Tech startups raise $18 million in six months

KARACHI: Pakistan’s tech startups raised $18 million in the first six months of this year, a 13 percent increase year-on-year as the coronavirus lockdown boosted fast transition to digital technologies, an incubation institution based on public-private partnership said.

“The surge in investments can largely be accredited to the outbreak of COVID-19, which accelerated the adoption of digital technologies in the country,” the National Incubation Centre (NIC) said in a latest report. “This is evidenced by increased investments in e-commerce and healthcare.”

When compared with overall investments secured in 2019, Pakistan venture investment 2020 snapshot showed an increase of 63 percent. Approximately 29 venture capital firms invested in Pakistan in 2020, with 76 percent of those being international investors.

The NIC, however, said regulatory policies by the State Bank of Pakistan (SBP) and other regulators are not conducive to attracting foreign direct investment in the country.

“These regulatory constraints inhibit entry, proper utilisation and exit of funds for any foreign investor to invest in startups/VC (venture capital) firms in Pakistan.”

NIC said clauses in the foreign exchange manual issued by the SBP inhibit Pakistani tax residents from acquiring shares in foreign companies, without prior consent of the SBP. Commercial banks lack a thorough understanding of the startup investment ecosystem and serve as a bridge between SBP and investors/startups, hindering direct communication between the two parties.

“An overburdening of regulatory policies from different regulators is forcing local companies to register themselves abroad,” said the NIC. “Regulatory burdens hinder locally registered funds from partnering with international funds. A central database for both startups and investors is required to provide visibility for both parties, and a medium for collaboration.”

The NIC said the SBP is working with VCs to address challenges faced on the foreign exchange side. The SBP is supporting the special convertible rupee accounts regime, for materialising investments coming from outside Pakistan, banks acting as trustees and reporting all this to SBP and allowing repatriation of money.

About investment in tech ecosystem, the NIC said there were 101 deals recorded between 2015 and 2019 in Pakistan-based companies, about 47 of those occurred in just the past two years. In 2019 alone, investors poured $36 million into 14 Pakistani tech startups across 15 deals. Startups raised seed funding in 2019, with Airlift, Tello Talk and Eat Mubarak securing the largest ticket size. Four startups-Airlift, Cheetay, Bykea and Knowledge Platform secured Series A funding, while Finja managed to secure a convertible note funding.

The NIC said lack of FDI-friendly policies hinders the entry, proper utilisation, and exit of foreign exchange.

“As the startup ecosystem in Pakistan is maturing, the number of formalized players is increasing, paving way for the overall development of the entrepreneurial landscape,” it said.

“Overall, the number of formalised incubation centers, funding players and deals in Pakistan, increased considerably over the past eight years.”