At a time when startups in most parts of the world are dealing with a slowdown in venture capital funding, Pakistani entrepreneurs have a much greater challenge facing them.
The world’s fifth-most populous nation is in the middle of a major crisis, with inflation soaring, the rupee plummeting, and a severe shortage of energy. Last week, Pakistan’s government ordered markets and malls in the country to close early every day to save energy, according to local media reporters.
“Global VC —and macro — slowdown has already hit emerging and frontier markets particularly hard, which have largely seen significant outflows,” Mutaher Khan, co-founder of private markets data portal Data Darbar, told me. “Pakistan has a much higher risk premium compared to most Asian economies, meaning the required rate of return from investors goes up, too, which looks unattainable in the near term.”
Pakistan’s fledgling startup ecosystem witnessed a nearly 80% year-on-year fall in funding in October–December 2022, according to startup consultancy Invest2Innovate. In July 2022, Airlift, Pakistan’s most celebrated startup, once touted to become its first unicorn, abruptly shut down when its investors pulled out of a fresh funding round.
“Beyond fundraising, the issue is that Pakistan’s startup ecosystem is largely cyclical and import-dependent,” Khan said. “As a result, every round of devaluation results in higher costs, while the corresponding increase in inflation erodes people’s purchasing power.”
Beyond just the immediate crisis, Pakistan’s current economic situation may lead to long-term concerns among foreign investors as “the macro situation makes it very difficult to generate healthy dollar-denominated returns,” Khan said.
