Quarterly Deal Flow Update Q1 2023

[Note: This publication was initially published on 31st March, 2023 but included a classification error in the investment raised demarcated by gender. The error was rectified on April 5, 2023]

The first quarter of the new year has come to a close so it is time to dive into Invest2Innovate’s first Quarterly Deal Flow Update of 2023!

This quarter has seen a global surge in interest rate hikes, as countries grapple with the looming threat of inflation. The pressing question now is whether these aggressive monetary policies will successfully curb inflation or lead to an economic downturn. Furthermore, we will have to wait and see how Pakistan’s own regional instability further impacts the startup ecosystem. In this context, let’s dive right into this quarter’s investment roundup to gauge resilience of Pakistan’s startup ecosystem in the face of these challenges.

In Q1, Pakistani startups raised $23.1 million across 7 deals, bringing the total funding amount to $945.4 million across 321 deals since 2015.

Q1 Amount Raised is up 55% from Q4 2022, and down 86% from Q1 2022. This amount raised is also the lowest when we gauge regional comparables, signaling the adverse impact of economic instability on business activity. Bangladesh raised $31M across 3 deals, Egypt raised $31M across 26 deals, Saudi Arabia raised $515M across 26 deals, and UAE raised $129M across 30 deals.

The reported deals this quarter were:
  • January: Befiler kicked off this year’s public funding cycle, raising $1.5 million dollars.
  • February: Swagkicks raised $1.2 million, Adalfi raised $7.5 million, and Lokal raised an undisclosed amount.
  • March: Maqsad raised $2.8 million, Trukkr raised $6.4 million, and Trax raised $3.7 million.
  • All disclosed deals were at the seed stage with the exception of Lokal which was pre-seed.
The highest funded sectors this quarter were Logistics ($10 million) and Fintech ($9 million). Startups in the fintech sector continue to close the highest numbers of deals in the MENAP region, and  are only expected to attract more funding in the coming months.

In terms of founder gender, male-founded startups raised $23.1 million across 6 deals while female co-founded startups raised an undisclosed amount across 1 deal. There were zero female-founded companies who announced funding in Q1.

👉 Mergers and Acquisitions
M&A activity was forecasted to pick up globally in 2023 as economic conditions became tougher. In Pakistan’s ecosystem there were four notable acquisitions.

S4 digital, a Portugal based marketing firm, announced two acquisitions with a 70% stake in Pakistan’s digital marketing firm Bramerz and another undisclosed majority stake in their company HR Ways. Not only does the 70% stake include the services business unit i.e. Bramerz, but it also involves scaling their products Fishry and Publishrr. Furthermore, HR Ways is a women-led, women-run company.

The third notable acquisition was related to Edly, the edTech division of US based Arbisoft, announcing that they will be procuring the assets of the French company Overhang. This includes Tutor, which is the primary distribution system for Open edX. Although Arbisoft is based in the US, they have a significant stake in the Pakistani market.

The final acquisition of note relates to Abhi, a Pakistani fintech firm primarily focused on Earned Wage Access, obtaining a minority stake in BlueEx, a logistics company based in Pakistan. This will give Abhi the opportunity to utilize fintech and logistics to distribute products within Pakistan’s retail industry.

While there may be a notable slowdown in deal flow, particularly when compared to this time last year, the M&A activity in our ecosystem signals the strategic shifts that businesses are making to strengthen and grow in the current economy.

🌟 Investor Activity 
In comparison to last year, we witnessed a substantial shift in the investor activity in this quarter. In Q1 2022, international angels accounted only for 9% (8 investors out of 89) of total investors across disclosed deals. In Q1 2023 they comprised 26% (7 investors out of 27) of total investor activity across disclosed deals. Overall, there were 22 deals across Q1 2022 and 7 across Q1 2023.

This higher proportion of international angel participation is indicative that in spite of macro and regional troubles, investors are still willing to take a bet on Pakistan startups raising at pre-seed and seed stages.

👋 Until Next Time 
As we wrap up our Q1 investment roundup, we hope that this overview of Pakistan’s startup ecosystem has been informative and insightful. While deal flow has seen a slowdown compared to previous years, the resilience of Pakistani startups is evident in the M&A activity and the continued interest of international angel investors. As we navigate through uncertain economic times and regional instability, we urge you to stay positive and hopeful for the future. Thank you for joining us, and until next time, goodbye!
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