Why Tech Startups Fail

in
Pakistan

Capstone II
Thesis Advisor
Sir Umair Naseer

BY
Omais Alam (20211-29894)
Muhammad Sadiq (20211-29961)
Muhammad Iqbal (20221-32508)
Arsalan Ali Baig (20221-32508)
Table of Contents

Executive Summary
Acknowledgement
Chapter # 1.....................................................................................................................................4
1.1 Background of the Study..........................................................................................................4
1.2 Recent Startup Failures............................................................................................................5
1.3 Problem Statement..................................................................................................................8
1.4 Pakistan's Startup Ecosystem..................................................................................................9
1.5 Types of Investors..................................................................................................................12
1.6 Why do Startups Fail?............................................................................................................13
1.7 Data Gathering.......................................................................................................................15
Chapter # 2...................................................................................................................................19
2.1 Neighboring Countries and Challenges..................................................................................19
Chapter # 3...................................................................................................................................21
3.1 Suggestions............................................................................................................................21
3.2 Government Efforts in Boosting the Startup Sector..............................................................22
Conclusion....................................................................................................................................23
References....................................................................................................................................24

1|Page
 Acknowledgement
Throughout our research project. Your expertise, insightful feedback, and
encouragement have been instrumental in shaping my work and guiding me through
the challenges of this academic endeavor.

Dr. Umair Naseer, your deep knowledge and experience in the field of startup
ecosystems provided us with a solid foundation to explore this complex subject. Your
meticulous attention to detail and ability to simplify complex concepts have significantly
enhanced my understanding and approach to the research.

Dr. Umair Naseer, your enthusiasm and innovative perspectives have been a constant
source of inspiration. Your constructive criticism and practical advice were crucial in
refining my research methodologies and in the interpretation of our findings.

We are incredibly grateful for the time and effort you both Dr. Imamuddin and Dr.
Umair Naseer dedicated to reviewing our work, providing timely and constructive
feedback, and encouraging us to think critically and creatively. Your mentorship has not
only contributed to the success of this project but has also fostered our personal and
professional growth.

This research project was an enriching and enlightening journey, and we could not have
navigated it without your expert guidance. We are proud of the work we have
accomplished and am excited about the potential impact of our findings on the startup
ecosystem in Pakistan.

Thank you once again for your invaluable mentorship, support, and for believing in our
capabilities. We look forward to continuing to learn from your expertise and to seeking
your guidance in my future academic and professional endeavors.

Sincerely,

Omais Alam - (20211-29894)

Muhammad Sadiq - (20211-29961)
Muhammad Iqbal - (20221-32508)
Arsalan Ali Baig - (20221-32508)

2|Page
Introduction
The project seeks to thoroughly investigate the multi-faceted challenges confronting
tech startups in Pakistan, with the goal of understanding the underlying reasons for
their relatively high failure rates. Recognizing the critical role that startups play in the
economic development and technological advancement of Pakistan, this study will
employ a comprehensive approach, incorporating primary research methods such as
surveys and interviews. These methods aim to gather diverse perspectives from a range
of stakeholders, including startup founders, and industry experts.
Central to the project's objectives is the identification of key factors that contribute to
the failures of tech startups in Pakistan. These factors may range from financial
constraints, lack of market understanding, regulatory hurdles, inadequate support from
the government, technological challenges, to issues related to infrastructure and skilled
human resources. By pinpointing these factors, the study will provide a clear picture of
the current startup ecosystem in Pakistan.
Another significant aspect of the study will be to explore and suggest viable strategies
that could enhance the success rates of tech startups in the region. This will involve
analyzing successful models from other countries and adapting these learnings to the
Pakistani context. Special focus will be given to strategies that can make Pakistan a more
attractive destination for major venture capital funds. This aspect is crucial as access to
funding is one of the key drivers of startup success, and Pakistan has traditionally seen
limited investment from big global venture capital funds.
The research will also delve into the role of government policies and initiatives in
shaping the startup ecosystem. It will evaluate existing policies and propose
recommendations for creating a more conducive environment for tech startups. This
could include suggestions for regulatory reforms, financial incentives, and support
programs aimed at fostering innovation and entrepreneurship.
Moreover, the study will investigate the potential of leveraging Pakistan's unique
strengths, such as its growing young population, increasing internet penetration, and
improving tech infrastructure, to boost the startup environment. It will explore how
these attributes can be capitalized upon to attract both local and international
investments.
The expected outcome of this study is a comprehensive report that not only highlights
the current challenges faced by Pakistani tech startups but also provides actionable
recommendations for various stakeholders. These recommendations aim to catalyze a
significant improvement in the startup ecosystem, leading to a higher success rate of
tech startups and enhanced attractiveness for venture capital investments. Ultimately,
3|Page
the project endeavors to contribute significantly to the growth and sustainability of
Pakistan's tech startup landscape, fostering innovation, and driving economic progress.

