Deal focus: Bazaar, Zayn encapsulate Pakistan’s breakout moment
Bazaar, a B2B logistics and financial services start-up, is putting Pakistan on the map for brand-name global VC investors for the first time. One of its key local backers, Zayn Capital, is doing the same
A string of high-profile VC investments in Pakistan has given the local start-up ecosystem a new shine in the past year. But participation by heavyweight global investors has been a conspicuous missing ingredient in the projected boom – until now.
Dragoneer Investment Group and Tiger Global Management have led a USD 70m Series B round for Bazaar, a B2B logistics and e-commerce platform catering to Pakistan’s massive and underserved population of mom-and-pop retailers.
The investment – coming just six months after a record USD 30m Series A – also featured Defy Partners, Wavemaker Partners, Indus Valley Capital, Acrew Capital, B&Y Venture Partners, and Zayn Capital.
“This is a true testament to the potential of the venture capital industry in Pakistan in terms of the quality of the founders and what scale can be achieved. Having Dragoneer and Tiger validates the entire equation a lot more versus having a regional VC leading this round,” said Faisal Aftab, co-founder of Zayn.
“This deal is extremely important, especially for growth stage funding in Pakistan. It kicks off that it’s not just about early-stage funding and the there’s a valley of death in the middle where nobody can get funded. The growth-stage guys are ready for Pakistan.”
Aftab himself is directly responsible for much of the momentum. After Karachi-based Lakson Investments received the country’s first VC license in 2017, Aftab was brought in as a managing partner and effectively established a debut fund leveraging his private equity and hedge fund contacts in the US.
Seeking more independence in investment decisions, Aftab struck out on his own in 2020 and established Zayn, which raised about USD 40m for its debut VC fund last year. There is also an approximately USD 50m debt vehicle. Around 20 investments, primarily focusing on financial technology, have been made across both strategies to date.
Bazaar helps small shopkeepers even out supply gaps caused by limited working capital and inefficient logistical support from distributors and resellers. Revenue is currently derived from digitised accounting and inventory optimization, but the goal of the Series B is to use the data collected from these services to inform a stickier and more lucrative B2B credit scoring and lending business.
Aftab describes the model as a cross between two Indian counterparts: Khatabook, a bookkeeping app for merchants valued at USD 600m; and Udaan, a supply chain marketplace that has raised USD 1.1bn in private equity and is valued at USD 2.6bn. Aftab declined to comment on Bazaar’s valuation, although a source close to the situation pegged it at about USD 300m.
“Typically, when you’re lending B2C to end-customers, you have very little leverage with them. In this case, you have leverage on the retailer because you are supplying them goods,” Aftab said, observing that Udaan has followed a similar path.
“You can also lend in a closed loop environment, so you don’t actually give them cash directly. You can give them a line against buying SKUs [stock-keeping units] on the platform.”
Bazaar hints at another emerging parallel between Pakistan and India in the sense that it portends the closing of a longstanding growth-stage gap. Zayn, for its part, has reserved about 30% of its debut fund for follow-on investments and plans to formally launch its second fund in a few months with a view to writing larger cheques.
Fund II, which will probably target a corpus north of USD 250m, has recently secured an anchor investor in the form of a USD 10b global fund that backed Fund I. The anchor now aims to participate in rounds of USD 50-100m.
“Everyone wanted to pause in February, especially with Ukraine, but now we’re seeing the momentum come back,” Aftab observed. “Really, the gap is that once valuations start to touch that USD 50m-plus mark, we see a bunch of investors in that round disappear. Now, I’m already seeing two funds that are raising right now that are going to be targeting that particular stage.”
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