n the ever-evolving world of entrepreneurship, Pakistan is at a crucial juncture. Recent years have seen a substantial upsurge in the country’s start-up ecosystem, with more than 800 new ventures emerging and a significant increase in business activities. However, this promising landscape is riddled with challenges that threaten its growth trajectory.

This article aims to delve into the dynamics of Pakistan’s burgeoning start-up scene, address the formidable hurdles and outline a strategic path for future development to harness the industry’s full potential.

Pakistan’s start-up ecosystem has witnessed a meteoric rise, marking a stark contrast with its modest beginnings. The nation now boasts over 800 start-ups, signalling the dawn of a digital revolution. This growth is particularly notable given that just a decade ago, there were a mere two major incubators and no substantial funding or investors.

By 2019, the scenario had transformed significantly, featuring 24 major incubators/ accelerators, 20 formal investors and 80 co-working spaces, as reported in the Pakistan Startup Ecosystem Report, 2019. The numbers have continued to grow.

Despite these advancements, Pakistan’s startup market still trails behind its regional counterparts. In 2022, Pakistan’s capital formation stood at 15 percent of its total GDP, lower than Bangladesh’s and India’s rates of 32 percent and 31 percent, respectively, according to the World Bank.

In terms of funding, Pakistani start-ups raised approximately $350 million in 2022. Indian start-ups garnered a staggering $24 billion over the same period. These figures highlight that although Pakistan is on a promising path, it has considerable ground to cover to reach the investment and innovation levels of its neighbours.

Pakistan, though late to the start-up boom, possesses immense untapped potential. With a young population, a growing middle class and over 125 million broadband subscribers, the country offers fertile ground for new enterprises and digital services. However, several challenges pose significant threats to the growth of Pakistan’s start-up ecosystem.

A primary challenge is the lack of visionary leadership and experience within the start-up landscape. The dominance of traditional industries and risk-averse conglomerates hinders innovation and the scarcity of product-based start-ups limits diversification.

Addressing this challenge requires a comprehensive approach to capacity building. Educational reforms should focus on instilling an entrepreneurial mindset from an early age, fostering curiosity and problem-solving.

Pakistani start-ups raised approximately $350 million in 2022. Indian start-ups garnered a staggering $24 billion over the same period. These figures highlight that, although Pakistan is on a promising path, it has considerable ground to cover.

Additionally, established entrepreneurs should engage in mentorship to nurture upcoming talent, with programmes facilitating learning from successful entrepreneurial experiences.

Another significant hurdle is resource insufficiency. Pakistan faces critical infrastructure issues, including unreliable energy and inadequate internet connectivity. Despite some government initiatives, high-speed broadband penetration remains below par, with speeds of 10-20 Mbps compared to the global average of around 70 Mbps.

To overcome these challenges, improvements in internet infrastructure, expansion of fibre optic networks to smaller cities and government support through tax breaks and accessible loans are vital. Collaborations with foreign institutions and massive open online courses platforms can help bridge the skills gap with specialised courses in emerging technologies.

Accelerators and incubators in Pakistan, while increasing in number, have limited reach and often rely on foreign content, which does not adequately cater to the local context. Enhancing the capabilities of these incubators, expanding their presence to smaller cities and adopting localised curricula are necessary steps. Success metrics for incubators should focus on the ability of start-ups to secure funding or become self-sufficient, rather than just the number of grants or projects.

The start-up sector also contends with inadequate intellectual property rights protection, bureaucratic challenges, fluctuating policies, import bans and exchange rate volatility.

Creating a favourable regulatory environment is crucial. This requires strict intellectual property protection mechanisms, investment incentives, facilitation of cross-border payments, currency stabilisation and encouraging renewable energy. Simplifying regulatory procedures and import processes for new manufacturing companies is also crucial for growth.

Access to financing presents a major obstacle for Pakistani startups. The scarcity of institutional investors and the depreciation of the rupee deter foreign investments. A lack of funding in later-stage rounds stifles scalability.

Pakistan must foster local investments through transparent mechanisms and regulatory incentives, develop viable exit strategies, explore series C and later-stage investments and consider IPOs as potential avenues. Government collaboration with the private sector for equity-based financing could offer startups an opportunity to regain their equity by repaying the financed amount and a fee.

Pakistan’s start-up market is ripe for transformation. While substantial progress has been made, significant challenges remain. By focusing strategically on capacity building, resource enhancement, intermediary development, funding access and regulatory support, Pakistan can unlock the potential of its start-up ecosystem.

The writers are associated with the Bahria Business School and Sustainable Development Policy Institute’s Centre for Private Sector Engagement. The article doesn’t necessarily represent the views of the organisations.