Intricate machinations of venture capital financing – Business

In the world of startups, attention spans are usually short-lived, and so are the apps they build. One day you could be a star, getting media attention, speaking at conferences and being named to the Forbes 30 under 30. The next month you could be facing legal action on fraud charges.

Yet one company has managed to keep everyone hooked for almost two years; perhaps this is actually OpenAI’s and not GPT’s greatest achievement yet. After launching the chatbot, it became the fastest startup to reach a billion users, and even faster in abandoning its nonprofit ethos.

Last week was more of the same.

First, CTO Mira Murati, along with two other executives, left the company and continued the leadership exodus. Soon after, however, OpenAI raised $6.6 billion in new funding at a valuation of $157 billion, making it the third most valuable venture-backed entity in the world. Only SpaceX and TikTok parent ByteDance are worth more.

Pakistan’s venture capital market remains unmoved as far-flung foreigners and disinterested local capital leave few options for startups

However, OpenAI’s round – the largest in history – is not representative of the broader venture capital market, where global funding fell to $70.1 billion in the third quarter of 2024, Pitchbook data shows. 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 26.6 percent compared to the previous quarter.

With the exception of North America, where funding increased 11.9% year-on-year, all other regions saw further declines. The decline in Asia was particularly steep, with the amount falling 51.4 percent to $14.9 billion in July-September, falling to a level not seen since early 2016, and barely 21 percent from the peak of the fourth quarter of 2021.

Volumes were no longer immune either, with deal counts falling to just 7,227 in Q3FY24, the worst quarter on record since at least 2015. Even adding estimated rounds, the total rises to 9,742, barely reaching Q3’19 levels . . This decline is quite broad-based, as every single region saw a decline in the number of deals, again led by Asia at 31.6 percent year-on-year.

Similarly, exit activity remained subdued at a total dollar value of $39.2 billion across 606 deals in Q3 24 – 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 accounted for 45.6% of the exit value, likely led by some large listings in India, where public markets have been surprisingly buoyant in recent years.

While Pakistani markets have also seen good momentum over the past twelve months, up 29.2% in 2024 to date, the risk market remains unmoved. According to Data Darbar, Pakistani startups raised a grant amount of just $16 million between January and September. But if there’s any consolation, four deals worth $15 million were completed in the last quarter alone. If you add Myco, which is technically headquartered in Dubai, the total increases by another $10 million.

In any case, for a country of our size, these are quite insignificant figures. The biggest reason for this is of course that most of the funds that have invested in Pakistan are foreign and do not exclude a real vision of the local market in a long-term strategy. Local capital is virtually non-existent – ​​a problem that is unfortunately not limited to venture capital alone.

This combination of distant foreigners and disinterested local capital leaves few opportunities for startups. Debt has always been scarce, venture capital has become increasingly difficult, and subsidized, government-backed financing is unreliable. Amid all this 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 show has the potential to bring much-needed attention and excitement to entrepreneurship and potentially inspire a new generation of founders. More importantly, it can potentially bridge the gap between investors and startups, opening up access to capital, which has been severely limited lately.

Additionally, it can help educate the general 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 will likely be quite small, as in India, and not a match for entrepreneurship. But if it helps to highlight some lesser-known success stories, that would be good enough for a win, because God knows we need them.

The writer is the co-founder of Data Darbar

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