Why smart money came into Pakistani startups when everyone left

A large round at the bottom of sentiment

The episode opens with Muzamil admitting his own position. He has been openly bearish on Pakistani startups on the show. So when Faisal Aftab announces a large foreign-backed round into the ecosystem — at a time when the consensus was that the local startup industry was, in Muzamil’s words, “by and large dead” — the first reaction is a question mark, not applause. How does this happen when global rates are high, free money is gone, and one company after another is collapsing or moving operations out of the country?

Faisal’s answer is that he saw it coming both ways. He went bearish early, and now he is going bullish early. The thread running through the whole conversation is the same: cycles. “Whatever goes up can’t infinitely go up forever. Whatever goes down can’t infinitely go down forever.” The money that just came in is not, in his framing, an oasis in the desert. It is the first move of investors who have decided the bottom is in.

Why he went negative in early 2022

The contrarian credibility comes from the earlier call. Faisal says he turned negative on the Pakistani ecosystem in January and February 2022 — at a point when his peers were still euphoric and, in his telling, treating his caution as madness. The tell was valuation. First-time teams with just a deck and a team were raising pre-seed rounds at $15M caps. “That’s higher than Vietnam. It’s higher than most markets around you,” he says. He refused to participate in those deals; the worst cap he came in at was around $6M.

The macro tell was the US Federal Reserve. When the Fed gave forward guidance in October 2021 that it would raise rates in March, Faisal treated a tech downturn as a foregone conclusion. Venture is a risk-on asset class worldwide, and it was already turning down everywhere. He used that read operationally. As early as March 2022 he told his portfolio companies to raise what they could while sentiment was still there, then conserve capital, stop chasing growth for an investor who wasn’t coming, and build a twenty-four-month runway. His original guess for the bottom was around the second quarter of 2024; he later revised it earlier, toward the end of 2024, based on Pakistan’s macros.

The 2021 bubble, read against the dotcom run

Faisal is precise about the word “bubble,” and he reserves it for 2021. He compares it directly to the dotcom run of 1999–2001 — the frenzy where everyone bet on web 1.0, where domains like a hypothetical mango.com traded for tens or hundreds of thousands of dollars on the logic that whoever owned the name would own the market. People made fortunes, and then it dissipated.

Two markets in 2021 resembled that, he argues: crypto, and frontier-market venture capital. Pakistan is a frontier market, and the same overpricing hit Egypt and similar economies. The underlying potential is real — population, intellect, demand — but everyone mispriced it at once. The numbers tell the story he wants to tell: $50M into Pakistan in 2020, $350M in 2021, then a sharp fall, down to roughly $30M in the first half of 2023 before this latest money arrived. The 2021 jump, he suggests, was partly the global flood of printed money looking for somewhere clean to land. Pakistan, with its reputation finally improving past the post-9/11 security frame, became one of those markets — investors realised, as he puts it, that it was effectively a “mini India” they had been overlooking.

He is blunt about the casualties. Airlift, he says, was the local equivalent of a hyped story — a decent business that applied blitzscaling, a method that works on free money and does not work in a country like Pakistan. He also faults the corporates — Pakistani conglomerates that jumped straight into early-stage bets they had to write down. Those players are needed, he says, but at Series B, once there is product-market fit, revenue and unit economics, not at the seed stage where most companies fail.

Betting on people, not collateral

The deeper reason for the bullishness is structural, and it is the part of the conversation that turns from market timing to country. Pakistan, Faisal argues, has a glass ceiling. If you are born into a family with assets and a banking relationship, you can put up four commercial plots as collateral and launch a business on mediocre intelligence. If you are not, the door is closed. Startups are the first time in the country’s history, he says, that capital is betting on people “based on pure intellect and capability without asking for collateral.”

That is why he names his founders the way he does — Faizan at BookMe, Umar at PostEx, another Umar at Hubble — as “sons of the soil” who had high intellect and resilience but little capital, and who built formidable companies once they were backed. Muzamil presses on a familiar worry: that Pakistan skipped the hard industrial and services stages India climbed before its startup boom, and that its richest people jumped straight into startups like “degenerative gambling.” Faisal reframes it. In Pakistan everything is happening at once — web 1.0, 2.0 and 3.0 compressed — and the local software industry is larger than people credit, even if bad capital-control policy keeps most of that money parked abroad. The startups, by contrast, are real businesses owned by founders whose hearts are in them; he and his peers are minority investors backing the talent properly instead of extracting the margin.

Digitising the black economy

The growth thesis is mechanical, and Faisal lays it out in plain terms. Technology is “like Pac-Man eating up every business slowly,” moving activity from the brick-and-mortar and black economies onto digital rails. Even in a country with worsening macros and heavy devaluation, the markets are still full and the informal economy is enormous. Out of 250 million people, a company that captures ten million users can create tens of billions of dollars of value. That is the curve he is paying for.

