In early July, things started looking up at Airlift Technology Pvt. When more money is ready to expand. Six days later, one of Pakistan’s most famous launches was a riot.
The e-commerce company collapsed less than a week after it failed to complete a funding round, underscoring the extent to which a global crackdown on technology valuations is affecting weak startups in emerging markets. Airlift raised $85 million a year ago — a national record — and has held back costs to woo investors as it prepares for a new round. But the leading backer pulled the plug, forcing Airlift to continue with no capital and abruptly shut down.
“The whole team, including me, was surprised when the race was canceled at the last minute,” founder Usman Gul said in an interview. “Airlift is not prepared for the volatility in the capital markets.”
Healthy growth and progress toward profitability have not been enough to convince investors amid a global economic slowdown and a slump in tech stocks. Airlift joins startups from Pakistan and India’s neighboring country as hedge-capitalists resist investing in the region in countries and industries they deem less risky.
Gul, 33, said one of Airlift’s mistakes was not raising enough money last year, when the markets were more favorable. This year, investors’ focus has shifted from growth to revenue potential, putting startups’ business models under intense scrutiny. As Airlift prepares for its latest fundraising effort, it has laid off a third of its workforce, lowered the round’s target size and slashed prices.
In the year As it sent final documents to investors on July 5, the company appears to have the commitments it needs. But two days later, things took a turn for the worse. The lead backer was slow to send the money, seeking more investors to fund with him, Gul said, without naming the lead investor. Other investors have asked for two to three months, citing fears of a global recession and a slowdown in capital markets. Within a week of the negotiations, Airlift’s coffers dried up and the company had no choice but to go bankrupt.
“The biggest miss on our end is not prioritizing a multi-level institutional investor,” Gull said, referring to large anchor backers who back startups through multiple funding rounds. “You need that multi-level institutional investor, someone like Ascel or Sequoia, who believes in the project and writes big checks.”
Gull appreciates the support he’s received from his early backers, but says their relatively small size hasn’t allowed them to invest as much as Airlift needs to continue its growth. The company had commitments from earlier investors like First Round Capital, Indus Valley Capital, Buckley Ventures, 20VC and others before it took off.
Airlift has helped put the spotlight on Pakistan with record funding that stands out this New Year for the South Asian country’s startups – raising a record of more than $350 million by 2021. It prompts companies to put the brakes on their expansion plans. Vitol-backed Vavacars has pulled out of Pakistan, Dubai-based Swivel Holdings has stopped daily trips in the country and Uber Technologies Inc. unit Careem Inc. He stopped the catering business. In India, shares of Zomato Ltd and Paytm have tumbled since their IPOs last year, and even the country’s top-rated Baijus has struggled to raise more cash.
Air transportation began with vans and minibuses used by office workers and students. When that business slowed during the pandemic, the company moved into brisk business. Before its demise, the startup had deployed around $85 million in 18 months to set up more than 70 warehouses in Pakistan, expand in South Africa and increase visibility through marketing spending. During its last fundraising effort, the company had reduced its cash burn by 66 percent, three months before turning a profit, and six to nine months from company-wide profitability, Gul said.
“We intend to learn from this experience,” Gul said. “Market change is a reality that requires better planning and preparation on our part.”
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