The Outlook on Startup Fundraising Trends
In Q1 2024, Pakistan’s startup ecosystem hit a historic low with zero fundraising deals. This unprecedented decline underscores the critical need for startups to practice frugality, especially in challenging economic conditions. This quarter’s zero deals reflect economic instability and its impact on investor confidence.
For the first time since 2015, no deals were reported in a quarter. Economic instability and political uncertainty have severely dented investor confidence. Additionally, global economic conditions and high-interest rates have strained the funding pipeline.
Economic Concerns: The Impact on Pakistan’s Startup Ecosystem
Economic factors are a major concern. The World Bank predicts Pakistan’s GDP growth will be just 1.8% this fiscal year, with low aggregate demand and strained foreign exchange reserves. Despite these challenges, there were some positive developments, such as the completion of general elections and progress toward a new IMF program.
In Q1 2024, Pakistani startups raised $0 million across 0 deals, a significant drop compared to the $1004.43 million raised across 353 deals since 2015. This is the first quarter with no reported fundraising activity.
Global and Regional Comparison: Startup Fundraising Trends
Global Venture Funding Trends: A Global Perspective
Globally, the venture funding slowdown continues into 2024. The first quarter saw the second-lowest activity since 2018, with global venture funding reaching $66 billion, down 20% from last year, according to Crunchbase.
Regional Insights: MENA Region’s Venture Funding Recovery
The MENA region shows some recovery, raising $429 million in Q1 2024:
- Saudi Arabia: $224.7 million across 42 deals
- UAE: $151.2 million across 44 deals
- Egypt: $34.6 million across 17 deals
Saudi Arabia and the UAE are leading this recovery, with notable funding spikes, including Saudi startups raising around $198 million in March, partly due to the LEAP conference in Riyadh.
Investor Activity: Navigating the Challenges
Impact of Economic Conditions on Investor Confidence
Investor confidence in Pakistan remains low due to ongoing economic challenges and concerns about currency devaluation. With the domestic policy rate at 22%, there is little incentive for investors to shift funds from debt to venture funding. Activity is expected to remain subdued but could improve in the second half of the year if the macroeconomic situation stabilizes. Longer lead times for funding disbursements may also result in more investment announcements later in the year.
Mobilizing local funds also remains challenging, with the domestic policy rate at 22%, providing little incentive to shift liquidity from debt instruments to venture funding. The subdued investor activity is expected to persist throughout the year, with potential improvement in the second half if the macroeconomic situation stabilizes following a successful IMF program. Additionally, the lead time for disbursement of funding has extended due to more stringent due diligence by investors, which may result in increased investment announcements in the latter half of the year.
Mergers and Acquisitions in the Startup Ecosystem
Notable Acquisitions in Q1 2024
- Papara x Sadapay: Turkish fintech giant Papara acquired SadaPay, a leading Pakistani fintech, in an all-stock deal valued between $30 million and $50 million.
Exploring New Avenues for Startup Financing
Catalytic Financing Opportunities
With traditional financing routes limited, alternative options are emerging. For example, Acumen Pakistan’s Climate Fund has secured $28 million in anchor funding for a new $90 million fund targeting the agriculture sector. Additionally, Pakistani fintech ABHI recently closed a funding round in the MENA region, showcasing opportunities for regional expansion.
Looking Ahead to Q2: Optimism for Recovery
Despite these challenges, there is optimism for a turnaround. Our long-term observation of the Pakistani startup ecosystem shows resilience and recovery even after downturns. Recent developments, such as increased capital availability on Carta and renewed foreign interest in T-Bills, suggest potential for future growth.
Recent Developments in Startup Funding
- In January 2024, VC funds on Carta had the highest capital available for investment since mid-2022.
- Foreign investors have shown renewed interest in local T-Bills, with a net inflow of $82 million from March 1-22, 2024.
We hope you found this update insightful and look forward to sharing more in the next quarter!