In less than three months since the year 2022 began, Pakistani companies have announced raising $130 million in funding. B2B startup Bazaar just raised $70 million in a Series-B financing. After a happy year, startups are moving into a new stage of growth, with new obstacles. The recently released “Pakistan Entrepreneurship Ecosystem Report 2021” by Invest2Innovate (i2i) tackles these new obstacles.
Initial obstacles for businesses, according to i2i co-founder and general partner Kalsoom Lakhani, were a lack of finance, support space, and rules. “Now it’s better,” Kalsoom says. As the startup ecosystem enters a new phase of expansion, new issues arise. Lack of access to growth finance.
In 2021, Pakistani startups will have earned $352 million. In the last seven years, Pakistani companies have raised $563.5 million. Increasing cell phone and broadband penetration spurred startup growth; foreign educated startup founders returning to Pakistan helped attract more cash overall.
While the trend is positive, raising later-stage finance for these firms will be difficult. Last year, 60 of the 81 startup agreements were early-stage investments. The number of agreements and total investment may have been higher last year, but there are only a few local angel investors prepared to invest small amounts.
The restricted resources of local VC funds will make it difficult for early-stage companies to raise follow-on money. These funds and multinational VCs are typically early-stage investors. International VCs did not prefer investing in later phases, according to the research.
The survey estimates that the overall market valuation of all Pakistani startups is currently between $1.5 and $2 billion, and will rise to $6 billion in five years and $30 billion by 2031. However, the way Pakistani startups are regarded needs to be corrected. High values in Pakistan are mostly based on mature market comparables, which do not accurately reflect the opportunity in Pakistan.
High valuations have also questioned Pakistani businesses’ exit strategies. The Pakistani stock market would not provide startups the valuations they get from private fundraising.