Chapter # 1

1.1 Background of the Study

The startup environment in Pakistan faces various challenges that impact entrepreneurs
and the economy. One significant obstacle is the societal stigma associated with failure.
This perspective fosters a climate of fear and hesitancy to take risks among
entrepreneurs, which can stifle innovation and growth. Moreover, regulatory issues
present significant barriers, making it difficult for startups to secure funding and operate
effectively. These regulatory challenges are compounded by the difficulty in hiring
skilled personnel, as the current workforce often does not meet the startups' needs.

Despite these challenges, startups are vital to Pakistan's economy. They play a crucial
role in job creation, stimulating economic activity, and drawing investments. The growth
and success of the startup sector are essential for the country's overall economic
development.

Entrepreneurs in Pakistan operate in a high-stress environment, marked by substantial

emotional, personal, and financial commitments. This landscape tests the resilience and
perseverance of founders, who must navigate a myriad of challenges to succeed.

An important aspect highlighted is the need to learn from failures. Failures should be
seen as critical learning experiences, offering valuable lessons for future ventures. It's
essential to analyze these setbacks constructively, rather than simply viewing them
negatively.

Despite the hurdles, the Pakistani startup ecosystem is showing signs of improvement.
There is a gradual shift towards addressing the systemic issues hindering startup growth.
Efforts are being made to create a more supportive and nurturing environment for
entrepreneurs, indicating positive trends for the future of the startup ecosystem in
Pakistan. This gradual progress is a hopeful sign for the country's economic
development, as it moves towards fostering a more conducive atmosphere for
entrepreneurial success.

4|Page
1.2 Recent Startup Failures

Airlift the rapid rise and fall of startups in Pakistan, exemplified by Airlift's
experience, highlight critical vulnerabilities in the startup ecosystem.
Despite securing a record $284.89 million in disclosed funds in the first six months of
2022, Pakistani startups face daunting challenges, including Airlift's abrupt shutdown,
which has sent ripples through the entrepreneurial community.
Airlift's journey began in 2019 as a mass transit solution, akin to an Uber for buses.
However, the COVID-19 pandemic forced a pivot to rapid delivery, a move that initially
brought success and significant funding. But the startup couldn't sustain its growth
amidst shifting economic conditions, leading to its closure in July 2022. The global
recession and capital market downturns were cited as reasons, alongside investor
hesitancy due to deteriorating global economic conditions.
Several factors contributed to Airlift's demise and mirror broader challenges in the
startup sector:
1. Rising Inflation and Economic Downturn: The global financial crisis and soaring
fuel prices have made customers less willing to pay for luxury services like rapid
delivery. Additionally, these conditions forced companies like Airlift to increase
service prices.
2. Overreliance on Venture Capital Funding: Startups heavily dependent on VC
funding face risks when investors pull back during recessions. Airlift's heavy
reliance on single capital source or a major portion of its funding from one
channel, particularly in its B round, made it financially vulnerable.
3. Rigid Customer Preferences: In Pakistan, where affordable domestic help and
traditional retail options are prevalent, startups like Airlift struggled to change
consumer habits towards paid delivery services.
4. Investor Scrutiny and the Shift in Investment Philosophy: The startup's financial
challenges were compounded by increased investor scrutiny and a shift away
from the 'growth at all costs' mentality. This led to difficulties in raising funds,
culminating in layoffs and operational cutbacks.
5. Pivot Strategy Failure: In an attempt to become self-reliant and independent,
Airlift restructured, which included withdrawing from markets in South Africa
5|Page
 and smaller Pakistani cities. The aim was to generate revenue through its own
business activities, a challenging feat in the fast-paced retail and rapid commerce
sectors. This situation reflects a shift away from the previously dominant
ideology of pursuing growth at any cost.
Airlift's story is a cautionary tale for other startups in Pakistan, emphasizing the need for
diversified funding strategies, adaptability to market conditions, and a deeper
understanding of local consumer behavior. This case also underscores the importance of
strategic pivoting and the realities of operating in a volatile economic landscape.

