first prove itself in this trial by fire.
Published in Dawn, July 2nd, 2022