What’s fueling Pakistan’s emerging start-up ecosystem

| Podcast

In this episode of the McKinsey on Start-ups podcast, McKinsey executive editor Daniel Eisenberg speaks with investor Aatif Atwan and McKinsey Partner Abdur-Rahim Syed about the burgeoning start-up ecosystem in Pakistan. An edited transcript of their conversation, which took place earlier this year, follows.

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Daniel Eisenberg: Based on demographics alone, Pakistan’s start-up ecosystem should already have been thriving for many years. It has, for starters, the fifth largest population in the world, approaching 230 million. And that population is both overwhelmingly young, with a median age of 22, and bi-lingual, with the fourth largest number of English speakers in the world. Add to that one of the fastest-growing middle classes, more than 100 million mobile broadband subscribers, and hundreds of thousands of tech professionals, and you have all the makings of a fertile market for new enterprises and digital services.

Yet until recently, venture or growth funding in Pakistan was barely a trickle compared to similar countries in the Middle East/North Africa region or in other parts of Asia. In the last couple of years, however, global VCs and other foreign investors have begun making significant bets on local start-ups as many regulatory and cultural barriers have started to soften.

To gain a better understanding of the changing dynamics of this start-up market, we are pleased today to be joined by two experts based in the region. Aatif Awan is the founder and managing partner of Indus Valley Capital, a Pakistan-focused venture fund he launched in his native country after working as a tech executive in Silicon Valley for several years. Abdur-Rahim Syed is a McKinsey partner based in Dubai who co-leads the firm’s start-up work in the region. Earlier in his career, he also worked in Silicon Valley.

Aatif, Abdur-Rahim, welcome to the podcast. Thanks so much for joining us today.

Aatif, you launched Indus Valley Capital in 2019 after working in high-ranking positions at both Microsoft and LinkedIn. What has been changing in the Pakistan start-up ecosystem in recent years that convinced you it was the right time to focus on it in this way?

Aatif Awan: The funny thing is I didn’t see myself moving back to Pakistan at all, let alone starting a Pakistan focused VC fund, until I found myself in a position where I knew I had to do it.

In 2018, after leaving LinkedIn, I decided to take a year off. I spent about half of it in Pakistan with my parents. That’s when some Pakistani founders started reaching out to me, seeking advice on growth, product, or fundraising.

It was mind-boggling that between 2016 and 2018 Pakistani start-ups were averaging about $10 million a year in VC funding, which is $0.05 per capita, or about one-third of a basis point of the G.D.P. That did not make any sense whatsoever. Next door, MENA was doing $800 million in annualized VC funding. And when you looked at the fundamentals in Pakistan, which I started looking at closely, it’s the fifth largest country with 200 million plus people. The median age is 22, which makes it the fourth largest Gen Z and younger population. It’s also the fourth largest English-speaking population and has had the fourth largest absolute increase in middle class.

So, the foundational elements were all in place, and then you had this population increasingly adopting the internet. We had more than 50 million broadband subscribers back in 2018. Now it’s 110 million. The tech talent to build those start-ups was there as well, with 300,000 plus tech professionals. I realized that it was just a matter of time, as we are at the cusp of this inflection point of a very large economy making that offline to online transition.

We’ve seen that happen in the U.S., in China, Indonesia, and India. Whenever that happens it creates massive opportunities for impact as well as financial opportunity. That made the decision obvious and quick for me. I knew if I didn’t do it, I’d regret it. I decided to move back and start Indus Valley Capital, which is a Pakistan-focused early-stage VC fund.

Daniel Eisenberg: Abdur-Rahim, you also worked in Silicon Valley early in your career. First at eBay and then at McKinsey, and you’re now based in Dubai.

For years the Middle East has far outpaced Pakistan in attracting VC funds, as Aatif pointed out. The gap now seems to be closing a bit. Why in your view did it take so long for Pakistan’s start-up ecosystem to start to take off, even though it had this foundation that Aatif was talking about?

