In a significant setback for Pakistan’s growing startup ecosystem, the most recent data highlights a considerable funding decline, with investments plunging to just $6.8 million in the third quarter of 2023, covering the period from July to September. This alarming figure represents an 87.7% year-on-year (YoY) decrease compared to the $55 million reported during the same period the previous year.
Pakistan’s Q3 2023 Startup Report Highlights 📊
🌐 Funding Decline: Q3 2023 saw a substantial 87.7% YoY funding drop to $6.8 million.
💰 Year-to-Date Contraction: The total funding for the first nine months of 2023 decreased by nearly 90% to $35.1 million.
🚀 Slight QoQ Increase: Funding increased by 30.8% from Q2, but challenges persist.
🤝 Deal Count Decline: Only five deals in Q3, marking a 50% YoY drop and a 37.5% QoQ dip.
💵 Average Ticket Size Shrinks: Average ticket size plummeted by 70.5% YoY to $1.36 million in Q3-2023.
🌱 Seed Stage Dominance: Seed funding dominated with 15 out of 21 transactions in 9MCY23.
🏆 Leading Sectors: Fintech led with $14 million across seven deals, followed by transportation and logistics.
👥 Notable Investors: Indus Valley Capital completed two deals, and Sarmayacar concluded one.
🌍 Global VC Investment: Global venture capital investment hit $60.5 billion in Q2-2023, the lowest since Q1 2018.
🚪 Startup Closures: Q3 witnessed closures of high-funded startups, including Medznmore and Jugnu.
List of Startups that Raised Funding in Q3 2023:
- Pasimo raised $1.3 million in seed funding from Indus Valley Capital, Antler, and Jedar Capital.
- Zyp Technologies raised $1.2 million in seed funding from Indus Valley Capital.
- Elphinstone raised $1 million in seed funding from Y Combinator, Hi2 Global, and Soma Capital.
- Truckistan raised $1 million in seed funding from Reflect Ventures, OMentor’srtups (SOSV), Mentor’s Fund, Sarmayacar, sAI ventures, Loyal VC, and Five Rivers Ventures.
- Taleemabad raised $2.3 million in seed funding from Malala Fund and Sorenson.
The third quarter of 2023 painted a mixed picture of Pakistan’s economy. We kicked off with the positive news of the IMF bailout, reinforced by deposits from Saudi Arabia and the UAE. While this provided much-needed oxygen, the persistent uncertainties led to some serious ramifications:
Challenges in Pakistan’s Economy
- 🌏 Brain Drain – The worsening economic landscape intensified the brain drain, with skilled individuals seeking opportunities abroad.
- 💹 Inflation & Interest Rates – Predictions of a high inflation rate and attractive interest rates have caused investors to pivot towards secure, risk-free investments, potentially leading to a spike in bank deposits.
- 💱 Foreign Exchange & Fuel – Volatile foreign exchange rates combined with escalating fuel costs posed further operational challenges for businesses.
Startup Ecosystem Snapshot
The broader economic tremors didn’t spare the startup world. Two notable events underscored the headwinds: Medznmore’s shutdown and Jugnu’s strategic pivot. This sentiment was mirrored in the investment trends as well:
- 📉 Investment Slowdown – We recorded a stark 42% decrease in deal count and a whopping 89% drop in fundraising amount YoY.
- 🌤️ Silver Lining – Despite the grim majority, the quarter concluded with an encouraging uptick in funding activities, hinting at potential resilience and optimism in the ecosystem.
Our Take – Yes, the challenges are real, and the figures may seem daunting. But let’s not lose sight of the larger picture. Investing isn’t about the immediate reactions to quarterly trends; it’s about playing the long game. We’ve seen markets rebound, innovations emerge, and entrepreneurs rise against the odds.
Funding Statistics
This quarter, Pakistani startups raised $6.8 million across 5 publicly disclosed deals, and 3 additional undisclosed ones. This brings 2023’s total funding amount to date to approximately $35.5 million across 21 deals. Notably, this quarter’s investment amount surged by 20% from Q2, and the deal count increased from 6 to 8.
🌍 Regional Comparison – The global macroeconomic downturn affected startup ecosystems worldwide. While Pakistan saw a positive trend, there were notable changes in other regions:
- 🇧🇩 Bangladesh raised $4 million across 6 deals, a decrease in fundraising compared to Q2 2023 ($7 million, 10 deals).
- 🇪🇬 Egypt raised $11.6 million across 16 deals, an increase in fundraising compared to Q2 2023 ($5.8 million, 9 deals).
🌱 Seed Funding – The percentage of seed funding stood at 74% (6 out of 8) of the total publicly disclosed deals in the current quarter. The seed funding stood at 34% (2 out of 6) in Q3 2023 and 29% (4 out of 14) in Q2 2022. The increase in seed funding signals that investors are moving away from early stage startups and are more prone towards investing in sustainable and scalable startups.
Indus Valley Capital Takes the Lead
In the realm of investors, Indus Valley Capital stood out by actively participating in two significant deals during the quarter. In parallel, Sarmayacar concluded an impactful deal. In contrast, Zayn VC, i2i Ventures, and Fatima Gobi maintained a low public profile in Q3-2023, each disclosing only a single investment in the first nine months of 2023. This trend might suggest that local venture capital firms are actively deploying funds behind the scenes.
On a global scale, the venture capital landscape faced challenges, with Q2-2023 experiencing a notable decline, totaling $60.5 billion. These figures marked the lowest levels observed since the first quarter of 2018, a pre-COVID era.
🧮 Highest Funded Sectors:
- Edtech – Emerged as the quarter’s champion with $2.3 million funding, highlighting the global potential for Edtech, projected to reach a $433 billion market by 2030.
- Fintech – After dominating for ten quarters, it took a back seat this Q3. However, it still remains the top-funded sector year to date with a total of 6 deals out of 21 deals amounting to $13.4 million out of $35.5 million.
- New Focus – Investment gravitated towards HR-Tech, EV mobility, and Motorcycle safety, indicating a diversified interest beyond E-commerce and Fintech.
👫 Founder Gender – Among a total of 8 publicly disclosed deals, 7 male-founded startups closed deals with a total of $5.5 million. Only one deal was closed by a female co-founded startup, amounting to $1.3 million. No funds were raised by exclusively female-founded startups.
Investor Activity – Global economic and political uncertainties have made investors cautious. Rising interest rates and market volatility are influencing portfolio re-evaluations, favoring lower-risk ventures. There’s a pronounced shift towards startups showing traction and consistent revenues. Indus Valley was the leading investor this quarter with investments in 2 out of 8 deals.
Mergers and Acquisitions – Opay, an international fintech startup, acquired Finja’s Electronic Money Institution (EMI) license, marking the quarter’s only notable acquisition.
Looking Forward to Q4 – As we step into the last quarter of 2023, we’re holding onto a cautious yet optimistic perspective. Despite the volatile political and economic backdrop, deal flow experienced a significant upswing in September 2023, which is indeed a positive development. Moreover, Q3 2023 witnessed the highest number of fundraising deals this year. We have high hopes that stakeholders and investors will continue to see the opportunities in Pakistan’s startup ecosystem, and we anticipate increased activity in the coming quarter.
Notably, SAI Venture Capital, based in Lahore, is set to make history by introducing Pakistan’s first $10 million local-currency venture capital fund. This transformative initiative aims to revitalize the nation’s startup landscape and promote domestic investment, laying the groundwork for innovation and growth.
We hope you enjoyed this update and look forward to seeing you next time! 🚀