SWVL a mobility startup, ceased its operations in Pakistan after three

years, despite the country being its second-largest market in terms
of revenue. This decision was part of a broader optimization strategy to reduce costs
and focus on more profitable markets like Egypt and Mexico. The company was facing
financial challenges, as evidenced by its net losses of $161.6 million for the first half of
2022, a significant increase from the $80.6 million loss in the same period in 2021.
SWVL's total accumulated losses by mid-2022 were $375.8 million. This financial strain
was compounded by a global downturn in investments and a negative operating cash
flow of $76.8 million in the first half of 2022.
SWVL's operations in Pakistan were diverse, consisting of three business verticals:
intracity transit, intercity travel, and a Transport-as-a-Service (TaaS) model for corporate
clients. Despite a significant revenue of $9.71 million from Pakistan in the first half of
2022, accounting for about 25% of their total $40 million revenue, the company
struggled to achieve profitability in the Pakistani market.
The company's IPO on Nasdaq in March 2022 through a SPAC (Special Purpose
Acquisition Company) initially valued at $1.5 billion, faced challenges, with share prices
falling drastically. This decline in share value and a warning of potential delisting from
Nasdaq due to low share prices added to the company's financial pressures. The primary
aim became to turn cash flow positive by 2023, leading to the strategic decision to exit
less profitable markets like Pakistan.
SWVL's failure in Pakistan also reflects broader challenges in the ride-sharing and hailing
industry, characterized by high customer acquisition costs and low unit economics.
Additionally, the relatively weak purchasing power in Pakistan made it hard to sustain
profitability, especially as customers were likely to switch to alternatives at the slightest
increase in rates.
SWVL's exit from Pakistan was a strategic decision driven by financial challenges, market
dynamics, and the need to focus on more profitable markets. Despite significant
revenue growth in Pakistan, the company faced difficulties in turning this into

6|Page
sustainable profitability, exacerbated by broader economic challenges and strategic
missteps.

TABYAT.PK Tabyat.pk, an ambitious health-tech venture in

Pakistan, experienced a significant setback
leading to its eventual shutdown. This online pharmacy platform, emerging under the
umbrella of MedznMore, was co-founded by Asad Khan and Saad Khawar. Khan brought
his experience from Careem, and Khawar contributed his insights from Dawaai,
combining their expertise to launch the startup in September 2020.
The initial phase for Tabyat.pk was promising. By October 2020, the startup had raised a
remarkable $2.6 million in seed funding, marking it as the largest funding round in
Pakistan's history at that time. This achievement was a significant milestone, considering
the startup landscape in Pakistan. The funding was sourced from a mix of local families
and undisclosed international investors.
Initially focusing on B2B healthcare services, Tabyat.pk claimed to service over 10,000
pharmacies. The startup later expanded into the B2C market, attempting to capture a
broader customer base. In May 2022, Tabyat.pk secured an additional $11.5 million in
funding, attracting several local and international investors, indicating a strong market
presence and potential.
Despite these accomplishments, Tabyat.pk faced a challenging environment. The
startup's closure was announced amidst a difficult period for Pakistani startups, which
experienced a significant decline in funding during the second quarter of 2023. The
economic and political instability in the country, coupled with unfavorable global market
conditions, created a difficult environment for venture capital investment. These factors
were crucial in the decision to shut down operations.
The company also underwent a strategic pivot from its original B2B model (TezMedz) to
a more consumer-focused approach. This involved a shift to offering integrated
healthcare services through both online and offline channels. However, this pivot,
despite its potential, could not withstand the external economic pressures and the
challenges of scaling in a competitive market.
Tabyat.pk’s journey is a case study in the volatile nature of the startup ecosystem in
emerging markets like Pakistan. Despite a strong start and significant funding, external
macroeconomic factors, coupled with strategic challenges, led to its untimely closure.
The case of Tabyat.pk highlights the complexities and risks inherent in startup ventures,
especially in sectors like health-tech that require substantial investment and face stiff
competition.

7|Page
1.3 Problem Statement
Why Tech start-ups are closing down in Pakistan, why they have
not been successful? What have gone wrong?
The burgeoning tech startup ecosystem in Pakistan is confronting a critical challenge: an
increasing number of these startups are shutting down, raising questions about the
sustainability and success factors of these ventures in the Pakistani market. This trend
signals a need to investigate the underlying causes that are hindering the growth and
longevity of tech startups in the region.