Abdur-Rahim Syed: The gap is certainly closing, but the whole region is accelerating. If you take Saudi Arabia, the largest economy in the MENA region, they had $140 million of VC funding in 2020. In 2021, they had $548 million. That’s almost quadrupling in one year. Pakistan is on a faster trajectory, so the gap is closing.

As for why it took so long, if you look at the macroeconomy of Pakistan it’s been long dominated by agriculture, and by conglomerates that often have captive businesses. There’s not a burning platform, a driving reason to innovate, to take risks. I’ll give you one example. Take gross capital formation, which is a critical enabler of future growth. Pakistan’s gross capital formation in the last couple years has been roughly 15 percent of G.D.P, compared to 30 percent for India and 32 percent for Bangladesh. Hopefully this will change now that we have a significant acceleration in the start-up space.

Daniel Eisenberg: Aatif, you have a unique perspective with your investments in Pakistan right now. What sectors or horizontals are dominating as the scene emerges?

Aatif Awan: It’s been super exciting seeing this dramatic rise of Pakistani start-ups over the last couple years. In 2021, Pakistan raised close to $350 million in VC funding. That ratio of 80 to 1 relative to MENA is now at seven to one, which is in line with the G.D.P. ratios. If you break that down, a vast majority has been e-commerce start-ups. This is very typical of emerging markets. At the beginning you see founders going after the largest chunks of the economy waiting to be online. That tends to be e-commerce followed by logistics and that’s what has dominated in the Pakistani start-up ecosystem for the past couple of years. Fintech is now rising on the back of some positive regulatory changes, including the introduction of new Electronic Money Institution (EMI) and digital banking licenses. We have also started seeing a pattern in the digitization of education and the health sectors, which can have a major impact on the country.

Overall, in 2021 more than half of all funding was e-commerce start-ups, which was split between the B2C and B2B start-ups. On the B2C side it’s ranged from commerce start-ups offering quick delivery of groceries and convenience items, to online ticketing, pharmacy delivery, and fashion shopping. On the B2B side we’re seeing a rapid digitization of the informal retail sector, which is essentially mom and pop corner stores that we call kiryana stores in Pakistan.

In terms of notable examples, I’ll mention two of the most well-funded start-ups, which in full disclosure were our first two investments. Airlift is a quick commerce start-up that has raised over $100 million in funding. They offer 30-minute delivery of grocery, pharmacy and household items. They are also expanding to electronics and have some very notable investors. They’re backed by First Round Capital, which is one of the earliest investors in Uber, Square, Notion, and Roblox. They typically don’t invest much outside the U.S. Airlift also got funding from Josh Buckley and Harry Stebbings, who are some of the leading solo capitalists, as well as from founders of Twitter, DoorDash, TransferWise, and many other top start-ups in the Valley. The other one I would mention is Bazaar, which is a B2B commerce and fintech start-up. They’ve raised over $100 million in funding.

If you look at the last two years, there’s been a little over $500 million in fundings. Airlift and Bazaar consumed $200 million of that. Bazaar’s investors also include some top tier investors like Target Global, Dragoneer and Acrew. They are essentially building the operating systems for B2B commerce in Pakistan with a platform that covers the marketplace, last-mile logistics, software, and fintech offerings.

To put things into perspective, Bazaar is just two years old. What’s exciting to see is that in a large, untapped market, when these start-ups come, they can grow very, very rapidly.

Daniel Eisenberg: Abdur-Rahim, I’m not sure if it’s too early to judge, given how young these start-ups are, but how concerned are you about a disparity between early-stage capital and later stage funding. I know in some markets early-stage capital has been relatively easy to come by, but obtaining later stage funding has been more of a challenge.

Abdur-Rahim Syed: It is a concern. But it’s not an uncommon concern among similar markets. Were we to have this conversation two years ago we would be asking if there is enough capital for series A. At this point, it’s clear there is enough capital for pre-seed, for seed and for series A.

