In 2021 it appeared like the wait for Pakistan’s digital ecosystem was finally ended. Finance increased more than five times to $366 million, while IT exports exceeded $2 billion. Big-shot investors started investing in the market, things were moving forward, and there was a lot of confidence.
However, that hackneyed adage makes no mention of good things lasting, which is exactly what occurred in 2022. Despite a strong beginning in which approximately $173 million was raised in Q1, investment activity fell and hit a 10-quarter low.
Although the annual total was still above a robust $351 million, the decrease was painfully apparent.
Foreign investors’ newly discovered passion for Pakistani companies was short-lived because to the shift in global macroeconomics and the ensuing devastation in venture capital, as the risk premium of the nation exceeded the attainable return potential. It may be the end of a rather brief era, according to the doomsday preachers and default mongers. We might not reach the levels of 20212022, but we would still be much over our 2020 total of about $65 million.
The transaction flow, by Pakistani norms, relatively later-stage businesses seeking Series A or higher funding, will remain weak for the foreseeable future. There are at least 14 companies that may need to fund follow-on rounds shortly based on these criteria (ignoring all those who had seed deals in 2021). Deals for the remaining companies might still go on, albeit at significantly reduced prices at a slower rate.
One reason to think the deal count dropped to eight even though investment value declined by a staggering 79% year over year in Q4-2022. Additionally, the tiny base accentuates the loss in percentage terms and the fact that a number of investment rounds were really not disclosed contributed to this.