As a country, Pakistan is all about momentary triumphs followed by prolonged periods of adversity. This permeates all spheres of our lives, be it moments of brilliance on the cricket field or symbolic wins for democracy. Even the startup ecosystem is beholden to the same patterns where any good news is sandwiched between long bouts of gloom.

Not so long ago, the ecosystem did get that solitary moment of joy when the news of Sadapay’s acquisition by Turkish unicorn Papara was confirmed. Finally, there was an exit event in the venture capital (VC)-funded space worthy of attention, though not without caveats.

After all, the deal put the fintech’s price around $30-50 million, including the $10m in capital injection. This was at a steep discount to the company’s last valuation, meaning many of the investors walked away without making any money.

However, using obsolete benchmarks with no relevance to today’s market is simply delusional and serves no purpose, no matter how much paper loss is booked. The more important detail was that there was an exit, which would eventually generate some liquidity for the founders and lead to spillovers for the rest of the ecosystem.

We have seen this happen all around the world, where the sale of a company unlocks wealth for those who helped build it, either by putting in money or their time. Careem is probably the most relatable example, whose acquisition by Uber made 75 employees dollar millionaires.

Things seem to be a little different with Sadapay, which has already announced laying off 30 per cent of its staff, including some c-level executives and many members of the tech team.

This part is not exactly unusual as many organisations consolidate the team right after a transaction, even if it’s unfortunate. The more worrisome part is that the employees’ equity was valued at zero. Basically, there’s hardly going to be any wealth creation here, at least beyond a few people.

In the first half of 2024, there has been a grand total of $1m raised across just one disclosed deal in Pakistan, compared to $28.7m in the same period last year

Around the world, stock options are crucial in attracting good talent to companies, especially at the earliest stages. Pakistani startups, too, have followed this trend, though there have hardly been any liquidity events for employees to actually cash in their equity.

In developed markets, those opportunities can come from mergers and acquisitions (M&A), initial public offerings or even secondary sales in follow-on rounds. Unsurprisingly, hardly any of that is happening in Pakistan.

While there have been a few stock-based M&A transactions, especially at the early stage, initial public offerings (IPO) are virtually non-existent in the VC space due to the gulf between private and public valuations, given the underlying unit economics.

This leaves secondaries in the follow-on rounds. Even ignoring the contractual lock-in periods and other restrictions on employees from exercising their options, there is barely any funding in Pakistan.

In the first half of 2024, there has been a grand total of $1m raised across just one disclosed deal, compared to $28.7m in the same period last year. The ecosystem is at the juncture where the number of conferences on the venture ecosystem far outpace the actual investment transactions. It would have been funny if it weren’t so sad.

Global VC funding grew year-on-year to $94.3bn in the second quarter of 2024 — the first such instance after eight quarters of continuous decline

Ask anyone there, and they’d spit out some combination of the same cliches about the US Federal Reserve’s rate cut, the end of free money, the need to build sustainable businesses, and so on. This was a worldwide phenomenon, and Pakistan was no exception, even if we ignore the difference in sharpness of the underlying correction.

However, there are now early signs of recovery, as the latest Pitchbook-National Venture Capital Association Monitor shows that global VC funding grew year-on-year to $94.3 billion in the second quarter of 2024 — the first such instance after eight quarters of continuous decline.

Expectedly, North America led this turnaround, and it may take some time to spill over to other regions. The question is: When will Pakistan’s turn come, if it all?

Pakistan’s macroeconomic challenges cast a long shadow over its potential for attracting business and startup investment. The country’s persistent issues with inflation, currency devaluation, and balance of payments deficits come with a risk so high that the required return becomes almost unattainable. This is especially the case with VC, where most of the money has traditionally come from foreigners who understandably need dollarised growth.

Forget foreigners and VCs. If we keep going about our ways, as the latest budget definitely does, the entrepreneurs and the employees will exit the country first and then there’d be no one worth funding anyway. Na rahega baans, na bajegi baansuri.

The writer is the co-founder of Data Darbar

Published in Dawn, The Business and Finance Weekly, July 8th, 2024