Startup Struggles in Pakistan, Yet Billions in Funding Could Be Next

We are not a business-friendly nation. Period.

Keeping in mind this bitter reality check, Pakistan’s startup ecosystem entered 2025 facing uncertainty. Like every year, from the glory days of 2022.

According to Invest2Innovate’s 1QCY25 Deal Flow Update, startups raised $196,000 through three publicly announced deals. While this amount is small, it is an improvement compared to the complete funding drought that happened in 1qcy24. The prior year was particularly punishing total startup funding plummeting by 77 percent compared to 2022, with only $75.6 million raised across 37 disclosed deals.

Pakistani Startups Are Falling Behind, but Why?

It is simple. Global market contractions and Pakistan’s macroeconomic turmoil, rampant inflation, a volatile rupee, and persistent political instability hit the ecosystem hard, particularly at the early stage, where pre-seed and seed rounds nearly vanished. In response, many founders downsized, paused fundraising efforts, or pivoted business models in a recalibration that continues into 2025.

With Comparison To India

In comparison to regional peers, Pakistan’s funding landscape remains starkly underdeveloped. While its startups raised under $200,000 in 1QCY25, India secured $3.1 billion during the same period. Cumulatively, Pakistan has attracted less than $1 billion in venture capital since 2015, compared to India’s $161 billion haul since 2014.

 Potential

However, the potential for a rebound may be emerging. Investor sentiment was initially hesitant through the first quarter of 2025 as the country awaited clarity on the IMF’s Extended Fund Facility. A breakthrough did arrive with the signing of a Staff Level Agreement securing $1 billion, followed by a second agreement for $1.3 billion in climate resilience funding.

These developments and the State Bank of Pakistan’s decision to cut its policy rate to 12 percent offer hope. Although current interest rates remain too high to significantly boost high-risk investments, projections of further cuts could create a more accommodating environment later in the year.

Challenges Ahead

While 2025 remains challenging for startup fundraising in Pakistan, the ecosystem sees pockets of growth through new funds, inclusion-focused programs, fintech innovation, and international expansion, indicating a resilient and adaptive entrepreneurial environment. Pakistani startups have increasingly turned to alternative financing models due to the constrained capital environment.

According to the latest quarterly deal flow update by i2i, some are leveraging impact investment vehicles aligned with sustainable development goals, while others are pursuing strategic partnerships with fintech and logistics players or eyeing regional expansion into the UAE and Saudi Arabia. Yet the rush for capital must be tempered by caution. I2i highlights this concern that raising funds on unfavorable terms or simply to survive may stall long-term viability.

It further points out that several startups have opted for strategic down rounds—lowering their valuations to extend the runway without compromising operational integrity. These down rounds, while reducing the company’s valuation, can be a strategic move to ensure the company’s survival and future growth.

Growth Can Happen Fast

Amid ongoing economic challenges, insights from i2i reveal some encouraging developments, particularly in gender diversity within Pakistan’s startup ecosystem. In the first quarter of 2025, the male-to-female ratio among funded startups improved to 2:1, a modest but notable step forward from the previous quarter. This shift hints at a slowly evolving narrative around female entrepreneurship in the tech sector.

While issues like weak domestic capital markets, regulatory hurdles, and macroeconomic instability persist, there’s a cautious sense of optimism for a potential recovery later in the year. Key factors such as strengthening economic fundamentals, lower interest rates, and rising interest from regional investors could help stabilize and grow the startup landscape.

However, realizing this potential will require decisive action—Pakistan must implement meaningful regulatory reforms, offer incentives for local investment, and build strong international partnerships. As i2i notes, the journey ahead may be uncertain, but resilience remains a defining trait of Pakistan’s startup community. Many founders have weathered tougher storms and are ready to adapt once again.