Several of the new deals sit exactly on that thesis. Edufy is an education fintech with an AI credit-scoring engine that finances university fees collateralised against the degree itself — the loan is repaid or the degree is withheld — tackling a market where sending a child to college functions as a family’s retirement plan. Hubble he calls “probably the best kept secret in Pakistan,” a company doing trillions of rupees in transactions by digitising FMCG settlement: the cash that distributors and resellers move on behalf of the likes of Coca-Cola and Pepsi, pulled out of vaults and onto a platform, with invoice factoring layered on top so corporates can lend down their whole supply chain. In a roughly $250B B2B economy that is only about 30% documented, he frames the play in military terms — different brigades, Bazaar capturing the retailer, Hubble capturing settlement, each taking a slice of the informal economy.

Muzamil tests the adoption story against lived experience, and they largely agree it is already happening. Both describe paying by card and QR where they once carried cash; both note that domestic and blue-collar staff who were cash-only a few years ago now hold easypaisa and JazzCash accounts. Faisal’s view is that demand is increasingly coming from consumers themselves, and that QR codes will be “the credit card of the masses” because plastic and $150 terminals never reach that layer. Adoption, he says, runs near 10% a year — and on an undocumented economy of perhaps 700 billion, even that compounds into something substantial without any government intervention.

The Fed, sovereign debt and the next liquidity wave

To explain why the next cycle is coming, Faisal walks back to the monetary plumbing. Since the dollar left gold in 1971, he argues, the world has run on a debt-backed system that throws off a crisis roughly every seven to ten years, and each crisis pulls the world closer together. Pakistan barely felt 2008 because it was loosely linked to the global economy; it feels this one because its own sovereign debt has skyrocketed. He frames the scale starkly: from 1947 to 2008 Pakistan accumulated about 6,000 billion rupees of debt; from then it took on roughly another 24,000 billion, leaving a 30,000-billion-rupee pile carrying compounding, rate-linked interest.

That ties the country to the Fed. When the Fed raises rates it pulls dollars out of the system, the dollar strengthens, and net energy importers like Pakistan shake. A US investor earning 5% risk-free on bonds has no reason to take Pakistani devaluation risk, so incremental capital disappears. But Faisal expects cuts. He reads a commercial real estate crisis building — skyscrapers financed at returns that no longer exist after the shift away from offices — with banks heavily exposed. The endgame, he argues, is a bailout via quantitative easing: buying treasuries, cutting rates, flushing liquidity. When that happens, investors need to beat inflation again, risk appetite returns, and the incremental capital filters back to frontier markets. That is the wave he is positioning ahead of. This time, he insists, it will be value-driven growth rather than a 2021-style bubble.

Demonetization on a ten-year clock

The conversation’s most concrete forecast is about cash. Faisal makes India’s 2016 demonetization the comparable, and he is unsentimental about the politics: he is not a fan of Modi, but he credits the move with taking India from about 30% banked to nearly 70–80% banked in five years. The mechanism mattered as much as the will — new, more durable currency, old notes voided as legal tender, and crucially, smartphone and wallet adoption high enough that “necessity breeds adoption” once cash dried up. Reliance’s free data, he notes, was waiting precisely for that moment.

He does not think Pakistan will do it yet. Too many powerful people hold physical cash offline, the FATF and external pressures complicate it, and a new administration is unlikely to turn the whole system against itself while other fires burn. His target is 2026 — and he points to a pattern: China demonetised and adopted digital payments around 2006, India in 2016, which puts Pakistan, on the ten-year lag, around 2026. By then, he argues, urban smartphone and data penetration will make the shock far smaller than it would be today. If Pakistan demonetises, it accelerates the digitisation; if it does not, the same value still shows up in the form of the startups capturing the informal economy.

The reset nobody is measuring

The episode closes on the biggest frame Faisal offers: that the entire crisis is about the monetary system itself. He argues the system went effectively insolvent in 2008 and was propped up by coordinated money printing — a “controlled demolition” where markets made nominal higher highs while real purchasing power kept falling, visible if you price the S&P or housing against gold. The cut-raise-print cycle on a three-and-a-half to four-year rhythm is, in his reading, the system paying back the interest on what it printed, over and over.

He pushes this toward central bank digital currencies. Today’s “digital” money, he points out, is really analog — bank balances settle with lag, through trusted intermediaries. True digital money built on cryptography behaves like cash: instant settlement, no intermediary. He expects a digital dollar — he names FedNow — to launch one-to-one with the analog dollar and then quietly diverge, the gap masking hyperinflation as more units are printed. Bitcoin, capped at 21 million, he reads as gold’s digital replacement moving at tech velocity; CBDCs, he stresses, will not be capped. The point he keeps returning to is that everyone benchmarks the rupee against the dollar without asking what the dollar is benchmarked against — and that the 1971 system is now itself ending, with another reset somewhere ahead.

Muzamil closes by thanking Faisal for “breaking the winter of sorrow” and bringing some optimism back to a flattened ecosystem. The optimism is conditional and unromantic — a bet on cycles, on founders backed for their minds rather than their land, and on the slow, mechanical digitisation of an economy that mostly still runs on cash. But coming from the investor who called the top before the crowd did, the call that the bottom is in carries weight the headline number alone never could.