Pakistan wants mega bite of digital future
Foundation for startup ecosystem laid to attract foreign investment in key sectors
Pakistan is a promising market for startups because of its young ecosystem, a rapidly-growing digital economy and local technology clusters continuing to develop, according to a new report.
Magnitt, which launched the Pakistan Venture Investment report for the first half of 2020, placed the country fourth with Jordan after the UAE, Egypt and Saudi Arabia in Middle East and North Africa rankings.
Investments in Pakistani startups have seen continued growth, with a few notable exits and success stories resulting in an increased appetite for these firms from regional and international investors, the report said.
The focus of investors is still on the early stages as the country received $10 million investment in the January-June period, while the overall number of deals increased by 13 per cent to 17 per cent despite the impact of Covid-19.
E-commerce, healthcare, multimedia, advertising and marketing and data analytics were the top five sectors in terms of deals and investment. The top five deals in Pakistan-based startups represented 49 per cent of total funding raised during seed and pre-seed rounds.
"With abundant talent, a large market and no shortage of problems to solve, the Pakistani startup ecosystem is quickly gaining momentum," said Mudassir Sheikha, CEO of Careem.
Tajir and Bazaar raised $1.8 million and $1.3 million, respectively, to secure the top two positions while mandiexpress ($0.7 million), healthwire.pk ($0.7 million) and screen-it ($0.25 million) are the other startups that raised money to expand their operations and network in the country.
"Early-stage funding is more readily available than ever before. Our top talent is choosing to work at and found startups, and the regulatory environment is becoming more supportive of startups. With one or two more successes under our belt, we will be seriously on our way to leaping into the digital future," Sheikha said.
The report said Pakistan's startup space has shown signs of growing incrementally, with many positive indicators for the future. This momentum will continue with several large deals such as Airlift's $22 million taking place in the second half of 2020, it added.
"Pakistan is a key and growing market," said Philip Bahoshy, chief executive and founder of Magnitt.
"We have already seen success stories such as Careem where cross-pollination across borders has benefitted all ecosystems involved," he said.
Rabeel Warraich, founder and chief executive of Sarmayacar, sees promising growth in the e-commerce sector due to consumer behavioural shifts in the nation of over 220 million stemming from Covid-19.
"We've been live in the market for almost two years and [have had] seven investments to date; we've learned what works and where challenges continue to exit but broadly speaking we are more excited than ever. Startups are beginning to demonstrate traction that is increasingly bringing more interest from foreign capital to the space and we see acceleration in the shift of Pakistan's $250 billion of consumer spending to online channels," Warraich said.
Ali Mukhtar, founder and partner of Fatima Gobi Ventures, said Pakistan is positioned to be one of the fastest-growing digital markets globally and has all the right ingredients for the ecosystem to flourish. It has a young and now digitally-connected population, a growing middle class and an incredible entrepreneurial talent that has continued to excel in Silicon Valley as well as in the region.
"Successful companies like Careem, FireEye, Affinity and EMPG were all founded by Pakistani entrepreneurs and we see no reason why that would not be the case if the same opportunities are provided to entrepreneurs locally," Ali told Khaleej Times on Sunday.
Launched in 2019, Fatima Gobi Ventures will make 18 to 20 early-stage investments from Fund 1 and has already made such from four investments.
"All our portfolio companies have also attracted participation from funds based out of the US, the UK, China and Singapore as well as Mena as co-investors. This we believe is a great early sign of the seriousness and the strong level of interest from some of the leading tech investors globally," said the CEO of a Pakistan-based venture capital fund.
Omer Khan, founder and CEO of PostEx, a Pakistan-based financial technology startup, said Pakistan has been comparatively slow to embrace fintech. However, there is a great need for easy-to-access financing solutions for the SME sector.
According to E-commerce Policy of Pakistan 2019, there are more than 3.2 million SMEs in Pakistan accounting for 98 per cent of all enterprises and yet only 185,010 SMEs were successfully able to borrow from banks, according to the State Bank of Pakistan.
"High costs and extensive eligibility requirements to get a loan have excluded most of the companies from the traditional financial system, meaning over 94 per cent of our SMEs are left out there without any support from our banking system, creating a huge gap for Pakistani fintech to cover with new and innovative financial products," Khan told Khaleej Times on Sunday.
Thinking ahead, he said Pakistan's fintech industry needs more initiatives like SECP Regulatory Sandbox 2020, which would encourage startups to experiment with a wide range of innovative new products and services without falling under existing regulations.
"Comprising PostEx, Finja, Easypaisa and numerous other names, Pakistan has around 100 fintech companies. These include startups, banks and telecom firms, providing digital financial services. Such product groups involve general online and mobile banking, micro-financing, mobile wallets and payment gateways," Khan said.
About PostEx, he said it is a hybrid of receivables factoring solutions and courier services that pays invoice values upfront to e-commerce companies offering cash on delivery as one of their modes of payment.
"Our aim is to provide a 360 degrees payment and financing solution to our clients, so they can meet their maximum potential by overcoming their financial constraints," he said.
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