Is there capital for series B? Aatif mentioned Airlift disclosed a large series B round recently and they have funding north of $100 million now as well. That’s only one example. The real question as we go forward is will the funding continue to flow? And at what speed?

There are three drivers of this question. The first is obvious. In the global macro venture capital environment there’s a lot of liquidity, a lot of global investment. Some of it is flowing towards Pakistan at an accelerated rate. Will that remain generous?

A second driver is in e-commerce and logistics. These are working capital heavy start-up spaces. Growth is very clear in a large consumer base, but growth is expensive. Can we begin to pivot to spaces where growth is less expensive and start-ups are less reliant on significantly large amounts of funding? Fintech is a great idea and we are beginning to head in that direction. Where beyond fintech will the start-up space go to next?

The third and often under-discussed driver is can Pakistani start-ups go beyond Pakistan? Once you go beyond Pakistan, go regional, go global, go to the U.S. market, the U.K. market, or to the MENA markets, you begin to tap into other funding pools. There’s the portfolio risk element of your series B, series C, series D being solved.

There is a start-up, a B2B food delivery platform called Retailo, which recently raised a $36 million series A round. They are headquartered in Saudi but operate in Pakistan, Saudi, and in UAE, and their founders are Pakistani. We need more stories like that, where Pakistani companies succeed in scaling in Pakistan, while scaling other markets in parallel.

Daniel Eisenberg: Aatif, what is your view of the potential for going global? It’s obviously a challenge for start-ups all over the world making that move from their home market to regions far afield. Is that going to naturally come, or do certain things have to happen to make that a reality?

Aatif Awan: I agree with Abdur-Rahim that it can be a very strong driver for continued momentum and growth, and we’re starting to see it. Retailo’s a fantastic example. They’ve shown this can be done very early. Prior to that, Careem proved the model as well, although it started in UAE. Another example is Zameen, which started from Lahore, Pakistan. It’s a real estate start-up that expanded out of Pakistan into the MENA region and ended up moving their headquarters to UAE. Zameen is a unicorn now.

So, we’ve seen an appetite among very ambitious founders to say Pakistan is a great market. You can build very large companies, but now that we’ve gotten those early stages of funding, why not go even bigger? I think we’ll continue to see that.

What we haven’t seen a lot of is building for the U.S. market or the European market with more of the enterprise-focused SaaS plays or deep tech plays. I think that is a matter of evolution. Eventually it would be exciting to start building more pure software start-ups and deep tech start-ups, which cater to these very large markets.

Daniel Eisenberg: Abdur-Rahim, we’ve already touched a little bit upon regulatory issues. In your view, what must happen for continued funding and innovation growth, whether it’s regulatory changes or how the private sector operates?

Abdur-Rahim Syed: A lot of it comes down to continued momentum, the evidence from funding rounds, and the success of start-ups. Even exits like Careem, as Aatif mentioned, inspire a new generation of students and professionals to go into the entrepreneurial space.

The question is, at what speed will it continue? Are there regulatory unlocks that can help ease this? Aatif mentioned that on the banking side you’re beginning to see some unlocks there. On the payment side, Pakistan does not yet have PayPal available, so international payment gateways would help the Pakistani engineering entrepreneurial base to move beyond the global gig economy on global platforms as well.

Daniel Eisenberg: I’m also interested in a country where conglomerates have traditionally dominated. Is there a change in attitudes these days toward entrepreneurs and business risk?

Aatif Awan: Absolutely. In terms of the culture, a few years ago the brightest young minds chose to either go abroad or work for multinational companies in Pakistan because that was the way to make big bucks. That has completely changed. Now they want to be founders or join start-ups as early employees. That’s been a phenomenal cultural shift.

