Intricate intrigues of VC financing – Gazeta

In the world of startups, attention spans are usually short-lived, just like the applications they create. One day you will become a star, attract attention from left-right media, speak at conferences, and be listed on Forbes’ 30 under 30 list. You could appear in court next month on fraud charges.

And yet, one company has managed to keep everyone on their toes for almost two years; perhaps this is actually OpenAI’s greatest achievement to date, not GPT. After launching the chatbot, it became the fastest startup to reach a billion users and abandoned its non-profit ethos even faster.

Last week was more or less the same.

First, chief technology officer Mira Murati and two other executives left the company, continuing the leadership exodus. However, shortly thereafter, OpenAI raised $6.6 billion in new financing at a valuation of $157 billion, becoming the world’s third most valuable venture capital-backed entity. Only SpaceX and TikTok’s parent, ByteDance, is worth more.

Pakistan’s venture capital market remains unchanged as distant foreigners and uninterested local capital leave few options for startups

However, according to Pitchbook data, OpenAI’s round – the largest ever – is not representative of the broader venture capital market, where global funding fell to $70.1 billion in Q3 FY24. This is the lowest amount since October-December 2017 and represents a decrease of 22.6 percent compared to the same period last year and by 26.6 percent. compared to the previous quarter.

Apart from North America, where funding increased by 11.9% year-on-year (y/y), all other regions saw further declines. The decline in Asia was particularly sharp, with the amount falling 51.4% between July and September. to USD 14.9 billion, to a level not seen since the beginning of 2016 and only 21%. compared to the peak in Q4FY21.

Volumes were also no longer resilient as the number of transactions fell to just 7,227 in Q3FY24, the worst quarter on record since at least 2015. Even if estimated rounds are added, the total number of deals increases to 9,742 and barely reaches the level of Q3 2019. . This decline is quite broad-based as every region saw a decline in transaction volume, with Asia again leading the way with a 31.6% year-on-year decline.

Similarly, exit activity also remained subdued at $39.2 billion across 606 deals in Q3FY24, down 55.6% and 17.8% respectively compared to the same period last year. Surprisingly, Asia stood out here, and not for the wrong reasons. It represented 45.6% of the exit value, probably led by several large listings in India, where public markets have seen surprisingly strong growth over the past few years.

While Pakistani markets have also enjoyed good momentum over the past 12 months, growing 29.2% so far in 2024, the venture capital market remains unfazed. According to Data Darbar, Pakistani startups raised just $16 million in funding between January and September. But if there’s any consolation, there were four deals worth $15 million in the last quarter alone. If you add Myco, which is technically based in Dubai, the total increases by another $10 million.

Either way, for a country our size, these numbers are quite insignificant. Of course, the most important reason is that most of the funds that have invested in Pakistan are foreign funds and do not really consider the local market in any long-term strategy. Local capital is practically non-existent – this problem is unfortunately not limited to venture capital.

This combination of distant foreigners and uninterested local capital leaves startups with few options. Debt has always been scarce, venture capital has become increasingly difficult, and government-backed subsidized financing has been unreliable. Amid such doom and gloom, the upcoming release of Shark Tank Pakistan could be a much-needed addition to the ecosystem and open up some opportunities for entrepreneurs.

As seen in other markets, including neighboring India, the program has the potential to generate much-needed attention and interest in entrepreneurship, perhaps inspiring a new generation of founders. More importantly, it could possibly bridge the gap between investors and startups, opening up access to capital that has been severely limited recently.

Moreover, it can help educate the public about the startup world, potentially expanding the pool of angel investors and creating a more supportive environment for entrepreneurship. From a pure fundraising perspective, the scale is likely to be quite small, as seen in India, and no venture can be undertaken. However, if it helps highlight lesser-known success stories, that will be victory enough because God knows we need them.

The writer is the co-founder of Data Darbar

Published in Dawn Business and Finance Weekly, October 7, 2024