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Playing by the deal book

Playing by the deal book

Soon after the pandemic broke out, people from all around the world began calling it a Black Swan event — and with good reason. Equities around the world saw a bloodbath. Our KSE-100 index lost over 12,000 points in less than three weeks during March.

All of this obviously pointed to the impending doom for investments — tech and private markets included. Yet what followed was the exact opposite and, frankly, a little baffling to a sane mind. Venture funding continued unabated globally, along with a record year for initial public offerings (IPOs) since the dot-com bubble. The local technology sector too finally had its moment on the Pakistan Stock Exchange (PSX) while the startup ecosystem saw some big rounds taking place.

According to a report published by Data Darbaar, a tech-sector directory, startups in the country raked in $66.24 million of capital across 50 deals in 2020. This represented increases of 57.34 per cent and 78.57pc from $42.1m and 28 in 2019. Other reports from insights firm Invest2innovate and Medium blog Techshaw give the values and volumes at $57.7m and 41, and $46.72m and 23, respectively.

Startups raised $66.24m of capital in 50 deals in 2020, up 57.3pc from a year ago

The average ticket size slipped a little from $1.56m in 2019 to $1.32m during the year. But to isolate the impact of extreme values and outsize rounds, median would be a better metric. In 2020, it stood at $500,000, more than double from $200,000.

Like the yesteryear, transport and logistics continued to lead the fundraising charts in 2020 at $25.4m, with Bykea bringing in $13m in September and Airlift $10m in a July 1 announcement. However, it’s important to note that the latter’s mass transit operations have been suspended since the outbreak of the coronavirus and the company has since launched a grocery service.

E-commerce startups were the biggest drivers by volume, accounting for 14 deals and raising a cumulative $11.3m. Much of this money, however, came from the B2B space where a host of new marketplaces emerged and closed notable rounds, such as Retailo’s $2.3m, Tajir’s $1.8m and Bazaar’s $1.3m. Fintech closely followed in terms of the investment amount at $10.8m with an overwhelming share coming from Finja that scored $9m in Series A barely 12 days ago.

Healthtech was also a hot sector. It witnessed 10 deals during the year, with Medznmore’s $2.6m leading the charts. However, edtech space remained lacklustre despite expectations of a major change due to the behavioural shift caused by the coronavirus.

Stage-wise, an interesting trend emerged with as many as 11 startups going for a pre-Series A this year, suggesting growing popularity of transitional rounds and a likely move towards higher valuations. Cumulatively, they brought in $8.35m with most contribution coming from the e-commerce sector both by volume and value.

Nonetheless, seed deals were still the most frequent (19) even as their share in the total has gone down. In 2019, they accounted for 18 of the 28 rounds. Series A was the biggest capital puller despite only three rounds from Airlift, Finja and Tapmad. Meanwhile, Bykea was the only startup to have closed Series B.

Karachi continued to lead in terms of the number of deals and raked in $32.4m. Lahore came in a close second value-wise, likely for the first time, with $30.2m from across 21 unique rounds. Meanwhile, only five companies from the federal capital recorded investments worth a cumulative $3.5m.

While more deals and money poured in, there was virtually no improvement in terms of gender diversity. Only three startups were solely founded by women entrepreneurs. Of these, Aimfit managed to raise the biggest ticket size of $1m. All of this merely reaffirms what everyone has known for ages: tech and VC landscape is still a boys’ club.

Another sign of what seems to be the maturing of the ecosystem was the participation of some big names in the world of investing, particularly Prossus and Golden Gate. These two have had stakes in some of the biggest startups in the region, such as Swiggy and Ninja Van.

Meanwhile, the most active financiers were Fatima Gobi, Lakson and Karavan VC, putting money in four upstarts each.

Published in Dawn, The Business and Finance Weekly, January 11th, 2021

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