Pakistan’s startup ecosystem witnessed a significant funding downturn during the second quarter of 2023, reaching its lowest point since the first quarter (Q1) of 2020, according to data compiled by Data Darbar, a platform that monitors investment trends within the country’s tech landscape.
Only eight deals were closed over the three months, reflecting a steep decline.
During this quarter, startups managed to secure a mere $5.2 million in funding, marking a staggering 95% decrease compared to $104.1 million the previous year and a substantial 77.5% drop every quarter from $23.1 million in the first quarter of 2023.
The number of deals stood at eight, unchanged from the previous quarter, but 65.2% down compared to the previous year, the data showed. These numbers shed light on the formidable challenges Pakistan’s startups face in attracting crucial investments.
Factors contributing to slow funding activity
Various factors have contributed to the decline in funding, including the macroeconomic crisis that Pakistan is currently grappling with.
The country’s imminent risk of default has created an atmosphere of uncertainty, causing investors to hesitate in making significant investments. However, there is a glimmer of hope with recent developments, such as the finalization of an International Monetary Fund (IMF) deal. This pending agreement, contingent upon board approval, offers a potential injection of $3 billion in funding, which could help stabilize the economy.
The challenging macroeconomic situation in Pakistan has played a pivotal role in dissuading potential investors. Sarwat Khan, an analyst at Alpha Beta Core (ABC), while speaking to Express Tribune said, “Pakistan has faced what many consider to be its most challenging year yet, marked by the looming threat of default.” In such an uncertain environment, investors naturally shy away from making substantial commitments.
Global VC landscape
The decline in startup funding in Pakistan aligns with the global trend. The global venture funding landscape has also experienced a slowdown during the same period. Crunchbase data reveals that global funding amounted to nearly $22 billion in May 2023, indicating a substantial 44% decrease compared to May 2022.
Major markets such as the US, the UK, and China have all witnessed significant drops in both the volume and value of venture capital (VC) funding deals. From January to April 2023, the US experienced a 44.3% decline in deal volume, while the UK and China saw decreases of 29.4% and 19% respectively. The decline in value was even more pronounced, with reductions of 51%, 53.2%, and 44.3% for these markets respectively.