In turn, the conglomerates are also seeing the writing on the wall and they want to partner with start-ups. Some of them are launching their own start-ups, which obviously has a mixed history. It’s very hard for large companies to innovate, and the model of having a start-up within a company often doesn’t work out that well. But the recognition is there.

On the regulatory front Pakistan has had some very forward-thinking regulators in recent years. They’re keen on enabling start-ups because the macroeconomic situation in Pakistan doesn’t look that great. There are still balance of payment issues. Businesses cannot grow too fast because they don’t have enough on their reserves. That hampers growth. The government and the regulators see start-ups as an opportunity to break out of that cycle, so they’ve been very keen to help. We have seen several initiatives from the regulator side, the most recent one being the establishment of special technology zones (STZAs). They offer some very lucrative incentives to foreign investors in terms of tax breaks.

In terms of cutting down the red tape, we’ve seen both the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan (SECP) come up with regulations that enable the structuring of start-ups as holding companies abroad.

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Abdur-Rahim Syed: Aatif, in 2018 the U.S. dollar was equivalent to 123 Pakistani rupees. Cycle forward three years, 2021, it was 177 to a dollar. That’s a significant devaluation. On the one hand, as someone who represents investors and invests on behalf of foreign investors, currency depreciation is a challenge you have to work around. On the other hand, it increases the export strength of Pakistan and the capital formation of the country. In your position, how do you balance the two? How do you see the Pakistani currency playing a role in Pakistan’s start-up ecosystem and growth?

Aatif Awan: Sometimes, the policies that are helpful for the overall economy might not necessarily be equally as conducive for startu-ps. If you take a 20-year view, the Pakistani rupee has been a weaker currency. We should be okay with that as it helps with exports. Historically, the problem has been that it was kept artificially at a steady level. But when there is a sudden drop it creates shock waves in the system. The current government has allowed it to float freely and I think the economy’s been adjusting fine.

When it comes to start-ups, if you’re earning in rupees and you have investors who are foreign, you convert earnings to U.S. dollars and your growth numbers don’t look that impressive if there’s a sudden drop. If it’s happening on an ongoing basis you can reprice your services over time and it doesn’t have as big an impact.

The other mitigating factor is that most of the Pakistani start-ups that raise VC funding have the structure of a foreign holdco. Typically, it would be in Singapore or Delaware. What that means is it makes funding easier and you maintain reserves in U.S. dollars, in a foreign bank account. So, if you raise $10 million and the rupee depreciates by 10 percent, it doesn’t affect you. Maybe it even helps you because now in terms of operating expenses, it translates. That dollar stretches further. I think structurally the ecosystems work to minimize the impact on start-ups and overall, for the macro, it’s the right thing to do.

Daniel Eisenberg: Abdur-Rahim, given your perch in MENA, how does Pakistan’s ecosystem compare to the evolution of ecosystems there?

Abdur-Rahim Syed: The MENA region is, as you can imagine, quite varied. The bulk of the investment side typically comes out of natural resource rich countries like Saudi Arabia, Qatar and UAE. Much of that investment comes from the government, either directly via fund to funds investment, or via state enterprises setting up investment funds. In some ways that capitalizes the market, especially early stages, very well. On the other hand, there are certain restrictions placed on where they can invest.

Pakistan is more similar to a country like Egypt or Indonesia, developing countries with large, young populations. Egypt, for example, has increasing growth and acceleration of both the number of start-ups as well as funding going to start-ups. What Egypt has done well, like Pakistan, is attract significant foreign capital. What it’s also doing that is quite notable is seeing a lot of new start-ups more quickly going abroad.

Perhaps the largest start-up in Egypt is Swvl. Swvl has headquarters in Dubai, and they’re aggressively expanding across multiple continents. Pakistan is beginning to follow that trajectory. If it stays on that pathway there’s a larger opportunity that the Pakistan talent base can draw from.

Daniel Eisenberg: And is geopolitics still an issue for foreign investors going into the region?

