When Abrar Bajwa left his comfortable corporate job at L’Oréal in 2019 and eventually started learning more about Pakistan’s agriculture supply chain, his father joked about how his son — an MBA from one of Pakistan’s top universities — had ditched a lucrative career to hang out with farmers across Punjab, driving to wholesale produce markets and hand-delivering potatoes, onions, and tomatoes to retail stores. His father asked him, incredulously, if he wanted to use his MBA degree to become a sabzi wala, a vegetable seller.

In August 2021, Bajwa and his business partner, Mohsin Zaka, launched Tazah Technologies, a B2B agriculture marketplace. And last month, the three-month-old startup raised a $2 million pre-seed round, becoming one of the many young startups benefiting from the country’s massive funding boom.

Pakistan’s tech ecosystem has seen unprecedented growth this year. Startups in the country raised over $244 million in the first three quarters of 2021, which is more than the previous six years combined. But experts suggested to Rest of World that the momentum is unsustainable and likely to slow in 2022.

Multi-million-dollar funding rounds this year included those for digital freight marketplace BridgeLinx, quick-commerce startup Airlift, and e-commerce platform Bazaar. Some experts believe this might be a watershed moment for the country’s tech startup ecosystem, with several funding rounds being led by first-time investors into Pakistan. 

“A cataclysmic change is coming for Pakistan: an opportunity to disrupt the hold of capital from traditional business families who have been a limiting factor because they control regulation, influence bureaucracy, policy, and grow by stifling competition,” Faisal Aftab, co-founder of Zayn Capital, Tazah’s lead investor, told Rest of World. Aftab estimates the current collective market cap for all Pakistani startups to be between $1.5 billion and $2 billion. He expects this to rise to $6 billion in the next five years and touch $30 billion by 2031.

Part of the boom is being driven, according to Aftab, by the success of Pakistan’s first startup wave, which began in 2012-13 with the launch of Foodpanda, Careem, and Daraz. The success of those companies provided the capital and know-how for the current generation. Bajwa and Zaka of Tazah Technologies, for instance, worked at Careem. Bajwa also worked at Swvl for about six months after he quit Careem.

A steady rise in internet penetration across Pakistan is also driving the new wave of startups. When Furquan Kidwai started online pharmacy startup Dawaai in early 2014, there were only 3 to 5 million broadband users in the country of 195 million. Now there are over 100 million

The global economic slump in the early months of Covid-19 also helped supercharge Pakistan’s startup ecosystem, says Aftab. In 2020, when there were job cuts in the U.S. banking sector, lots of smart folks left their jobs or got laid off, moved to Pakistan, and took to entrepreneurship. “Crisis forces you to get out of your comfort zone and challenges you,” Aftab added.

Kidwai thinks the global macroeconomic climate is also aiding the startup boom in Pakistan. The bulk of the money coming into Pakistan through VCs, he says, is primarily driven by the fact that interest rates in most countries are low, which makes traditional investment options less attractive. “Because U.S. interest rates have been so low for so long, investors are deploying more capital into opportunities which could yield something beyond [what is being offered] by treasuries,” he told Rest of World

Zeshan Gondal, investor and head of strategy at Zayn Capital, added that high valuations across major markets, including neighboring India, have prompted VCs to begin investing in emerging markets. “Before 2021, Pakistan was one of the largest countries, in terms of population, but among the lowest, in terms of investment, on a total basis as well as a per capita basis,” he said. “So, part of the reason why we saw a big uptake in funding in 2021 is because, as funding records are being hit everywhere else, some of the money starts flowing into markets that hadn’t been tapped in the past.”

Some of Pakistan’s most high-profile startups resemble startups in other emerging markets: Pakistani digital bookkeeping startup CreditBook resembles Indonesia’s BukuKas and India’s Khatabook. That lowers investors’ risk perceptions, as they have seen these models succeed in other markets and are willing to back them, even if they have not done business in Pakistan before, Kalsoom Lakhani, co-founder of early stage VC fund i2i Ventures, told Rest of World. She calls these investments low-stakes “opportunistic checks.”

Venture capitalists’ approach to Pakistan currently is more of “Let’s see what happens if we were to write a check for Pakistan” versus “We are making Pakistan a strategic part of our mandate,” Lakhani said. “I think that the companies that are doing well now have to continue to do well. We have to see potential exits happening and unicorns happening, for people to actually take the market seriously,” Lakhani added.

Pakistan is still awaiting its first homegrown unicorn; quick commerce startup Airlift, which recently raised $85 million in a series B financing round in August, could be a strong contender. Still, Lakhani says there are multiple questions. “From people on the outside [looking to invest in Pakistan], I often get questions like: “If a company was to exit, who would they exit to?” she said. “We are basically investing in models where we see a path for future growth, we see scalability; but because it hasn’t happened yet, there’s still a little bit of a wait-and-see type of mentality.”

As 2021 draws to a close, the general consensus among most of the experts and entrepreneurs who spoke with Rest of World is that this year’s momentum is unsustainable and unlikely to continue at the same pace in 2022.

The fivefold growth of Pakistan tech startups from $66 million in 2020 to around $280 million in 2021 will likely slow. “It’s not going to go to $1.5 billion [next year],” Gondal of Zayn Capital said. “The question is, when the slowdown happens, what is the cause of the slowdown and how it affects local startups.”

“A cataclysmic change is coming for Pakistan.”

If interest rates in the U.S. go up, and bonds become more attractive for investors, some of the capital may flow out. The immediate consequence? Access to capital will become challenging. 

If that happens, startups will also have to be more disciplined in terms of how much funding they raise, says Zayn Capital’s Gondal. “There is a trend in the market to raise as much as you can,” Gondal said. “But when capital is no longer readily available, it will eventually become, ‘raise what you need,’ rather than ‘raise what you can.’”

For Kidwai, a veteran entrepreneur, frenzy breeds chaos. “[In a climate like this] when the buck is on the table, you’ll want to grab it as soon as possible. But I think that is when you need to stay steady, look a bit beyond the next chair, and create something that has value over a longer period of time,” he said. “Business building has never been a sprint; it has always been a marathon. If you’re not creating something for the long term, which will outlast you, that will leave a legacy behind, then there is something fundamentally wrong with the way you are thinking.”