Navigating economic challenges: the rise of acquisitions as a strategic option for Pakistani startups

Tuesday 14 May 2024

Sahar Iqbal
Akhund Forbes, Karachi


Navigating a difficult fundraising landscape, Pakistani startups face depleting cash reserves and extended deadlines for seeking more capital. The lack of fundraising in the first quarter of 2024 has added to economic uncertainty, reflecting broader worldwide patterns of lower dealmaking activity amid rising interest rates and economic fear. In this context, companies with sustainable business models are considering an acquisition as a strategic option, attracting both local conglomerates and cautious investors. In the context of reduced economic activity, this trend towards merger and acquisition (M&A) activity represents a proactive response to financial restrictions, opening up potential options for growth and sustainability in Pakistan’s startup ecosystem.

Subdued economic activity

Frugality, when associated with enterprises, can have a slightly negative connotation. However, for companies, the word remains an important element of the playbook, particularly in the early stages of an organisation. The present funding landscape emphasises the relevance of local startups. In this scenario, the first quarter of 2024 has inevitably turned out to be exactly what the ecosystem feared after the previous 24 months of economic turmoil: no funding available. This is the first time since 2015 that a quarter has gone by without any activity. Economic insecurity and a lack of political cohesiveness have impacted investor confidence across various asset classes in Pakistan. Furthermore, the uncertain global economic conditions and high interest rate environment have drained the venture capital investment pipeline.

Globally, following the strong dealmaking activity in 2021 and early 2022, both the private equity and venture capital industries have seen large decreases in dealmaking activity. Rising interest rates, a lack of finance and broad economic uncertainty have contributed to this downward trend. Furthermore, current investments have been sharply devalued, resulting in down rounds for venture-backed enterprises. The domestic market has seen similar developments, with interest rates reaching a record high of 22 per cent. Inflation, which reached roughly 38 per cent at its peak in 2023, had a huge influence on the economy. Furthermore, the significant depreciation of the rupee, along with the foreign exchange liquidity crisis, has weakened investor confidence.

Moving forward, the macroeconomic conditions remain a major concern. The World Bank expects Pakistan’s gross domestic product to increase by only 1.8 per cent this fiscal year, with aggregate demand remaining low and foreign exchange reserves under pressure due to external debt obligations. Nonetheless, not all is grim; some good events were seen throughout the quarter, the most prominent of which were the completion of the country’s general elections and the transfer of power from the caretaker establishment to the elected administration. Furthermore, the country is working to successfully complete the current International Monetary Fund standby agreement and transition to a newer long-term programme in the coming months.

Potential drivers of M&A activity

In the current challenging fundraising landscape, many startups in Pakistan are facing the daunting reality of dwindling cash reserves and limited prospects for securing further funding. Traditionally reliant on simple agreements for future equity (SAFEs) for seed stage financing, startups now transitioning to priced rounds are encountering increased scrutiny and prolonged timelines for fund disbursement, further exacerbating the financial strain. Startups with sustainable business models, or which are almost profitable, are looking at acquisitions as a possible strategic move in this uncertain environment. The current market conditions, which are marked by a pattern of down rounds, provide an opportunity for acquirers to buy startups at attractive prices.

While many startups are looking for external acquisition prospects, domestic conglomerates are emerging as significant players in the local startup acquisition market. Entities in areas such as finance, energy and consumer goods have surplus liquidity as a result of recent strong corporate performance, making them attractive acquirers. Furthermore, some of these companies have prior investments in the startup sector, indicating a strategic interest in future acquisitions. However, not all entities may be ready to accept the inherent risks associated with acquiring startups. In such circumstances, a cautious ‘dip-toe’ technique may be used, with initial investments to acquire a modest interest in companies, which can be steadily raised over time. This technique enables investors to analyse the startup’s chances before allocating large financial resources.

A notable example of this trend is Bank Alfalah’s entry into the venture capital arena with the acquisition of a 7.2 per cent equity position in Qist Bazaar, a licensed buy now pay later (BNPL) non-bank financial enterprise regulated by the Securities and Exchange Commission of Pakistan (SECP). Such agreements not only give companies with much-needed money the ability to extend their runway, but they also allow investors to assess the startup’s potential before committing to a full acquisition. In essence, amidst a hard fundraising landscape, Pakistani entrepreneurs are increasingly considering acquisitions as a strategic option, while domestic corporations are seizing the opportunity to diversify their portfolios and capitalise on the potential of the local startup market.


In conclusion, Pakistani startups’ economic concerns in the face of low economic activity and a challenging financing landscape have spurred a shift towards acquisition as a strategic choice for development and sustainability. With shrinking cash reserves and prolonged funding delays, businesses are looking to acquisitions to overcome the financial constraints and capitalise on market opportunities. This trend has piqued the interest of both local corporations and wary investors, presenting opportunities for consolidation and growth in Pakistan’s startup environment. Despite the difficulties provided by the macroeconomic conditions, the rise of acquisitions as a proactive response demonstrates Pakistani entrepreneurs and businesses’ resilience and adaptability in the face of adversity. As the landscape evolves, strategic alignment between startups and acquirers presents promising prospects for innovation, investment and long-term growth in Pakistan’s dynamic startup ecosystem.