Aatif Awan: In my conversations this doesn’t come up much at all. It used to be a big issue a decade ago certainly. When I was looking at this opportunity in 2018, from a security standpoint things had been good for a while, but the perception hadn’t caught up. In 2021 that perception caught up, so you started seeing a large influx. A good validation point of that was when the Taliban took over again in Afghanistan there was a question of what that means for Pakistan. What we saw was more VC funding announced in Pakistan in four weeks than there had been in the four years prior. That kept the momentum going. What people realized was that the Pakistan of today is very different from the Pakistan of 15, 20 years ago.

So, from a security standpoint things look good. We’re seeing a lot more foreigners visiting, and their perception has changed very quickly. I’ve spent time with foreign investors who, within the first few hours of arriving, have a completely different impression of Pakistan, especially in terms of infrastructure and the young, vibrant population.

Abdur-Rahim Syed: The proof is in where the investments are coming from, whether it’s Gobi or it’s MSA from China, Kingsway from the U.K, Tiger or Kleiner from the U.S., or Shah Rukh from the UAE. It’s clear from all corners of the globe, there is significant investment increasing in Pakistan. But if we peel a little more under the skin, and we’ve done a bit of research on this, we’re looking at the top 250 funded start-ups in the MENAP region.

We asked ourselves, “Where do those founders and leaders come from?” What we found was in places like Pakistan and Egypt, the vast majority of founders are native-born. They are much more entrenched in the local ecosystem, and can navigate it.

If you look at a place like a UAE, it’s the opposite. More than 80 percent of leading founders and entrepreneurs are not from the UAE. They’re expats. Saudi is roughly half. The ability of the Pakistani ecosystem to be grounded in its own talent that knows how to navigate Pakistan makes it resilient to similar concerns.

Daniel Eisenberg: You mentioned that tech talent, education, and the number of engineers is a real asset for Pakistan. Finding enough good talent is obviously an issue for all companies these days around the world. Is there enough of a base there to handle the growth of new start-ups coming on board?

Abdur-Rahim Syed: The volume is clear. Pakistan has roughly 190 accredited universities. We’re talking over 290,00 graduates coming into that economy each year. So, there’s plenty of talent.

There’s a question around the quality of that talent. In the short term, if even a fraction of that is top quality, we just need enough start-ups, even corporates investing in innovation, for them to get battle tested. So, I expect this space will become a larger strength for Pakistan going forward.

Daniel Eisenberg: Aatif, how do you see that critical issue?

Aatif Awan: I’d agree with that. I think the raw numbers are there, but what we saw happen with Careem was that a single company can catalyze so much of this talent and be the training place, which then creates senior talent that goes on and feeds dozens of companies. Now that we’re seeing this first layer of start-ups, this talent is coming up to speed very, very quickly. So, I’m very bullish on that.

The other dynamic that’s playing into it is that tech has gone remote. That trend was happening anyway, but it’s been accelerated by COVID. Pakistan is a net beneficiary of that because now a lot of companies are hiring from Pakistan. People sitting in Pakistan can work for a U.S. company.

That also puts pressure on that talent in the short term. Now they’re available to any company in the world, so we’ll see some short-term pain. But I look at it as a positive in the longer term.

Working with the best in the world remotely, that’s what’s going to fill the gap for Pakistan going forward, so we’re very excited that that’s happening already.

Abdur-Rahim Syed: Today it is very clear that there is sufficient talent for the spaces that start-ups are currently going into, such as ecommerce and logistics. As the ecosystem matures and moves towards SaaS start-ups, we’re talking about machine learning and AI. That kind of talent is not here yet. So, there’s a challenge for the talent ecosystem to accelerate at the speed at which start-ups will be created.

Aatif, you spent a lot of time working with the Pakistani diaspora. What you call the “Wapistanis.” How has that experience been for you? Do you see the diaspora coming back either as investors or operators in the ecosystem and becoming a core element of the talent in Pakistan?

