Shahmir Khan
In 2025, interest in venture capital (VC) in Pakistan reached a new high — at least online. Google Trends recorded a fresh peak in search activity. But investor capital did not follow.
While global VC funding grew by 6 percent last year, Pakistan moved in the opposite direction. Total VC inflows fell by 70 percent to just USD 22.5 million. This followed an already weak 2023, when funding had barely crossed USD 76 million. By contrast, regional peers raised significantly more: India attracted USD 13.7 billion (up 43 percent year-on-year), while even Bangladesh, despite a pullback, secured USD 41 million.
Most of the global VC rebound remained concentrated in the United States. According to Dealroom, US-based startups accounted for nearly 57 percent of total VC funding in 2024. That shift matters. With most of that capital retained within American borders, the US-backed wellspring of VC funding for Pakistani startups has run dry.
Amid this capital drought, only a handful of funds appear to have the bandwidth to support promising ventures. Several investors have quietly withdrawn from deals — suggesting not just selective hesitation, but a deeper structural malaise. This is often overlooked by critics eager to dismiss “startup culture” as a fleeting trend.
Are investors reacting to persistent inflation and regional instability? Or have they simply found better risk-adjusted returns elsewhere? Since the pandemic, broader country risk has receded across much of South Asia. India has seen rating upgrades. Bangladesh has stabilized under an IMF programme. Even Sri Lanka has begun to rebuild investor trust following its exit from sovereign default.
Pakistan remains the outlier. Despite a modest compression in its risk premium, investor confidence has yet to recover. Policy inconsistency, weak reform momentum, and macroeconomic fragility continue to weigh heavily on sentiment.
Meanwhile, as local interest rates trend toward single digits, startups in other markets are increasingly opting for debt rather than equity. The challenge: Pakistan lacks dedicated venture debt or private credit funds. That absence stifles innovation—particularly in sectors such as agribusiness, where volatility and asset-light models deter conventional lending.
With banks largely unwilling to lend without hard collateral, early-stage firms often resort to alternative structures such as revenue-based or royalty financing—models that tie repayments to topline revenue, allowing working capital support without equity dilution.
Other regions are adapting. In the MENA region, alternative financing is becoming mainstream. According to Clear World’s MENA Early-Stage Data Handbook, valuations, and deal sizes continue to rise, even as equity dilution in Series A rounds appears to be declining. A growing share of deals now includes credit facilities alongside equity.
Pakistan has yet to make that leap.
The result is a widening mismatch. While the broader private sector sits on idle capital, that liquidity is not flowing to high-risk, early-stage businesses. The startup economy finds itself squeezed between shrinking global VC and a domestic financial system that has not evolved to underwrite innovation.
Founders cannot rely on traditional banks. Institutional investors capable of backing new ventures operate with limited capacity — and often, even more limited appetite — for risk.
Pakistan’s startup ecosystem cannot remain tethered to US-driven venture flows. If early-stage businesses are to endure economic turbulence and eventually scale, the domestic financial architecture must evolve. That means regulatory clarity, credit instruments suited to early-stage risk, and a funding environment that enables ambition without demanding immediate ownership.
Absent these reforms, Pakistan risks losing the embedded value of its emerging sectors—either through attrition or through relocation to jurisdictions where non-dilutive capital is more accessible and less punitive.
(The writer is an economic researcher and financial analyst with a special focus on capital markets)
