If and when the history of Pakistan’s technology sector is written, 2021 will be remembered as a watershed year in which the sector moved from being a niche followed only by those who work in it to becoming mainstream, at least on Twitter. The main reason for this was that money began to flow in, and it wasn’t just a few million dollars.
The total investment surpassed $330 million, outperforming all previous years on record combined. Following the cash came congratulatory tweets from government leaders, including Prime Minister Imran Khan himself, either highlighting the promise of technology in reforming the country or, if feasible, taking credit. In any event, that’s what politicians (or, in our case, the military) do: they take credit for favourable achievements even when they occur despite their policies, and they blame predecessors when things go wrong.
In the case of startups, increased wealth entails greater responsibility. Not only to raise more money at larger values in succeeding rounds, but also to expand outside the wealthy hotbeds of Karachi, Lahore, and Islamabad. Is 2022 going to be the year that we finally see fresh, homegrown firms achieve this and build the kind of user base that Careem previously had and Foodpanda now has?
The capital frenzy is not going to stop anytime soon, one can say with reasonable assurance. In reality, as indicated by Tiger Global leading Creditbook’s Pre-Series A, we may see not only larger rounds at higher, even if on-paper valuations, but also more noteworthy investors enter Pakistan. Sequoia, Andreessen Horowitz, and others are rumoured to be interested.
In line with the 2021 trend, the primary priority areas are likely to be “huge opportunities” such as banking the underbanked, e-commerce, and so on. As a solid pipeline of seed startups graduates further, this will be fueled by later-stage deals, such as three Series C rounds and up to 15 Series A rounds.
The majority of them are expected to be in fintech, with the payments vertical leading the way, but the broader dukan tech market is expected to witness robust activity as well.
Similarly, the amount of deals of $10 million or more, $50 million or more, and even $100 million will rise. Local investors’ FOMO (fear of missing out) will only grow, and they may even make half-hearted attempts to enter the tech area, though their focus will be on developing, or at least attempting, businesses rather than VC deals.
This year may also be the year when several electronic money institutions seek to compete with banks, since Finja and Nayapay have already received commercial licences, and a few additional players may be close behind. However, given the legislation’ restricted scope, it remains to be seen what use cases these startups may devise to lure clients away from full-fledged banks and acquire a significant deposit base.
Another trend that will only grow is the competition for limited-supply tech expertise, as venture-backed companies bid higher pay to recruit the best, or even average, resources.
However, despite all of the cash that the founders have raised and will continue to raise in the future, it is important to remember that Pakistan is ultimately a highly unstable economy, with short-term booms followed by longer-term busts and austerity measures. To put it bluntly, everyone is feeling the squeeze due to a rapidly weakening currency, constantly rising inflation, and shrinking real earnings. So, how do firms that cater to local customers ever expand in such a setting? Careem is a wonderful example of this, as it grew a large user base in a short period of time while borrowing rates were exceptionally low and the rupee was artificially high. When the honeymoon period ended, along with venture capital funding, the company’s statistics plummeted.
Too frequently, entrepreneurs — often armed with gleaming examples from the United States or other rising countries — fail to comprehend this harsh reality, while the government thinks that technology would be the saviour who will cure Pakistan’s recurring economic issues. Similarly, investors are quick to foresee unicorns coming from the country in the near future, claiming that this has already occurred elsewhere in the globe and that we are only catching up.
All of this might be true, and a few huge departures could occur. But what’s frequently overlooked is that for consumer technology to actually take off, it has to be surrounded by a supportive ecosystem. Take Indonesia, which has generated Gojek while also having tens of multi-billion dollar corporations in banking, telecom, and petrochemicals, and is a huge inspiration for many entrepreneurs and VCs.
India is no exception, with behemoths in the insurance, oil and gas, and automobile industries among others. Not to add that for the most part, these countries’ GDP growth rates have remained over 5%.
Unfortunately, Pakistan chooses a different course in this regard. Where will the money come from to put in digital wallets as savings or buy more on e-commerce websites if individuals are struggling to get their vehicles filled with gas and meet the most basic of home expenses? So, unless the administration has any plans to address the underlying economic challenges that have us grovelling to the International Monetary Fund and friendly nations for “deposits” followed by austerity every other year, technology alone will not suffice.
Source:
https://www.dawn.com/news/1667243/an-unstoppable-tech-frenzy
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