The pattern is clear: as foreign equity retreated, domestic capital – bank-led, debt-flavoured, and increasingly homegrown – stepped into the gap. The ecosystem is becoming less dependent on the mood of investors in San Francisco and Dubai.
None of this means Pakistan has fixed itself. The interviews behind this research surface a list of self-inflicted wounds that no amount of investor cleverness can fully route around.
The state regulates as if it were trying to discourage the very thing it claims to want. Hundreds of non-banking financial companies sit in a backlog at the securities regulator, while fintech firms wait – sometimes for more than two years – for “in-principle approval” from the central bank. New companies must clear security vetting that can take months. Increasingly, even forming a joint venture abroad requires bureaucratic permission. Government departments work in silos, with the IT ministry and the central bank often pulling in different directions, so that long-term technology policy gets sacrificed to short-term political survival.
And there is a human cost that compounds quietly. Pakistan’s startups have become unintentional training schools for the Gulf and Europe. A developer is hired, trained, promoted – and the moment they reach senior level, the currency risk and the better salaries abroad pull them to Dubai or Riyadh. The country keeps paying to produce talent that it then exports.
The state regulates as if it were trying to discourage the very thing it claims to want.
The encouraging note is that the policy machinery is, slowly, learning. The Pakistan Startup Fund has begun acting as a “last cheque” – the final piece of capital that gets a deal over the line. More striking is the Special Investment Facilitation Council (SIFC), originally viewed as just another layer of bureaucracy, which is evolving into something more useful: a kind of sovereign de-risking shield that gives foreign investors a single, higher-level point of confidence in a system that otherwise inspires little.
The shift these institutions represent is the right one – from the state as a gatekeeper that says no slowly, to the state as a partner that helps absorb the high risks that scare private capital away.
So what does Pakistan actually teach us?
The easy lesson – fragile economies can’t sustain venture capital – turns out to be wrong. The truer, more uncomfortable lesson is that risk capital in a fragile economy doesn’t behave the way the textbooks describe. It doesn’t disappear when institutions are weak; it reroutes itself through whatever channels still work – offshore legal structures, trust networks, staged financing, bank debt, intensive monitoring. The formal institutions everyone says are essential get quietly replaced by informal ones that do the same job, less efficiently, but well enough to keep capital alive.
Call it the frontier-market paradigm: an ecosystem that survives not because the environment is good, but because founders and investors are relentlessly inventive about working around an environment that is bad.
That resilience is genuinely admirable. It is also a damning indictment. Every workaround – the Singapore holding company, the trust-based deal, the developer who leaves for Dubai – is energy spent compensating for a state that won’t do its job. Pakistan’s entrepreneurs have proven they can build despite their institutions. The real prize, still unclaimed, is what they could build if those institutions finally got out of the way – or better yet, started to help.
The capital has shown it will adapt to almost anything. The open question is whether the country will adapt to deserve it. (Concluded)
The writer holds a PhD from Ecole des Ponts Business School, Paris. He did his MBA from the London School of Economics and can be reached at Khatana651273 @gmail.com.