Written by: Amir Khalid Qazi
In recent years, South Asia has emerged as a hub for technological innovation and entrepreneurship, with India leading the charge. However, despite its rich cultural heritage and vibrant economy, Pakistan’s startup ecosystem has failed to keep pace with its neighbor to the east, India.
Understanding the underlying factors that have hindered Pakistan’s startup scene is crucial in developing a roadmap for a more robust and thriving ecosystem. So why is the startup scene in Pakistan so unfortunate?
First, let us take a look at numbers in a relative manner. A recent World Bank report highlights the disparity in the number of startups and the corresponding funding received between India and Pakistan.
This disparity is reflected in the amount of funding received by startups in each country, with India attracting substantial investments from leading venture capital firms such as Sequoia Capital, Accel, and Lightspeed, among others.
These firms have launched substantial funds, with Sequoia Capital launching a $2 billion India fund, Accel and Lightspeed raising $500 million+ funds, and Tiger Global Management reportedly raising a $6 billion venture fund, among others. India has now emerged as the third largest producer of unicorn startups, the ones that reach the $1 billion mark, following US and China.
On the other hand, the funding received by Pakistani startups pales in comparison, totaling only $350 million, a 5% decline from the previous year. The closing quarter of 2022 was particularly dire, with just $15.5 million raised, marking the worst quarter to date after the first quarter of 2020, according to DataDarbar, a research firm based in Pakistan. The sharp decline can be attributed to many factors.
The fundamental reason is political instability in Pakistan which has been a persistent challenge that has hindered the country’s economic growth and development, including the growth of its startup ecosystem. Political instability creates an environment of uncertainty and unpredictability, which can discourage both local and international investors from investing in the country.
For startups in Pakistan, political instability can pose significant risks to their operations, as it can disrupt supply chains, increase costs, and negatively impact consumer confidence. Furthermore, the lack of stability can make it more difficult for startups to access capital, talent, and other resources, which are crucial for their growth and success.
International investors may also be deterred from investing in Pakistan due to the country’s political instability. They may view the country as a risky investment destination, which can limit the flow of foreign investment and hinder the growth of the startup ecosystem. The uncertainty and unpredictability associated with political instability can also make it challenging for startups and investors to plan and make long-term investments.
Lack of Support from Govt, Culture
The lack of access to capital in Pakistan adversely affects the growth trajectory. Despite the presence of a few local venture capital firms and angel investors, the startup ecosystem in Pakistan is largely unfunded. This limits the ability of entrepreneurs to scale their businesses and develop innovative solutions. Furthermore, the lack of investment in the ecosystem discourages potential entrepreneurs from starting their businesses and contributes to the overall lack of innovation.
Another major obstacle to the growth of Pakistan’s startup ecosystem is the lack of support from the government. In India, the government has been proactive in promoting entrepreneurship through various initiatives and programs, such as the Startup India campaign. In contrast, the Pakistani government has been slow to embrace the startup community and provide the support that is necessary for its growth. This includes funding, mentorship, and access to markets. Moreover, the ‘red-tapism’ in Pakistan makes it very inefficient for newcomers to consider the Pakistani Market, as it produced inefficiency which then causes low productivity. Because to get a simple thing implemented, the founders have to go through a long chain of command.
The lack of a strong startup culture is also a significant barrier to the growth of the Pakistani startup ecosystem. In India, entrepreneurship is seen as a viable and desirable career option, with a vibrant community of entrepreneurs and investors. According to a report by JP. Morgan, a leading investment management firm, by 2025 1 in 4 iPhones would be made in India.
In contrast, entrepreneurship in Pakistan is still viewed with suspicion and is often seen as a last resort for those who are unable to find traditional employment. This lack of cultural support makes it more difficult for entrepreneurs to network and build relationships that are essential for success.
In addition to these internal factors, the Pakistani startup ecosystem also faces external challenges. One of the biggest obstacles is the limited market size, which makes it difficult for startups to scale their businesses and reach a large number of customers. Furthermore, the country’s weak infrastructure and unreliable electricity supply can be major hindrances to the growth of the startup community.
Hope for the Future of Startups
Despite these challenges, there are reasons to be optimistic about the future of the Pakistani startup ecosystem. The country has a large and talented pool of tech-savvy professionals, who have the potential to drive innovation and entrepreneurship. Furthermore, there are signs that the government and private sector are beginning to recognize the importance of startups and are taking steps to support the ecosystem.
In conclusion, the Pakistani startup ecosystem is facing numerous challenges that are holding it back from realizing its full potential.
However, by addressing these obstacles and creating an environment that is supportive of entrepreneurship, Pakistan has the potential to become a major player in the South Asian startup scene. By learning from the startup ecosystem of India, we can see what is possible and what needs to be done to close the gap and create a thriving startup culture in Pakistan.
The writer is involved in the London VC space and is the President of the Queen Mary’s Business Society.
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