Aatif Awan: I think that has been the early set of founders, whether it was people who worked at Careem or worked at U.S. start-ups. Airlift’s founder and CEO used to work at DoorDash. Bazaar’s founders worked at Careem, Snapchat, and McKinsey. We’ve seen that play out quite a lot in the early days.

When I’m talking to the Pakistani diaspora, particularly in the U.S., COVID has underlined the desire to eventually go back. People realized that they are far from their family, and the situation has accelerated that desire to return. I’m hearing this more and more. One of the things we are trying to do at Indus Valley is help accelerate that.

We have created the Wapistani track. Wapistani is this term that was coined by Rabeel Warraich, who founded Sarmayacar, another VC fund in Pakistan. It’s a combination of wapis, which means to return, and Pakistani. I love this term.

We have created a program around that, which helps people move back more easily. We connect them with founders and start-ups here and with other people who are moving back. That’s a huge asset for Pakistan that will fill some of these specialized talent gaps that we spoke about earlier.

Daniel Eisenberg: Aatif, what kind of obstacles or challenges have start-ups in Pakistan encountered as they try to scale?

Aatif Awan: Talent is a big one. The game gets difficult at each level. As you scale, going from a ten person company, to 100 people, to 1,000, it’s a very difficult skill set that’s required.

That is going to be a challenge. What we’re seeing is that the best founders are stepping up. And, as you bring on investors, particularly from the U.S., they have portfolio companies that have scaled.

We are getting a lot of operating investors investing in start-ups as well. That’s super helpful because now you have access to somebody who’s been there, done that. And you can get that mentorship. From a founder perspective, that’s how you address the problem. Then you also need good leadership, for finance, for HR. That’s just something we as an ecosystem will need to work on. Hopefully there will be enough people coming back who can help, and join some of these start-ups.

The need for funding is also a challenge. While we’ve seen a couple of start-ups cross $100 million plus in funding, as more start-ups get there, that’s something that will continue needing to happen. The good news is we have some very large crossover funds now investing. Tiger Global has done multiple deals. Dragoneer and Prosus have invested. Hopefully they’ll continue to keep investing and will have more come and join them. But we need the SoftBanks of the world to also invest for the series C, D, E rounds.

Finally, there’s the question of exits. We need to take some of these early start-ups all the way to M&A or IPO. And that’s what then truly unlocks the ecosystem.

Daniel Eisenberg: Abdur-Rahim, in an emerging ecosystem like Pakistan, how important is growing the domestic investor base?

Abdur-Rahim Syed: From the investor perspective, that’s the real question. Where is the Pakistani capital?

There are some large conglomerates that are getting in and investing. Fatima Ventures comes to mind via their JV with Fatima Gobi out of China. But many of the large conglomerates that have a lot of capital in the Pakistani ecosystem and even more important than capital, assets, capabilities, networks, and regulatory heft, I would love to see them a lot more involved and investing for a couple of reasons. The obvious one is capital. Second is resilience. If the international capital markets begin to dry up or are less generous, I would love to have local resilience in the space. That’s something that is needed for the next S-curve.

Daniel Eisenberg: I would assume, if domestic IPOs are going to become a realistic exit strategy, you really need to get the domestic investor base interested in these kinds of companies?

Abdur-Rahim Syed: If you look at the multiples for domestic IPOs in the Karachi Stock Exchange, they’re not very high. One example of how they could exit is Anghami, that serves the MENA region. They exited via SPAC in New York with north of a $200 million valuation. There’s potential to go that or other ways in foreign markets.

Once Pakistani start-ups go multi-market, and they have access to capital in multiple markets, there is less risk. But to be able to really nurture the innovation in Pakistan itself from a product perspective, from a regulatory perspective, from a market access perspective, it’s critical to have the local industrialists involved and investing.

Daniel Eisenberg: Aatif, did you want to add anything about the potential for growth of the domestic investor base?