Firstly, Pakistan's economic instability, marked by inflation, fluctuating currency

values, and political unrest, creates a precarious environment for startups. Such
conditions can deter both local and international investors, leading to a crunch in
essential funding. Tech startups, particularly those in early stages, heavily rely on
external funding for growth and expansion. The recent decline in investment,
particularly in the wake of global economic challenges, has left many startups struggling
to secure the capital necessary for operation and growth.

Secondly, the regulatory landscape in Pakistan poses significant challenges. Startups

often face bureaucratic hurdles, ambiguous policies, and a lack of government support
that can stifle innovation and growth. The absence of a regulatory framework tailored to
the unique needs of tech startups means that these businesses often operate in a zone
of legal uncertainty, which can be particularly problematic for attracting investment and
scaling operations.

Thirdly, the tech talent pool in Pakistan, while growing, still faces gaps in skills and
experience, particularly in advanced tech and entrepreneurial leadership. This shortfall
can limit a startup's ability to innovate and compete effectively in the global market.
Additionally, the lack of a robust entrepreneurial ecosystem with mentorship,
networking, and support systems further exacerbates these challenges.

Lastly, market dynamics and consumer behavior in Pakistan also play a crucial role.
Many startups struggle with product-market fit, failing to align their offerings with the
needs and behaviors of the local market. There's also a significant competition from
established companies and international players, which can overshadow emerging
startups.

8|Page
Understanding why tech startups in Pakistan are failing at an alarming rate requires a
multifaceted approach, considering economic, regulatory, talent, and market
challenges. Addressing these issues is crucial for nurturing a thriving tech startup
ecosystem that contributes significantly to Pakistan's economic growth and
technological advancement.

1.4 Pakistan's Startup Ecosystem

Here's a list of some notable incubation centers in Pakistan, each with a brief
description:
1. Plan9 (Lahore): Governed by the Punjab Information Technology Board, Plan9
focuses on IT-based startups, providing office space, mentorship, and other
resources without taking equity.
2. NUST TIC (Islamabad): Operated by the National University of Sciences and
Technology, this center supports tech startups, helping entrepreneurs
commercialize their ideas.
3. Pasha Fund (Karachi): Specializes in funding innovative tech ideas with social
impact, in partnership with Google for Entrepreneurs.
4. SEED Incubation (Karachi): Focuses on mentoring, incubating, and funding
companies across various sectors, including informal ones like domestic work.
5. Microsoft Innovation Center (Karachi): Offers a 12-week training program for
entrepreneurs, with a focus on building solutions and connecting with a global
audience.
6. SMEDA (Lahore): A government institution that provides development services
to small and medium enterprises.
7. Cloud9 Startups (Islamabad): Supports tech startups with resources,
mentorship, and funding opportunities.
8. National ICT R&D Fund (Islamabad): Focuses on supporting research and
development initiatives in the technology sector.
9. Breeze Angel Investments (Karachi): An early-stage investor supporting
technology entrepreneurs.
10. COMSATS Incubation Center (Islamabad): Aims to improve Pakistan’s
socioeconomic structure by supporting innovative ideas and startups.

9|Page
 11. LUMS Centre for Entrepreneurship (Lahore): Known for its strong network of
investors and mentors, it supports the growth of entrepreneurial culture in
Pakistan.
12. PlanX (Lahore): Aims to empower scalable technology startups by providing
access to multiple resources and networks.
13. DYL Ventures (Lahore): Provides mentorship and support in business growth and
marketing strategies.
14. Dotzero (Karachi): Offers business consulting and co-working spaces, and
provides funding to startups.
15. Business Incubation Center University of Veterinary and Animal Sciences
(Lahore): Focuses on providing consulting services, financial aid, marketing, and
networking assistance to startups.
16. SMEDA (Lahore): A government initiative that provides business development
services to small and medium enterprises.
17. NUST Technology Incubation Center (Islamabad): Develops technology-based
business ideas and promotes them into viable startups.
These incubation centers play a pivotal role in fostering the startup ecosystem in
Pakistan, providing support through mentorship, funding, training, and networking
opportunities.

10 | P a g e
11 | P a g e
12 | P a g e
1.5 Types of Investors

Angel investors are wealthy individuals

Angel
providing capital to startups for equity or
investors
debt, often bringing expertise and networks

Venture capital involves professional investors

Venture
funding high-potential enterprises for equity,
capital
offering business expertise

Crowdfunding platforms enable raising small

funds from many people online, for projects
Crowdfunding
or ventures, in exchange for rewards, equity,
or debt repayment.

13 | P a g e
1.6 Why do Startups Fail?

