In 2021, money seemed to fall from the sky. Pakistani startups raised a record $347 million across 82 deals, with the grocery-delivery company Airlift alone pulling in an $85 million round – at the time the largest in the country’s history. The mood was euphoric. Incubators multiplied, co-working spaces filled up, and a generation of young founders convinced themselves that Karachi and Lahore were the next frontier in global tech.
Two years later, the same ecosystem had nearly stopped breathing. Funding cratered by roughly 90 per cent, collapsing to barely $30 million. Airlift shut down. TAG, once a fintech darling, imploded. The euphoria curdled into a question that should interest anyone who cares about how poor countries grow rich: Can risk capital actually build anything in an economy this fragile – or is it just tourism for hot money that leaves the moment conditions turn?
The honest answer, after looking closely at the numbers and talking to the people inside the system, is more interesting than either the boosters or the doom-mongers will tell you. Venture capital in Pakistan didn’t die. It mutated.
The honest answer, after looking closely at the numbers and talking to the people inside the system, is more interesting than either the boosters or the doom-mongers will tell you. Venture capital in Pakistan didn’t die. It mutated.
To understand the crash, you first have to understand how unnatural the boom was.
The years 2020 and 2021 were a global anomaly. Interest rates everywhere were near zero, and investors sitting on cheap money went hunting for returns in places they had previously ignored. Pakistan – a country of 240 million people, most of them young, most of them recently handed a smartphone – looked like an obvious bet. Capital deployment grew more than threefold in a single year. The deals got bigger, the valuations got sillier, and the prevailing philosophy was “growth at all costs”: burn cash to buy customers now, worry about profit later. This was never going to last, and not only because of anything specific to Pakistan. When the US Federal Reserve began raising rates in 2022, the cheap money that had floated emerging-market startups evaporated worldwide. But Pakistan caught a second wave on top of the first – a domestic one – and that is what turned a correction into a near-extinction. Through 2022 and 2023, Pakistan ran headlong into a political and economic crisis of its own making. Inflation soared, the central bank pushed interest rates to punishing highs, and policy lurched from one emergency to the next. For a venture investor, each of these is poison in its own way, and the data makes the damage precise:
Currency collapse was the single most destructive force. If the rupee is losing 30 per cent of its value a year, a startup can grow five-fold in local terms and still hand its foreign backers a loss in dollars. The statistical analysis confirms what every investor said out loud: exchange-rate volatility had the strongest negative pull on investment of any single factor.
High interest rates quietly strangled the supply side. When a government bond pays a guaranteed double-digit return, why would any rational investor lock money into a risky, illiquid startup for seven years? Capital simply crowded out of venture and into the safety of debt.
Political instability did the rest. The collapse in funding lines up almost exactly with the period of peak political chaos. Investors don’t fear bad news; they fear unpredictable news, and Pakistan was generating nothing but.
The deeper problem the crisis exposed was structural. Foreign investors, it turned out, never really lost confidence in Pakistani founders – many of whom were genuinely impressive. What they lost confidence in was the exit: the ability to eventually sell the company or take it public and get their money back out. In a country with a shallow capital market, a near-dormant IPO pipeline, and courts that move at glacial speed, there was simply no reliable door marked “exit.” Money that can’t see a way out doesn’t come in.
Here is where the conventional story – “fragile country, capital flees, the end” – stops being true.
Faced with a hostile environment, the people who stayed engineered their way around it. This is the part that should reshape how we think about venture capital in difficult places.
They moved the company, not the work. A large share of Pakistan’s most promising startups are now legally headquartered in Singapore, the UAE, or – more recently – Saudi Arabia, while the actual engineering and operations remain in Pakistan. The institutional weakness at home is real, so founders simply borrow the contract law, investor protections, and exit infrastructure from somewhere else, and bolt their Pakistani business onto it. They replaced law with trust. Where courts can’t be relied on to enforce a contract, investors fall back on dense personal networks, reputation, and relationships. Deals get done on the strength of who-knows-whom, with much heavier hands-on monitoring than a Western VC would ever bother with. Informal governance becomes a substitute for the formal kind that doesn’t function.
They changed the religion. The “growth at all costs” gospel died with Airlift. Almost overnight, local investors pivoted to “unit economics” – the unglamorous question of whether a business actually makes money on each customer. The startup that best embodies this is PostEx, a logistics-and-fintech company that survived the winter precisely by being sustainable rather than spectacular. The 2024-25 recovery is being built on resilience-first models, not blitzscaling.
You can see the shift in the shape of the rebound itself. By 2025, funding recovered partway – to around $74 million – but on just 16 deals. Fewer bets, bigger cheques, far more conviction behind each one. The casino has become a credit committee.
The banks finally show up.
The most consequential change isn’t about foreign VCs at all. It’s that Pakistan’s own financial institutions – long content to watch the tech sector from the sidelines – finally walked onto the field.
For years, the country’s big banks treated startups as curiosities. By 2024-25, that passivity was gone:
Bank Alfalah went from service provider to active investor, taking a strategic stake in Qist Bazaar and launching a dedicated angel fund to institutionalise early-stage money.
HBL put its enormous balance sheet behind fintech infrastructure and climate tech, signalling that it cared about strategic alignment, not just quick returns.
Meezan Bank anchored fintech firm Haball’s roughly $52 million raise with a mix of equity and a $47 million debt facility – the single largest domestic capital deployment of the year, and a landmark for Islamic finance meeting venture.
Alongside the banks came venture debt – borrowing instead of selling equity – pioneered by firms like Abhi and Neem. When Abhi issued a 2 billion rupee Sukuk (an Islamic bond) in 2024, it proved something important: local capital markets could now fund high-growth tech without forcing founders to “flip” the company offshore just to get financed.
And then there was television. The 2024-25 season of Shark Tank Pakistan did something policy never managed – it dragged the country’s “old money,” the textile and industrial dynasties, into the digital economy. A record 1.5 billion rupees (about $5.4 million) was pledged on air. For the first time, domestic high-net-worth capital that had always preferred land and factories began flowing toward startups.
(To Be Concluded)
The writer holds a PhD from Ecole des Ponts Business School, Paris. He did his MBA from the London School of Economics and can be reached at [email protected].