During the second quarter of 2023, Pakistan’s startup ecosystem experienced a significant decline in funding, reaching its lowest point since Q1FY2020.
Data Darbar reports that funding dropped to $5.2 million, reflecting a drastic 95% decrease compared to the previous year and a 77.5% decrease compared to the previous quarter. The number of deals remained stagnant at 8, highlighting the challenges faced by Pakistani startups in attracting investments.
The decline in funding can be attributed to various factors, including Pakistan’s macroeconomic crisis and the looming threat of default, which has created uncertainty and deterred investors from making significant investments.
However, recent developments, such as the finalization of an IMF deal worth $3 billion, subject to board approval, offer hope for stabilizing the economy and boosting investor confidence.
Pakistan’s startup funding woes are not unique, as the global venture funding landscape has also experienced a slowdown during the same period.
Global funding reached nearly $22 billion in May 2023, marking a substantial 44% decrease compared to the previous year. This cautious approach from investors reflects the prevailing uncertain economic climate worldwide.
Sarwat Khan, an analyst at Alpha Beta Core (ABC), highlights that Pakistan’s funding slowdown aligns with the global trend. Major markets such as the US, the UK, and China have also witnessed significant drops in both the volume and value of VC funding deals.
The challenging macroeconomic situation in Pakistan has played a significant role in deterring potential investors.
However, there are some positive signs on the horizon. Pakistan recently reached a staff-level agreement with the IMF for $3 billion of funding, pending board approval.
This development, along with a decrease in the annual inflation rate to 29.4% in June 2023, provides some relief and optimism for the country’s economic outlook.
Despite the current challenges, there is hope that Pakistan’s startup ecosystem can rebound and attract more investments with the right policies, economic stability, and a favorable business environment.