Startup investment grows by leaps and bounds

Calendar year 2021 was phenomenal in terms of investments as startup fever gripped the world’s last big untapped nation — Pakistan.

Pakistani startups started making waves in the international arena by attracting wider international investment and media coverage during the outgoing year.

Speaking to Geo.tv, Alpha Beta Core CEO Khurram Schehzad noted that during the first nine months of 2021, local startups raised $305 million, which was 1.5 times more than the combined investment in the last six years.

Citing data, he highlighted that investment in the third quarter of 2021 (July-September) surged to an all-time high of $177 million, with August being a historic month making 67% of the entire 3Q21, and 39% of total 2021 to date.

“Average deal size increased by five times to $5.9 million during the first nine months of 2021 ($11.6 million in 3Q21) versus $1.2 million in 2020, with foreign participation growing massively,” the analyst said.

Schehzad is  part of a team working with the government, industry, and academia for the development of an inclusive policy framework that will promote the establishment of venture capital firms and startups.

He identified fintech, e-commerce, and HealthTech (new entry), and logistics as the favourite sectors which attracted most of the investment.

The analyst was of the view that the momentum is expected to continue thanks to a flush of liquidity and historically low interest rates globally, as Pakistan is an untapped market “with an accommodative regulatory regime.”

While official data lags and is only available till September 2021, Schehzad said there were only a couple of deals in the range of a couple of million dollars during October.

He estimated that total funding, documented only, in the 10 months of 2021 (July-October) stands around $330 million. He further predicted that total investment will clock in at approximately $350 million for the entire calendar year 2021.

According to the data available, the top three funded startups during the nine months were Airlift Technologies, Bazaar Technologies, and Tag Financial.

Shedding light on hurdles to startups' growth in Pakistan, Schehzad emphasised that there is a dire need to create a venture capital policy, regulate hurdles, and ease the process of entry and exit for investors.

“If we accomplish the above, it will encourage investors to invest more funds because their major concern is the uncertainty regarding their exit,” he explained, adding that because of the strict policies of the State Bank of Pakistan (SBP), it gets difficult for investors to take their money out due to which they think twice before investing in Pakistan and hence opportunities get wasted.

Underlining the reasons behind e-commerce growth, the expert said that investment is pouring into the sector because people have started using more digital platforms. They prefer online shopping, online payments, and online servicing rather than the traditional mediums used earlier.

He predicted: “The e-commerce market is around $4 billion and it is expected to double in the next few years."

There is a dire need to create a venture capital policy, regulate hurdles, and ease the process of entry and exit for investors. — Khurram Schehzad

“More investment is pouring in this sector because of its growth potential,” he stressed.

Going forward, Schehzad said that investment in startups is expected to cross the $500 million mark in 2022 as experts are working on a venture capital policy which would be a significant development for the industry.

“Startups are not an issue in Pakistan — capital is. Under the policy, we will try to bring investors on the ground so that they can invest while being in Pakistan,” he said, citing the example of India where the on-ground presence of venture capital is evident.

Schehzad reiterated that for startups to flourish in Pakistan it is important that a more encouraging environment is provided to investors.

“Regulatory relaxation, ease of doing business, development of a proper policy, promotion of funds and startups, provision of incentives, tax reliefs especially in the IT sector and promotion of research and development are some of the important steps that should be taken going forward,” he reiterated.

The analyst said that these steps will help Pakistan tap the potential of a market worth billions of dollars, just like India.

“Pakistan’s startup sector is in its initial stages and things will get better slowly and gradually as we have immense potential which needs to be tapped with the right policy,” he said.