“Sometimes the government just needs to get out of the way,” says Misbah Naqvi, co-founder and general partner at i2i Ventures, at the launch of Pakistan Startup Ecosystem Report (PSER) 2024. Her sentiments have been echoed by similar successful sectors, maize and sports goods, to name a couple.

Pakistani startups have only reported $37 million till November 2024, a far cry from the peak of $355m in 2022 when global investor attention was driving up valuations, states PSER 2024, published by Invest2Innovate. However, the recent vibe of rooms full of startup founders and venture capitalists is largely bullish for business in 2025 as the macroeconomic fundamentals of Pakistan appear to be stable. The feel-good sentiment carried into +92Disrupt by Katylst Labs — a two day event that ended on Sunday.

The third quarter injection of about $15m raised across four publicly disclosed deals may have also helped with general enthusiasm as the VC space gains traction after its downward trajectory. Gobi Partners has also launched a $50m Techxila Fund II after a Memorandum of Understanding with the Bank of Punjab. Then there is Sarmayacar’s $40m Climaventures Fund with a $15m investment from the Green Climate Fund, part of the broader National Rural Support Programme. Last week, curated online fashion marketplace Laam raised $5.5m as well. With everything remaining the same (though that rarely continues to be the case), Pakistan’s funding graph should be climbing steadily next year.

Fintech, e-commerce, and cleantech remain hot sectors, with fintech securing the bulk of the funding at $30.5m in 2024. Notable achievements this year include SadaPay’s acquisition by Papara, PostEx’s $7.3m pre-Series A round, and COLABS’ $2m funds raised for expansion in the Middle East and North Africa region.

After a rocky few years, VCs seem more enthusiastic about the road ahead

But despite the optimism amongst the VCs and startups, there is a layer of acrimony beneath the words. Internet restrictions and slowdowns caused an estimated $23m in losses in 2023, with 47pc of the population lacking internet access. Regulatory complexities, low investment in research and development — 0.16pc of GDP compared to the global average of 2.62pc of GDP — and limited access to capital further strain the ecosystem’s potential, states the fourth edition of PSER. Most funds raised are consumed by working capital requirements, which makes growth challenging.

The gender angle

PSER 2024 drew attention to the challenge of gender disparity, with women comprising only 39pc of the workforce and receiving just 18.75pc of total startup funding since 2015. Viewed in a positive light, however, there was an explicit and tacit understanding of supporting female founders. About 3,000 more female-led startups were added to the ecosystem in 2024, adding to the existing pool of 12,000 female-led startups, stated Tara Uzra Dawood, CEO of Ladies Fund at the launch.

At tech events, the increase in inclusivity is palpable, be it in the form of increased women-to-men ratio as speakers, participants and panellists, or in the form of sign language at +92Disrupt.

Shark Tank

In the era of non-stop ‘saas bahu’ drama that continues around the themes of family politics and long-suffering women, a show that steps away and speaks to businesses is refreshing. Usman Malik, Co-Founder and CEO of Grenlit Studios, who has the rights to Shark Tank, said that in the first season, roughly Rs200 billion was pledged to businesses, with the commodity trading platform Saraaf taking the lion’s share of Rs150bn. The rest of the deals were smaller at an average of Rs20m.

However, perhaps the more significant impact on the start up culture of Shark Tank in Pakistan is the normalisation of entrepreneurship and the move away from the Ivy League, connected elites that secure millions of dollars in funding. Mr Malik stated an example of youngsters from Gilgit Baltistan who appeared on the show and were living in such a remote area that they had to travel over an hour for internet connectivity to coordinate with the Shark Tank team to be able to appear on the show.

‘Have-to-haves’

The end of the ‘free money’ era and the failure of startups such as Retailo, Airlit, and Sukoon have made VCs careful about investing and startup founders more prudent about spending. Startups must focus on unit economics and profitability rather than burning money for customer acquisition, which is the constant refrain among VCs as they look for more mature pitches.

Umair Khan, Founder & Chairman of Folio 3, speaking at +92Disrupt, estimated that top VC firms hear about 200 pitches a month but barely write one cheque. And among those, one out of 20 is a possible home run (or a sixer, given that Pakistan’s passion is cricket rather than baseball), he said, underlining the long, hard slog on the road of start-ups.

Businesses need to solve problems and operate in the “have-to-have” space rather than the “nice-to-have” space, underlined Ms Naqvi.

“Prepare to have no support and be miserable alone,” said Maha Shahzad, founder of mobility startup BusCaro, giving a reality check and underscoring the need for tenacity. She outlined her journey of being rejected by all the Pakistani VCs but preserving until she raised the funding needed.

Despite these hurdles, PSER 2024 identifies emerging opportunities, such as the digital economy’s potential to generate Rs9.7 trillion in value by 2030. It emphasises the need for coordinated action from all stakeholders, including harmonising regulatory frameworks, improving infrastructure, and providing targeted support for women entrepreneurs.

Published in Dawn, The Business and Finance Weekly, December 16th, 2024