UK’s CDC Group backs Fatima Gobi Ventures

KARACHI: The CDC Group (CDC), the UK’s development finance institution and impact investor, has made an anchor investment in Techxila Fund I, a fund managed by a local venture capital firm Fatima Gobi Ventures, a statement said on Friday.

The CDC’s commitment will help boost Techxila Fund I’s investments in Pakistan-focused early stage startups, helping to drive transformational impact and spurring economic and social development in the country.

The increasing interest from the international investors such as global VC firms, bodes well for the Pakistani startups. In the first-half of 2021 alone, Pakistani startups raised more funding from the venture capital firms than the previous five years combined.

Despite a global pandemic, foreign funds accounted for over 70 per cent of Pakistan’s total venture capital funding in 2020 and 2021. This rise in funding has helped fuel the country’s economic growth, the country has seen an increase in its middle-class over the last two decades, with an estimated 84 million Pakistanis (42 per cent of the population) considered middle-class in 2017.

In the first-half of the year, 101 million broadband users and 98 million 3G/4G subscribers were recorded in the country, indicating the significant market penetration and showing there is still much room for growth.

The CDC’s funds injection into Techxila will enable FGV to expand its investment portfolio across a myriad of verticals, including fintech, logistics, edtech, and healthtech sectors.

Such tech-enabled business models can contribute to job creation at scale and enhance consumers’ access to essential goods and services.

By partnering with the local venture capital firms such as FGV, the CDC aims at catalysing domestic venture capital markets and channel funding to early-stage entrepreneurs.

Additionally, the partnership will support FGV in putting environmental, social and governance (ESG) practices at the forefront of its investments and this alignment is expected to have a positive demonstration effect for other investors in the market.

FGV itself is a joint venture between Pakistan conglomerate Fatima Ventures and Pan-Asian venture capital Gobi Partners.

Now the most active investor in Pakistan, FGV’s investees were involved in more than 40 per cent of the country’s announced funding deals as of September 2021.

FGV’s strong combination of Fatima Ventures’ local expertise and Gobi Partners’ regional knowhow has helped the venture capital spot first movers and get ahead of key trends.

Ali Mukhtar, general partner for FGV, said: “We are elated to welcome CDC, a pioneer in impact investing and renowned partner in ESG integration, to the Techxila team. [The] CDC’s backing is a vote of confidence in the massive growth potential of Pakistani startups. Now, FGV can leverage CDC’s expertise in ESG, sustainability, and impact matters for the benefit of Techxila’s portfolio companies.”

“This partnership is an exciting development for both FGV and Pakistan’s burgeoning startup ecosystem,” he added.

“We have been the most active investor in Pakistan in 2021 and our companies are also strong ESG proponents, whether it is bringing economies of scale to the SME retailers, digitalising local supply chains, or building Pakistan’s first digital retail bank.

More venture capitals entering emerging Pakistan need to understand that ESG and valuation uplifts are not mutually exclusive. Investing in Pakistan’s early-stage startups is great for the triple bottom line: profit, people and planet,” Mukhtar said.

Habib Yousuf, country director of Pakistan, CDC Group, said: “Pakistan is a key VC market for CDC, due to the depth of entrepreneurial talent in a large and growing domestic market, with numerous opportunities for delivering impact through tech-enabled business models.”

“We are excited to be building an enduring partnership with Fatima Gobi, which is well-positioned to support the local entrepreneurs and help stimulate innovation and transformational impact that will drive sustainable economic development.”

Techxila Fund I portfolio companies have set several milestones for Pakistan’s nascent startup scene. In August 2019, the fund backed Lahore-based logistics company Airlift’s seed round. Three months later, Airlift raised $12 million, then Pakistan’s largest Series A round. In August 2021, Airlift’s mega Series B round of $85 million was another record-breaking feat, being the largest Series B for a Pakistani startup.

Techxila also backed Lahore-based B2B marketplace Tajir in a June 2020 seed round. A year later, the Y Combinator graduate raised a $17 million Series A round led by renowned US VC Kleiner Perkins, marking the firm’s first investment in a Pakistani startup.

Separately, FGV-backed digital payments startup Safepay has received funding from the US fintech giant Stripe.

In June 2021, Techxila participated in Islamabad-based fintech TAG’s $5.5 million seed round, the largest seed round in the MENAP (Middle East, North Africa, Afghanistan, and Pakistan) region.

In addition to being backed by general partners of leading US VC Andreessen Horowitz, TAG was accepted into Y Combinator.

Techxila also joined TAG’s follow-up seed round in September 2021, which at $12 million, more than doubled its past record-setting raise. TAG is now valued at $100 million.