14 | P a g e
15 | P a g e
1.7 Data Gathering
In this study, the primary data was gathered through detailed interviews. The businesses
under consideration were mostly established within a recent timeframe, specifically
between 2018 and 2023, which amounts to about 4-5 years. The empirical investigation
involved two entrepreneurs from Pakistan, each representing distinct business sectors
including financial services, transportation, and e-commerce. This selection was made to
ensure a diverse range of perspectives on the challenges encountered in starting and
running their businesses.

Interviewee Name: Mr. Muhammad Shariq Title: Co-Founder & CEO at BaadMay
Expertise: Vision, Team Building, Strategy, Sales, Fundraising

Interviewer: Thank you for joining us, Mr. Muhammad Shariq. Let's begin by discussing
how are start-ups different from conventional business?
Mr. Muhammad Shariq: It's a pleasure to be here. Startups focus on innovative ideas
and rapid growth, often in technology or unique business models, aiming for large-scale
impact. Conventional businesses typically have more traditional models, prioritizing
steady growth and stability over innovation.
Interviewer: That’s insightful. Why are startups in Pakistan experiencing failure?
Mr. Muhammad Shariq: Due to initially low Federal Reserve rates, startups in Pakistan
received funding, but as inflation rose and Federal Reserve rates increased, this funding
ceased.
Interviewer: Does dollar repatriation directly contribute to the failure of startups?
Mr. Muhammad Shariq: Absolutely not, investor never wants to repatriate.
Interviewer: What prevents local investors from investing in startups?
Mr. Muhammad Shariq: Indeed, there is a lack of a risk-taking culture towards
innovative ideas in Pakistan. We, as Pakistanis, often hesitate to embrace risks
associated with new and innovative concepts. Additionally, there is a trust issue, as
investors often lack confidence in individuals from lower economic backgrounds.
Interviewer: Do regulatory requirements play a role in the failure of startups?
Mr. Muhammad Shariq: Absolutely not, the lack of regulatory requirements currently
does not pose a hurdle. Existing regulations suffice to foster a healthy environment.
However, pressuring the government for more regulations might lead to overregulation,
potentially harming the industry and contributing to failures.

16 | P a g e
Interviewer: What prevents major venture capital firms from investing in Pakistan?
Mr. Muhammad Shariq: The sole reason is the country's political instability.
Interviewer: In which sectors do you believe there are still opportunities for startups?
Mr. Muhammad Shariq: Sectors such as EdTech, B2B Lending, and Payment Solutions
have considerable potential and scope for startups.
Interviewer: Despite significant investments being made recently, they have not
impacted the foreign exchange reserves?
Mr. Muhammad Shariq: In reality, the funds never truly arrive in Pakistan. They are held
abroad and are only transferred into Pakistan as needed.
Interviewer: Thank you, Mr. Muhammad Shariq, for your invaluable insights on these
critical aspects of the startup ecosystem.
Mr. Muhammad Shariq: It was my pleasure. Understanding these dynamics is crucial for
anyone involved in the startup world, whether as an entrepreneur, investor, or policy
maker.

Interviewee Name: Mr. Ahmed Ayub Title: Co-Founder Airlift Technologies & Airlift
Express Expertise: Startup Ecosystems, Venture Capital Dynamics, Strategic Business
Planning

Interviewer: Thank you for joining us, Mr. Ahmed Ayub. Let's begin by discussing Airlift's
journey. How significant are investor attitude fluctuations in the startup ecosystem?
Mr. Ahmed Ayub: It's a pleasure to be here. Investor attitudes play a crucial role in the
startup ecosystem, as seen in Airlift's case. Initially, Airlift garnered significant investor
interest, showcasing strong confidence in its potential. However, these attitudes are
quite fluid and are often impacted by broader economic trends. The contrast between
Q4 2021 and Q3 2021 in Airlift's journey is a prime example of this. It's vital for startups
to understand that investor confidence can be highly sensitive and can change rapidly
with shifting economic conditions.
Interviewer: That’s insightful. Regarding business growth, what's your take on the
emphasis on profitability over expansion?
Mr. Ahmed Ayub: The focus on profitability rather than rapid expansion is critical.
Airlift's experience shows us that sustainable growth and financial viability are essential
for long-term success. Expansion without a strong profitability model can lead to
unsustainable business practices. It's more about striking a balance between growing
your market presence and ensuring financial health.
17 | P a g e
Interviewer: How do external economic factors influence investor confidence?
Mr. Ahmed Ayub: External economic factors, such as market trends and economic
conditions, play a significant role. They can lead to considerable fluctuations in investor
confidence. In Airlift's context, these external elements led to varying degrees of
investor support over time. It underscores the need for startups to be adaptable and
resilient in the face of such changes.
Interviewer: Lastly, can you speak to the importance of strategic thinking in the
Pakistani business landscape?
Mr. Ahmed Ayub: Certainly. Strategic thinking is paramount, especially in challenging
business environments like Pakistan. Airlift's story underscores this. Successful startups
must navigate not only business innovation but also regulatory, market, and cultural
challenges. It's about comprehensive planning, risk assessment, and adaptability.
Strategic thinking encompasses a holistic view of the business environment, identifying
opportunities and mitigating risks.
Interviewer: Thank you, Dr. Khan, for your invaluable insights on these critical aspects of
the startup ecosystem.
Mr. Ahmed Ayub: It was my pleasure. Understanding these dynamics is crucial for
anyone involved in the startup world, whether as an entrepreneur, investor, or policy
maker.

