#4 - Q3 2022 Roundup
Hey friend! This is the fourth edition of i2i Insights, a newsletter where we bring you updates and important info about the Pakistani startup ecosystem. Since September marks the end of Q3, we’ll be jumping right into our Q3 Dealflow Roundup, but you can skip to the end to see September-specific updates :)
Where we’re at:
The Pakistani startup ecosystem doesn’t exist in a vacuum, and we think it's important to contextualize what’s been happening on a macro-level to give you the full picture.
In August, Pakistan was bailed out by the IMF ($1.17 billion) to avert a near-term default. Then, the floods hit, resulting in 1/3 of Pakistan underwater. Government figures estimate that the economic toll and rebuilding costs to be around $30 billion. Oh, and we also just got our sixth Finance Minister in four years.
Q3 also saw Airlift, Pakistan’s most well-funded startup shut-down. A single startup isn’t representative of an entire ecosystem — and other ecosystems have similarly seen turmoil, most notably Egypt’s Capiter.
Capiter is one of the best-funded e-commerce startups in the MENAP region, and they recently fired their CEO and COO. Said CEO then came out dismissing his dismissal as “false” in a statement to TechCrunch. You can read more about it in Zubair’s newsletter Termsheet here.
All of this has been set against the backdrop of [gestures vaguely at everything] that’s been happening in the global economy.
As Kals, GP of i2i Ventures pointed out, many VCs have been in a holding (wait-and-see) pattern. As things have dried up, startups have had to focus on good business fundamentals, and maintaining enough runway (12-24 months) until their next raise, when things are hopefully slightly better.
The last few months have seen a lot happen, so let’s dig in to see where the Pakistani startup ecosystem is now.
📌 Q3 Roundup:
Pakistani startups raised $65.5M in Q3, bringing the YTD amount to $340.1M.
Q3 was down 36% from Q2 2022, and down 62% from Q1 2022. Q3 of 2021 saw Pakistani startups raised 2.7x more ($177M) than what they raised in Q3 this year.
The numbers this quarter may not be as high, but total funding for 2022 will probably still surpass the total amount raised in 2021 ($354M).
Q3 recorded 14 deals, 1 deals less than Q2 — but both Q3 and Q2 were significantly lower than Q1’s 22 recorded deals.
In comparison to the Pakistani ecosystem, Egyptian startups have raised $382M YTD across 108 deals, while Bangladeshi startups have raised $94M YTD across 27 deals. (We got our data on Egypt and Bangladesh from Digital Digest and LightCastle Partners respectively!)
The 3 largest deals this quarter were:
DBank’s $17.6M seed round, marking Sequoia’s debut investment in Pakistan and also Pakistan’s largest seed round to date.
Revolving Game’s $13.2M round.
OneLoad’s $11M series A, the only series A to take place this quarter.
Interestingly, 6 out of the 14 deals that took place this quarter were fintech startups, compared to 2 e-commerce startups. Fintech startups raised 58% of total funding this quarter, compared to e-commerce startups that raised 19% of total funding. Average ticket sizes for fintech and e-commerce startups were about the same at $6.4M and $6.2M respectively.
As Kals’ pointed out for the Q2 2022 update, there’s been virtually no funding for later stage startups this quarter, especially Series A and beyond. 10 out of the 13 deals this quarter were either Pre-Series or Seed stage, accounting for 60% of total funding raised this quarter. Only 1 deal was at the Series A stage, with OneLoad raising $11M accounting for 17% of the total funding raised in Q3. The stage of Revolving Game’s $13.2M round was undisclosed, but accounted for 20% of total funding in Q3.
97% of total funding was attributed to mixed deals — ie. deals with at least one International and one local investor. Less than 1% of total funding went to international deals (ie. deals with solely international investors), compared to 22% of total funding having gone to international deals in both Q2 and Q1 of 2022. Comparatively, in Q3 of 2021, 15% of total funding went to international deals.
This trend is not surprising given the slowdown of international VC funding – while international VCs may have been comfortable doing a deal without local investor involvement this time last year, that is very unlikely in the current macroeconomic environment, and especially given Pakistan’s own political and economic instability.
There was slight progress on the gender-front this quarter, with female co founded startups raising 31% of total funding, compared to male founded startups raising 65% of total funding. Female co founded startups also saw higher average ticket sizes, with an average ticket size of $10.1M, compared to $6.1M for male founded startups.
DBank, co-founded by Tania Aidrus (ex-Google and former Special Assistant to the Prime Minister (SAPM) for the Digital Pakistan initiative) was the most notable female co founded startup that raised in Q3.
Female founded startups, on the other hand, raised… 0.7% of total funding.
This quarter also saw Pakistan’s largest acquisition so far. Pakistan-founded SaaS-based hosting provider Cloudways got acquired by Digital Ocean for $350M. intech-logistics hybrid PostEx also acquired logistics-service provider Call Courier, and VentureDive acquired local AI and data analytics company NexDegree.
As we move into Q4, we believe we will still meet and surpass last year’s funding number, especially as funds come out of their summer slump with dry powder to deploy (fingers crossed). At the same time, the recent acquisition activity has also been both surprising and a positive sign, especially given the perception of Pakistan’s instability globally and the overall question mark around exits in this market. Our prediction is we’ll see this type of consolidation continue in the future, both as international players look to enter the market as well as local players using M&A as a strategy to strengthen their own offerings & efforts.