Aatif Awan: What we’re seeing is that there is appetite among the local investors. It’s encouraging that a few founding groups and conglomerates have started VC funds. What can’t be known yet is whether local investors will step up if the current strong global funding slows down, or never really gets going at the late-stage funding level. The local capital markets are not that deep and I think that’s one of the things that will need to change for the smaller-scale IPOs. It’s possible that more higher growth, higher quality start-ups will help grow the capital base for the Karachi Stock Exchange. Yet this first wave of start-ups is going to be too big for the local capital markets, and they will have to go to international stock exchanges.

As for exit options more broadly, there are going to be three main classes of exits for early investors. The first and most frequent one is M&A, which is already a well-established playbook. Within that you have your global category leaders buying regional players for expansion, which is similar to Uber buying Careem for $3.1 billion. The same thing for quick commerce start-ups. DoorDash has already been on an acquisition spree in Europe. They’ll eventually do the same in Asia. You also have Chinese tech giants buying Pakistani tech companies. Already the two big exits that we’ve seen in Pakistan was Alibaba buying Daraz, which was an e-commerce start-up. And Ant Financial taking a 45 percent stake in fintech Easypaisa.

The second category would be IPOs, with Pakistani companies going public on the local stock exchange, and the bigger ones listing in Hong Kong, London or New York. There are plenty of examples. Swvl has gotten listed on NASDAQ. You’ve seen Kaspi from Kazakhstan go and have a $6 billion IPO in London.

The third category would be secondary raises. If you are investing early enough, the likes of Prosus and Dragoneer and Tiger, they like to acquire and build ownership over time. So, they can provide some secondary liquidity as well.

Daniel Eisenberg: As we come to the end, could each of you briefly give us a sense of where you hope the Pakistan start-up ecosystem will be in five to ten years?

Abdur-Rahim Syed: If you look at the core reasons why investors are excited, the facts are undeniable. The median age in Pakistan is 23 years; The U.K. by comparison is 41 years, and it will take a while for the Pakistan median age to get up there. There are almost 19 million either middle class or upper-class Pakistanis, which is bigger than all of Germany. The sheer size and the potential of the country is going to stay, which means that we are at the beginning of the journey for entrepreneurship and digitization in Pakistan. How quickly this grows is the question, not whether it grows. Will it reach similar levels as Indonesia and other pure markets? I’m sure it will. And I’m sure they’ll keep growing too, as there’s a lot of positive momentum. Many of the challenges we discussed are part and parcel of the growth journey of a digital growing, developing country.

Daniel Eisenberg: And Aatif?

Aatif Awan: In 2019 I was using Indonesia as a model to compare what’s in store for Pakistan. Pakistan looked, in terms of start-ups and VC funding activity, like Indonesia in 2009. So, there was this gap of ten years.

By contrast, today it looks more like Indonesia of 2014 and 2015. It’s very exciting that Pakistani’s start-up ecosystem is growing faster and the gap has begun to drop. The fundamental reason for that is that while Pakistan had a late start, a lot of that foundation was in place. The mobile adoption had taken place.

If you look at the $350 million of 2021, on the one hand, it’s very, very fast growth. But it’s still just 0.1 percent of Pakistan’s G.D.P. Imagine once that catches up to the ratio that countries like India have. I expect that Pakistan should be doing multiple billion dollars in VC funding every year, and given where the economy is, start-ups will become some of the biggest companies in Pakistan. In fact, these will be the major driving force for the Pakistani economy in five years, not the traditional businesses.

Daniel Eisenberg: Well, it’s going to be fascinating to watch as the growth journey continues. I want to thank both of you for taking the time to talk about this topic in such depth.

In addition to our guests, a big thank you, as always, to our entire McKinsey on Start-ups production team: Molly Karlan, Polly Noah, Sid Ramtri, Myron Shurgan, and Katie Znameroski.

And finally, thank you for listening. We hope you’ll join us again for McKinsey on Start-ups.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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