Deal focus: Glimmer in a dormant Pakistani ecosystem

Pakistan’s start-up scene enjoyed good years from 2021 to 2022, maybe too good. Annual VC investment in the country has historically averaged less than USD 30m, but it jumped to USD 193.3m in 2021 and USD 224.5m in the first half of 2022, according to AVCJ Research. Then it fell off a cliff.

AVCJ has records of only one investment in the second half of 2022 and one in the first two months of 2023. Less than USD 10m was raised across the pair.

Confidence evaporated when ecosystem poster child Airlift completely shut down operations last July, citing macroeconomic headwinds amidst swirling accusations of mismanagement. The last-mile delivery start-up had raised about USD 100m in the space of two years.

The context helps explain why last week’s investment in logistics financing platform Trukkr has stirred up more excitement than one might expect from a USD 6.4m seed round.

Trukkr’s closest competitors, BridgeLinx and Truck It In, raised USD 10m and USD 14.5m, respectively, during the hype period. Meanwhile, Bazaar, a not incomparable logistics financing platform, secured about USD 106m across three rapid-fire rounds.

There is a sense, however, that many of the start-ups that cashed up in the pandemic-fuelled euphoria have been forced into awkward positions. They are under pressure to meet investor expectations yet have scaled too fast to be supported by local infrastructure.

“We didn’t want to build a fintech platform until we had that foundational layer. We took about 2.5 years to build that, which is pretty much the opposite of what most start-ups did in Pakistan,” said Mishal Adamjee, a co-founder of Trukkr and former private equity professional with Abraaj Group.

“We missed out on that beautiful time to raise capital, but honestly, I think we dodged a bullet because a lot of companies that raised in the crazy phase are having issues justifying valuations.”

US-based Accion Venture Lab and the UK’s Sturgeon Capital led the round. Trukkr had cold-messaged Accion via Twitter requesting a five-minute call, and the two parties quickly hit it off. Sturgeon, for its part, was already scouting start-ups on the ground in Pakistan.

“Robin Butler [Sturgeon’s London-based head of impact] walked the streets of Karachi, Lahore, and Islamabad for months before deploying money,” Adamjee said. “We found them to be really valuable because they understood the market really well.”

License to lend

The investment came soon after Trukkr received a full lending license from the local financial regulator; a preliminary license was granted last August, allowing a limited lending business to get underway. The bureaucracy around this approvals process is considered a significant moat.

Already, about 80% of revenue is generated from lending, which provided investors with much of the impact and financial inclusion they sought. The mission is described as transforming Pakistan’s truckers from wage labourers into independent businessmen.

“Every driver aspires to have his own truck and eventually have a small transport company with a few trucks. That’s the dream, and we’re here to facilitate that,” said Trukkr CEO Sheryar Bawany.

The remaining 20% of revenue comes from the so-called transport management system, a collection of logistics industry data that essentially provides an overview of what is being transported where and at what cost. Most importantly, it is used to assess the creditworthiness of under-banked drivers.

More than 100 large local corporations have joined the platform since launch in 2019, and none have left. This is a critical development because individual truckers are hesitant to adopt new systems and divulge data about their deliveries unless it is required by their employers.

The first 2,000 to 3,000 drivers were onboarded in this top-down manner, while a more grassroots awareness and recruitment campaign was pursued by setting up branch offices at truck stops.

Then disaster struck. The unprecedented string of floods that devastated Pakistan between June and October last year resulted in more than 1,700 deaths, 2m people losing their homes, and USD 30bn in economic damage.

Trucking was not spared. With swathes of cropland destroyed, transport routes cut off, and untold thousands of containers stranded, much of the industry came to a standstill. The loan sharks who traditionally serve drivers proved profiteers in the chaos, jacking up interest rates to extortionate levels.

Trukkr decided to play the role of standardised financial product, not changing its rates. This is believed to have directly contributed to the number of drivers on the platform rising from 6,000 to 20,000.

“It takes years to establish financial leadership, but the floods helped us speed up that process and gain that momentum as a reliable partner,” Bawany added.

“What we’re trying to build here is a sort of bank for transporters, and that’s taking hold. You’ll see the number of drivers on the platform jump to 50,000 or 60,000 in the next six to 12 months. The momentum is definitely in our favour.”

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• Topics
• South Asia
• Industrials
• Support services
• Technology
• Early-stage
• Pakistan
• seed
• Logistics
• TMT