18 | P a g e
Chapter # 2

2.1 Neighboring Countries and Challenges

Let's examine the challenges faced by tech startups in each of the neighboring countries
of Pakistan, namely India, Bangladesh, Sri Lanka, Afghanistan, and Iran.

India
1. Funding and Investment: While India has a vibrant venture capital ecosystem, early-
stage startups often struggle to secure funding.
2. Regulatory Challenges: Startups navigate a complex regulatory framework, with
bureaucratic red tape sometimes slowing down operations.
3. Infrastructure Issues: Despite advancements, some areas still face issues like
inconsistent power supply and internet connectivity.
4. Skill Gap: There is a growing need for skilled professionals, particularly in emerging
tech sectors.
5. Competition: The market is highly competitive, with many global players and well-
funded Indian companies.

Bangladesh
1. Access to Capital: Like many emerging economies, securing funding, especially at the
early stages, is a significant challenge.
2. Regulatory Environment: Navigating the regulatory landscape can be complex and
time-consuming.
3. Infrastructure Deficiencies: Issues with reliable internet access and other
infrastructural needs are prominent.
4. Talent Availability: There's a need for more skilled professionals in the tech sector.
5. Market Size: While growing, the domestic market is relatively small, presenting scale-
up challenges.

Sri Lanka
1. Political and Economic Instability: Recent political and economic crises have created
an uncertain environment for startups.
2. Funding Limitations: Limited access to venture capital and angel investment.
19 | P a g e
3. Market Size: The small size of the domestic market poses limitations on growth
potential.
4. Brain Drain: Emigration of skilled professionals to other countries.
5. Infrastructure: While relatively advanced, still lags in comparison to larger economies.

Iran
1. International Sanctions: Has a significant impact on the ability to attract foreign
investment and access global markets.
2. Economic Challenges: Inflation and currency devaluation affect startup growth and
sustainability.
3. Regulatory Issues: Complex and sometimes restrictive regulations can hinder
business operations.
4. Limited Access to Global Tech: Sanctions also limit access to international technology
and platforms, affecting tech development.
5. Talent Migration: Skilled professionals often emigrate to seek better opportunities
abroad, leading to a talent gap.
Each country's unique socio-economic and political context presents distinct challenges
for tech startups. While there are commonalities like funding difficulties and talent
shortages, specific issues like political instability in Sri Lanka and international sanctions
in Iran significantly shape the startup ecosystem in these countries. Addressing these
challenges requires tailored strategies that consider both local and global dynamics.

