KARACHI: Hospitality startup Lokal has held a pre-seed round of funding at a valuation of $10 million, a company official told Dawn in a recent interview.

Claiming to be the country’s first chain of budget hotel rooms, the startup has raised an undisclosed amount in the funding round led by UK-based equity funding platform Wahed X along with a number of angel investors from Silicon Valley and the United Arab Emirates.

“We’re creating a network of standardised budget hotels… Whether you’re in Karachi or Murree or Kashmir, the idea is that the room and all that’s inside it — from the paint on walls to utensils in the bathroom — will be standardised,” said co-founder Khurram Kidwai.

The tourism and hotel market in Pakistan was worth $20 billion or 6.6 per cent of GDP in 2020, according to research firm Mordor Intelligence.

Its contribution to GDP in comparable economies is around 10pc, which shows the segment is currently “supremely underdeveloped,” according to Mr Kidwai.

“Everything is being managed by technology and artificial intelligence, which makes it possible for us to sit in Karachi and be able to look at all our rooms and conditions,” he said.

Statistics compiled by Data Darbar, a website that tracks investment flows into the country’s tech ecosystem, show startups raised a total funding of $347.4 million in 70 deals during 2022, down 5pc from a year ago.

Pakistan’s startup ecosystem has been in financial turmoil. Global investors are increasingly looking for profits while turning their focus away from a growth-at-any-cost strategy.

Founded in 2020, the company has already hit breakeven. “Our margins are in high double digits. The business is able to fuel its growth. So we raised only what we needed to expand,” said Mr Kidwai while explaining the reason for not disclosing the funding size.

The amount is “small” relative to the prevailing practice in the startup ecosystem where firms publicise a high number by selling up to 40pc of the company at an initial stage, he said.

“We didn’t want to give away a large stake,” he said, emphasising that the valuation of $10m is twice the usual price tag that Pakistan-origin startups attract at the pre-seed stage.

Lokal has on-boarded 12 “properties” in seven cities so far. It wants to on-board around 1,000 rooms by the end of 2023. With a customer base of 50,000, it has served more than 10,000 nights over the two years of its operations. Its rooms are usually priced in the range of $30-$45 a night, which is 25-50pc of the per-night rate charged by luxury hotel chains.

Unlike some of the big names in the global hospitality business, Lokal sticks to a profit-sharing model with its partner hotels instead of committing guaranteed rentals — a practice that protected it from the rental crisis that hit most hospitality startups during Covid-19.

“We’re expanding into the Middle East and hope to start operations in Saudi Arabia in the third quarter of 2023,” he said.

Published in Dawn, February 19th, 2023