Qudsia Bano

Pakistan has had a notable increase in venture capital investments in recent times, with firms from several sectors obtaining large finances. But there's a concerning truth hiding behind the surface of this economic growth. Unrealistic expectations and poor management are causing unsustainable business practices to collapse, leading to reports of layoffs and shutdowns affecting numerous firms. “Entrepreneurs are driven into fierce competition for funding due to the allure of venture capital, frequently choosing quick expansion over long-term viability. Although this strategy seemed promising at first, it has put many businesses in a risky position as they struggle to turn a profit or create long-term revenue streams,” said Jehangir Khan, a venture capital analyst at JS Bank. He said that the need to scale quickly to draw in more funding is one of the main causes of this problem. “Startups have often burned through funds in their search for expansion at any cost, failing to lay the foundations for long-term, sustainable growth. Due to their lack of vision, many businesses are now susceptible to market and economic volatility.” Rabeel Warraich, Founder and CEO of venture capital fund Sarmayacar, shed light on the root cause of this crisis.

He pointed to a period of unchecked investment influx, where international investors poured capital into Pakistani startups without adequate scrutiny of their business models. “This capital injection coincided with a global bubble of cheap financing, creating a scenario where startups prioritised growth at any cost over sustainable operations,” he said. “The startup ecosystem in Pakistan is currently seeing the fallout from these unsustainable practices. Layoffs have increased in frequency as businesses try to streamline their operations to stay stable while dealing with financial difficulties. Furthermore, an increasing number of startups are being forced to close their doors completely since they are unable to withstand the financial volatility,” said Muhammad Qamar, Investment Head at Sona Corporation. He warned that this trend could have broader implications for Pakistan's economy, potentially stifling innovation and deterring future investment.

“The fallout from failed startups could erode investor confidence and make it more difficult for promising entrepreneurs to secure funding in the future.” “Furthermore, the human cost of these layoffs and shutdowns cannot be overstated. Employees who were once optimistic about the future of their companies now find themselves facing uncertainty and financial hardship. The ripple effects of job losses extend beyond individual workers, impacting families and communities across the country,” he stressed. “In response to these challenges, calls for greater accountability and transparency within Pakistan's startup ecosystem are growing louder. Investors are urged to take a more cautious approach, focusing on sustainable growth rather than short-term gains. Likewise, startups must prioritise sound business practices and responsible management to build resilient enterprises capable of withstanding economic headwinds,” Qamar underscored.

Credit: INP-WealthPk