20 | P a g e
Chapter # 3

3.1 Suggestions
To overcome the challenges leading to tech startup failures in Pakistan, a multi-faceted
approach addressing the unique ecosystem of the country is required. Here are some
recommendations:
1. Enhanced Government Support and Policy Reforms: The government should
streamline regulations and provide tax incentives to encourage startup growth.
Establishing clear policies around venture capital, foreign investment, and startup
operations can provide a more stable and supportive environment.
2. Development of Local Investment Channels: Encourage local investors and financial
institutions to participate more actively in the startup ecosystem. This could involve
creating funds specifically for early-stage startups and offering financial education for
potential investors about the tech sector.
3. Fostering an Entrepreneurial Ecosystem: Establish more incubators, accelerators, and
co-working spaces that provide mentorship, networking opportunities, and resources.
This also involves connecting entrepreneurs with industry experts and successful startup
founders for guidance and support.
4. Focus on Skill Development: Universities and educational institutions should align
their curricula with industry needs, focusing on emerging technologies and
entrepreneurial skills. In addition, continuous professional development programs and
workshops can help bridge the existing skill gap.
5. International Collaboration and Partnerships: Forming partnerships with
international tech companies and educational institutions can bring in expertise,
mentorship, and possibly investment. Such collaborations can also open up global
markets for Pakistani startups.
7. Improving Digital Infrastructure: Investing in reliable and widespread internet access,
especially in rural and underdeveloped areas, to ensure that startups can operate
efficiently and reach a broader market.
9. Intellectual Property Rights Protection: Strengthening IP laws and their enforcement
can encourage innovation and protect the interests of entrepreneurs and investors.
10. Creating a Supportive Financial Ecosystem: Facilitate access to various funding
sources such as angel investors, venture capital, and crowdfunding platforms. Financial
institutions can also play a role by offering loans and financial products tailored for
startups.

21 | P a g e
By implementing these recommendations, Pakistan can create a more conducive
environment for tech startups, enhancing their chances of success and contributing to
the country's economic growth and technological advancement.

3.2 Government Efforts in Boosting the Startup Sector

The government has been actively involved in enhancing the startup landscape,
addressing the economic impacts on this sector:

Pakistan Start-up Fund Dr. Umar Saif, Caretaker Federal Minister for IT and
Telecommunication, launched the "Pakistan Startup Fund" (PSF) to boost venture
investments and elevate Pakistani startups globally. Managed by the Ignite National
Technology Fund with a transparent, independent steering body, the government will
allocate up to Rs. 2 billion annually to PSF. The fund provides equity-free capital, aiding
startups in closing VC rounds. For instance, if a foreign VC invests $700,000 in a startup,
PSF will add $300,000. This initiative aims to reduce investment risks, potentially
creating Rs. 50 billion value per year in the startup ecosystem. It's a transformative step
for entrepreneurship and innovation, promising economic growth and supporting over
4,000 startups through eight National Incubation Centers (NICs). Dr. Saif emphasized
PSF's role in connecting startups with investors and the Ministry's commitment to
fostering technological innovation.

Prime Minister’s Freelancers and Venture Capital Initiative was rolled out. This
program motivated the IT ministry to develop a policy framework tailored for the sector,
emphasizing the need for more incubation centers nationwide and a greater focus on
export growth. The government committed PKR 5 billion to the IT sector, with PKR 2
billion earmarked for Venture Capital, PKR 1 billion for training initiatives, and another
PKR 1 billion for the IT endowment fund.

Additionally, the National Innovation Award’s second edition was concluded

under this initiative, connecting 50 selected winners to potential investors.

The Higher Education Commission (HEC) also introduced the Innovator Seed Fund
(ISF) targeting startups. This competition attracted over 65 startups from various
universities across Pakistan. The top 28 startups were selected as winners, each
receiving grants up to PKR 10 million.
To better support freelancers, the State Bank of Pakistan (SBP) has established a
detailed framework for the creation and management of their bank accounts. According

22 | P a g e
to this framework, freelancers can now set up an Exporters’ Special Foreign
Currency Account (ESFCA), as outlined in the Foreign Exchange Manual. This allows
them to retain export proceeds while simultaneously maintaining a primary PKR
account. These accounts can be opened either in person or remotely through digital
channels.

Conclusion
In conclusion, the landscape of tech startups in Pakistan is both challenging and
dynamic, reflecting a microcosm of the global startup environment with unique regional
characteristics. The research indicates that while there is significant growth potential
and entrepreneurial spirit, startups in Pakistan face a range of multifaceted challenges
that hinder their success and sustainability.
One of the primary obstacles is the societal stigma associated with failure, which creates
a risk-averse culture among entrepreneurs. This is compounded by regulatory barriers,
difficulties in securing funding, and challenges in hiring skilled personnel. Additionally,
economic instability, characterized by inflation and political unrest, deters investment
and creates an unpredictable operational environment.
Despite these hurdles, the government has taken notable steps to bolster the startup
ecosystem. Initiatives like the Pakistan Startup Fund and the Prime Minister’s
Freelancers and Venture Capital Initiative reflect a commitment to fostering innovation
and technological advancement. The allocation of funds to the IT sector, venture capital,
training programs, and the IT endowment fund is a testament to the government's
recognition of the sector's importance. Moreover, the establishment of incubation
centers and programs like the Innovator Seed Fund (ISF) by the Higher Education
Commission (HEC) are crucial in nurturing young startups.
The case studies of Airlift, SWVL, and Tabyat.pk illustrate the complexities of the startup
ecosystem in Pakistan. These examples highlight the impact of external economic
factors, the importance of understanding local consumer behavior, and the necessity of
strategic adaptability. They also underscore the need for diversified funding strategies
and a deeper grasp of market dynamics.
To enhance the success rates of tech startups, a multi-faceted approach is required. This
includes enhanced government support, development of local investment channels,
fostering an entrepreneurial ecosystem, focusing on skill development, international
collaboration, improving digital infrastructure, protecting intellectual property rights,
and creating a supportive financial ecosystem.

