Will a $350M deal boost Pakistan’s start-up ecosystem?

A multimillion dollar acquisition of a cloud-based hosting provider founded by a Pakistani has sent a wave of jubilation among entrepreneurs in the South Asian country where the start-up ecosystem has faced multiple setbacks in recent weeks. 

Cloudways, which is registered in Malta but carries out backend development in Pakistan, has been acquired by the US-based DigitalOcean Holdings for $350 million, the companies announced. 

It is one of the largest acquisitions of a Pakistani tech service company. Some of the founders of Cloudways are also part of the Karachi-based Gaditek Group, Rafay Gadit, a director in the parent organisation, tells TRT World. 

“Like everyone we are excited but can’t comment on the deal or the company at the moment.” 

Since its founding in 2012, Cloudways has built a loyal base of more than 75,000 customers — many of them small-time business enterprises — by offering them easy-to-use online tools for cloud servers. 

The company takes particular pride in its fast and reliable customer service. 

Tech executives in Pakistan hailed the acquisition as an encouragement for digital newcomers, especially after the July bankruptcy of Airlift, seen by many as a poster child of Pakistani start-ups. 

Airlift suspended operations after failing to raise money from investors who were wary of its 30-minute grocery delivery model, which was bleeding cash. 

In a matter of weeks since then, a few other digital firms, including CarFirst—which played the middlemen between car dealerships and customers—folded operations. 

News of Cloudways’s acquisition comes at a time when Prime Minister Shahbaz Sharif is in Qatar on an official visit widely seen as an attempt to woo much-needed investment. 

Islamabad is seeking a $1.2 billion loan from the IMF to shore up its foreign exchange reserves, which have depleted in the past few months to dangerously low levels. 

Keeping a low profile 

While people in the IT industry have known about Cloudways, the company executives have generally kept a low profile and avoided the limelight even as it gradually grew in size and outreach. 

“I have known about the parent group Gaditek for some years now. They have enjoyed a good reputation in the industry,” Usman Siddiqui, the founder of Kitabain.com, Pakistan’s first online book marketplace, tells TRT World. 

Cloud-based services help companies and individuals move data and processing needs to massive servers owned by third parties such as Google. This eliminates the need to make heavy investment in hardware, which also requires constant monitoring. 

Such services saw a jump in usage during the Covid-19 pandemic in the past two years, as more and more people worked from home and online collaborations became a norm.

“It indeed is a big win for Cloudways and our ecosystem!! And a great validation that we can build and scale global tech platforms from Pakistan,”  Cloudways’s CEO Aaqib Gadit, an electronics graduate from the Karachi-based NED University, said in a LinkedIn post. 

While the news of Cloudways’s acquisition was widely celebrated in Pakistan, it remains unclear if any of the $350 million will find its way back to the owner’s home country.

“They have been working under the radar for years. They have teams and developers in Pakistan. So we shouldn’t worry too much about where the company is registered,” says Siddiqui. 

The Pakistan IT sector comprises mostly service-based companies, which have the flexibility to keep backend operations in one country and corporate presence in another for tax or other financial reasons. 

Cloudways has distinguished itself from recent start-ups because it focused on building a customer base and offering a viable profitable service instead of wooing investors to raise funds, Siddiqui says. 

“I was reading reviews of some of the customers of Cloudways and they were equally surprised to find out that it’s a Pakistani company, which has been offering such a good service.”