The newly discovered enthusiasm of foreign investors for Pakistani companies was short-lived due to shift in global macroeconomics and the ensuing devastation in venture capital.
That clichéd adage “good things come to those who wait” , however, says nothing about good things lasting, which is precisely what happened in 2022. Despite a promising start in which $173 million or so was raised in Q1, the level of Tech investment activity in Pakistan dropped to its lowest level in ten quarters. The annual total was still above a healthy $351 million, but it was painfully clear that the amount had decreased.
The newly discovered enthusiasm of foreign investors for Pakistani companies was short-lived due to the shift in global macroeconomics and the ensuing devastation in venture capital, as the risk premium of the nation exceeded the attainable return potential.
The doomsday preachers and default mongers claim that it may be the end of a relatively brief era. Even though Pakistan Tech investment might fall short of the levels of 2021–2022, we would still surpass our 2020 total of roughly $65 million.
By Pakistani standards, the deal flow for relatively later-stage startups seeking Series A or higher funding will remain weak for the foreseeable future.
There are at least 14 companies that may need to raise follow-on rounds soon based on these criteria (ignoring all those who had seed deals in 2021). Deals for the remaining companies might still go forward, albeit at much lower prices and a slower rate.
One reason to think the deal count dropped to eight even though Pakistan Tech investment value fell by a staggering 79% year over year in Q4-2022 Additionally, the small base amplifies the decline in percentage terms, and the fact that a number of investment rounds were actually not reported contributed to this.
Early-stage funding may skew toward accelerators, whose checks ranging from $100,000 to $250,000 may have seemed like small change to some founders during the good times.
Despite the fact that the current gloom may not seem to indicate it, as did the optimism of last year, the cycles do indeed change. Markets frequently forget the past and focus on current sentiments, which will inevitably improve. Well, if not Pakistan’s macros, then at least the global ones.
One theme from 2022 was missed, aside from the venture funding environment, which, in all honesty, dominates tech-related discussion. one that raises a few questions.
The number of digitally paid e-commerce transactions in Pakistan decreased to 9.1 million in Q2 2012 from 136 million the year before. Even though the number increased to over 10.1 million in the second quarter, it still raises concerns, particularly in light of the fact that our macroeconomic situation deteriorated starting in July.
For instance, the past few months have been completely chaotic for anyone attempting to run a business, with inflation reaching its peak in August. not just the data, either. As orders decline at major e-commerce stores, market discussions paint a pretty gloomy picture.
In contrast, almost everyone found it difficult to keep up with the demand and supply constraints last year. According to reports, the players are currently either trying to renegotiate terms with partners or sitting on excess capacity, which has its own overhead.
Despite more people going online, according to Hammad Khan, co-founder of Alpha Venture, the digital agency behind the price comparison website Pakistanistores.com, sales have decreased by about 10-15% this year compared to 2021. “Even though our website traffic increased by 5% year over year in November 2022, major players in the industry are currently experiencing a relatively slower period, so it hasn’t necessarily translated into more orders for stores.”
“But supply has been the problem more than demand, as almost all industries—whether through traditional or online channels—struggle to source goods. How will businesses fill orders if they can’t even source products in the first place?
E-commerce transactions with foreign merchants are now in trouble because banks must settle them by first buying dollars on the open market. Due to this, paying vendors for services like hosting and software, which are essential in any tech-enabled business, is becoming even more expensive.
The situation with technology exports is a little less clear. Not the part where things have slowed down—that much is obvious—but the reason why. After all, telecom group exports increased each month until mid-2022 at a rate of upwards of 20 percent year-on-year but then declined to single digits. In certain periods, not even that.
These pages have gone into greater detail on that subject and have covered how businesses are reluctant to transfer funds back to Pakistan due to the political and economic unpredictability, particularly when paying in dollars for services.
And given that we don’t appear to be getting any closer to stability anytime soon, that theme will probably continue in the near future. In fact, the overreach and panic of policymakers might even leave deeper wounds and cause more extensive long-term harm.