23 | P a g e
The Pakistani startup ecosystem stands at a crossroads where the convergence of
government efforts, private investment, and entrepreneurial innovation has the
potential to propel the country forward. By addressing the identified challenges and
leveraging Pakistan's unique strengths such as its young population, growing internet
penetration, and improving tech infrastructure, the country can catalyze a significant
improvement in the startup ecosystem. This, in turn, will lead to a higher success rate of
tech startups, attracting more venture capital investments, and driving economic
progress. In essence, nurturing this ecosystem requires a collective effort from all
stakeholders, including entrepreneurs, investors, and policymakers, to create a robust,
sustainable, and innovative startup environment in Pakistan.

References

1. 1. Hassan, T. (2022, November 24). Mobility startup SWVL shuts operations in

Pakistan, its second biggest market. Profit by Pakistan Today. Retrieved from
https://profit.pakistantoday.com.pk
2. 2. CEO Times. (2022, November 26). Mobility startup SWVL shuts operations in
Pakistan, its 2nd biggest market. Retrieved from https://ceotimes.net
3. 3. Ahmad, A. (2023). SWVL: The Numbers For Pakistani Operations Help
Comprehend The Mobility Startup’s Exit From The. The Friday Times. Retrieved
from https://thefridaytimes.com
4. 4. Wamda. (2023). SWVL slashes over 50 per cent of its workforce, shuts
operations in Pakistan. Retrieved from https://www.wamda.comPfeffer, J.
(1998). The Human Equation: Building Profits by Putting People First. Harvard
Business School Press.
5. Business Recorder. (2023). After raising $11.5mn last year, MedznMore says it
has shut operations. Retrieved from https://www.brecorder.com
6. Business Tribune Pakistan. (2021). 10 Pakistani Start-up failures in 2021 and
Lessons to learn. Retrieved from https://businesstribune.com.pk
7. Zaidi, O. (2023). Startup failures in Pakistan and the role of founders. Profit by
Pakistan Today. Retrieved from https://profit.pakistantoday.com.pk
8. Startup Business Bureau. (2022). Why do Startup fail: A case study from Pakistan.
Retrieved from https://startupbusinessbureau.com
9. Data Darbar. (n.d.). Exclusive: MedznMore shuts down. Retrieved from
https://insights.datadarbar.io/exclusive-medznmore-shuts-down/
10. Ministry of Information Technology and Telecommunication. (n.d.). The Pakistan
Startup Fund aims at to catalyse venture investments in Pakistan. Retrieved from

24 | P a g e
 https://moitt.gov.pk/TopStoryDetail#:~:text=The%20Pakistan%20Startup
%20Fund%20aims,steering%20body%20overseeing%20the%20operations.
11. PakWired. (n.d.). Top 10 Incubation Centers of Pakistan. Retrieved from
https://www.pakwired.com/top-10-incubation-centers-pakistan/.
12. Clarity.pk. (n.d.). List of Pakistani Incubators. Retrieved from
https://clarity.pk/category/knowledgebase/incubator/.
13. XYZ Lab. (n.d.). Top 16 Startup Accelerators & Incubators in Pakistan. Retrieved
from https://www.xyzlab.com/.
14. Fincyte. (n.d.). The List of 28 Best Startup Incubators in Pakistan. Retrieved from
https://www.fincyte.com/best-startup-incubators-pakistan/.
15. PakWired. (n.d.). Starting Up: List of all Incubators and Accelerators in Pakistan.
Retrieved from https://www.pakwired.com/list-incubators-accelerators-
pakistan/.
16. Upsilon IT. (n.d.). Startup Success and Failure Rate. Retrieved from
https://www.upsilonit.com/blog/startup-success-and-failure-rate#:~:text=On
%20average%2C%2063%25%20of%20tech,fail%20in%2075%25%20of%20cases.

25 | P a g e