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Revitalized Momentum: Pakistan’s Startup Funding 2023 – Review & Outlook - Alpha Beta Core

Pakistan’s startup funding experienced a rebound, surging by 553% QoQ in 4Q23 after enduring consecutive dry quarters earlier during 2023, with total funds raised for the year reaching US$ 71.5 million.

QoQ Funding Growth 2023

QoQ Funding Growth 2023

 

Key Sectors 2023

Key Sectors 2023

 

Q4 2023 Snapshot

In Q4 2023, 12 startups disclosed funding rounds, notably Retailo securing a $15 million Series-A round for its expansion in Saudi Arabia. The rounds collectively raised over $38.7 million, constituting 53% of the total funds raised in 2023, instilling renewed confidence in the country’s startup landscape. The other notable rounds in Q4 were KraveMart, Edufi, Sehat Kahani and Blink raising US$ 6.25 million, US$6.1 million, US$2.7 million and US$2.1 million, respectively.

Top Deals Q4CY23

Top Deals Q4CY23

Funding Challenges in 2023

The funding decline across the startup space in the world (down 42% in first three Qs of 2023) since the onset of global liquidity tightening from mid-2022 onwards has had its due share in Pakistan as well, albeit with a much smaller in size vis-à-vis regional peers. Domestic funding going down was however intensified amid various domestic challenges, including political instability, macroeconomic uncertainty high currency fluctuations, and rising inflation followed by domestic monetary tightening pushing interest rates to peaks, before economic stability returned from 3Q onwards with the new IMF program restoring confidence and stability in country’s macros. Therefore, the 4Q23 saw a recovery in Startup funding in Pakistan.

Resurgence in Seed and Early-Stage Funding

In 2023, there was a resurgence in seed and early-stage funding, constituting 86% of the total deals, signaling a reopening of venture markets for Pakistan’s startup ecosystem.

Stage-wise Funding 2023

Stage-wise Funding 2023

Venture capital firm SOSV’s unit has backed  five additional startups in Pakistan, aligning with the growing number of internet users in the world’s fifth most populous nation. Total foreign investors’ participation exceeded 60% in Pakistan’s startups for the year.

Investors' Participation

Investors’ Participation

Government Initiatives and Market Confidence

The Caretaker government (responsible for state affairs before the next general elections take place in Feb-24) has unveiled plans to establish a ‘Pakistan Startup Fund’ to attract venture capital investment. Furthermore, the government aims to introduce next-generation 5G internet by mid-2024.

The initiation of the new IMF program, subsiding macro uncertainties following the announcement of election schedule, and the anticipated reduction in the interest rates in the upcoming monetary policies given strong recovery in local currency alongside expected softening in inflation have all helped restore investor confidence. One key indicator of the investor confidence has been a quick recovery in the country’s equity market, which gained over 55% by the close of 2023. Such a rebound in local equities with a remarkable return, made Pakistan market one of the best-performing ones in the world.

2024 Outlook

Entering 2024, business models with lower cash burn addressing critical issues for businesses and consumers are expected to thrive. Focusing on fintech, e-commerce, and B2B marketplace opportunities with large addressable markets and robust unit economics is identified as a key strategy for success.

We expect Startup funding market in 2024 to gain momentum with political and macro clarity following general elections in Feb-24, followed by implementation of the key structural reforms to be undertaken by the new government, especially with the help of a new larger IMF program, thereby addressing chronic energy, debt, privatization, fiscal (tax and expenditures) and other public sector challenges, which have been impacting country’s true economic growth potential.

Global monetary easing expected from the second half of 2024 onwards should also help attract liquidity into the Startup ecosystem in general, and underlapped markets like Pakistan, in particular.