Tough Times for Pakistani Startups: Cheetay Faces Closure, Dastgyr and Others Consider Layoffs
In the fast-paced world of startups in Pakistan, a wave of uncertainty and financial challenges is sweeping through, leading several ventures to make tough decisions. As the entrepreneurial landscape faces headwinds, notable players like Cheetay, Dastgyr Technologies, YAP, and Paymob find themselves at a crossroads, grappling with the prospect of closures or substantial workforce reductions.
Cheetay, a delivery service startup that entered the scene in 2015, initially gained popularity as an online food delivery platform. Co-founded by brothers Ahmad Khan and Majid Khan, Cheetay expanded its services to include grocery deliveries at the onset of the pandemic, employing a dropshipping model from physical stores to customers. This evolution eventually led to the adoption of a quick commerce model, involving the establishment of dark stores for expedited deliveries.
Despite its earlier successes, Cheetay now stands on the brink of permanent closure. Sources close to the founders reveal that, following the release of half its workforce late last year, the company is contemplating a shutdown. An official at Cheetay, speaking on condition of anonymity, acknowledged the challenges, stating, “As a business, it doesn’t make sense anymore.” The quick commerce model’s high-burn nature, coupled with insufficient demand for immediate grocery services, poses formidable challenges, exacerbated by the current high-inflation environment in Pakistan and a global dearth of risk capital.
This situation is not unique to Cheetay, as Airlift, despite raising an $85 million round, announced its shutdown in June 2022. The dominance of foodpanda in the restaurant aggregator space further compounded Cheetay’s troubles, ultimately leading to the decision to shut down all operations, including the quick commerce business.
Another significant player, Dastgyr Technologies, a B2B eCommerce marketplace, finds itself in a similar predicament. Competing with Bazaar, Retailo, and the now-collapsed Jugnu, Dastgyr has decided to cut its workforce by 50%-60%. Co-founder Muhammad Owais Qureshi, in a company-wide email, expressed the difficulty of reducing the team and attributed it to the “global and local political and financial climate” and an “unforeseen economic crisis.”
Dastgyr had already let go of most of its warehouse staff before the new year, but the challenges persisted into 2024, affecting white-collar workers as well. The B2B startup, having raised over $40 million in funding since its inception, faces the instability of its underlying fundamentals, resulting in substantial cash burn. The competitive landscape, with strong players like Bazaar securing $70 million in March 2022, contributes to the challenges faced by Dastgyr.
Despite attempts to reach out to Dastgyr’s co-founders for more details on the downsizing, the response has been a resounding silence, underscoring the sensitivity and severity of the situation.
YAP’s Financial Turmoil
In the fintech sector, YAP, an emerging electronic money institution (EMI), is experiencing financial turmoil. Layoffs have affected almost the entire workforce of about 50 people in Pakistan, leaving only two employees. This drastic measure raises concerns not only about the company’s immediate future but also about its in-principle approval for the EMI license.
Despite having operations in Saudi Arabia and the UAE and raising $41 million in July 2022, YAP has struggled to meet the central bank’s minimum capital requirement. The company’s inability to fulfill this obligation puts its in-principle approval at risk, and though it has not officially withdrawn its license application, the situation remains precarious.
The company’s original plans to capitalize on the significant remittances from Middle Eastern countries, particularly Saudi Arabia and the UAE, seem jeopardized. The potential withdrawal from Pakistan would mark an unprecedented move for a tech company from the Middle East, impacting not just YAP but also the broader fintech ecosystem.
Paymob’s Sudden Realization
Similarly, financial technology company Paymob is navigating a sudden realization that its rapid workforce expansion may have been too ambitious. With over 90 employees, Paymob is now aggressively downsizing, affecting 35%-50% of its workforce. Specializing in online payment processing, Paymob had not considered downsizing until December 2023.
Despite being well-funded and expanding into promising markets in the Middle East, particularly the UAE and Oman, Paymob has struggled to achieve sustainability and positive unit economics. The company’s decision to downsize is seen as a necessary cost-cutting measure rather than an exit from the Pakistani market. However, the lack of a proactive approach in increasing revenues and achieving profitability through sustainable means has left investors less than satisfied.
The restructuring in Pakistan may be linked to Paymob’s shifting regional focus to the Middle East. While this move aims to capitalize on promising markets, it underscores the challenges faced by startups in balancing growth and sustainability.
Implications for the Startup Ecosystem
The challenges faced by Cheetay, Dastgyr, YAP, and Paymob offer insights into the broader issues affecting the Pakistani startup ecosystem. The high-burn nature of certain business models, coupled with intense competition and global economic uncertainties, has created a challenging environment.
For startups, the key lessons include the importance of strategic planning, sustainable growth, and adaptability to changing market dynamics. The ability to balance expansion with financial stability remains a critical factor for long-term success.
As the startup ecosystem navigates these challenges, it prompts a broader conversation about the role of investors, regulatory frameworks, and market conditions in shaping the trajectory of young companies. The fate of these startups will not only impact their founders and employees but also contribute to the ongoing narrative of entrepreneurship in Pakistan. In the face of adversity, the resilience and adaptability of the startup community will play a pivotal role in shaping the future of innovation and business in the country.