Airlift: a pragmatic analysis of Pakistan's most funded startup's failure

Dubbed by some commentators as a "complete disaster", Airlift's sudden and spectacular failure actually makes the entire ecosystem better.

Oct 27, 2022

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Thunderous beginnings

In 2019, former Mastercard and Doordash executive Usman Gul launched Airlift alongside his two co-founders Ahmed Ayub and Meher Farrukh. The initial idea was to improve traffic in the Pakistani city of Lahore, by offering residents air-conditioned mini-bus rides, that could be ordered through an app. Much like SWVL in Egypt, Airlift started as an alternative to both deficient public transport and onerous individual ride-hailing. The company gained traction rapidly, becoming a symbol of Pakistan's novice but exciting startup ecosystem.

“Gul and his small team started operations with a pilot project in Lahore using $50k of internal capital. Within three months, the company was operating in two Pakistani cities, Karachi and Lahore. Within six months (August 2019), the company raised $2.2 million in seed funding. Through their seed funding, Airlift had acquired 50,000 riders in Lahore and scaled to over 10k daily rides. On the back of this success, they raised $12m in a Series A funding round in November 2019. The most notable investor was US VC, First Round Capital.” - Sturgeon Capital

Although gaining traction, Airlift was suffering from the infamous ride-hailing business model, which was even more fragile and expensive in their case due to the large capital expenditures related to maintaining the buses. SWVL, an Egyptian competitor, entered the Pakistani market in summer 2019 right after its $42M round, putting an additional strain on Airlift’s already fragile finances. SWVL’s recent stock price woes and the Egyptian company’s inability to garner investor trust is another case in point of the shaky foundations on which these types of businesses are built.

The pandemic put a definite end to Airlift’s ride-hailing ambitions. The company quickly pivoted out of the sector, with the founder explaining that he and the management team quite literally did not believe in the model anymore. In a matter of weeks, Airlift completed its transformation to an even more cash-dependent vertical: quick commerce.

The pivot to quick commerce provided the company with a new impetus to grow. Airlift delivered goods such as food, household supplies, pharmacy, stationery, pet food, fresh fruits and vegetables, small electronics, and more through a network of dark stores scattered around the country. Convinced they had an upper hand on competitors in emerging markets, Airlift expanded to South Africa.

The traction and rapid growth enabled Airlift to raise its $85M Series B, the largest round ever recorded in Pakistan. Led by two solo capitalists, Harry Stebbings and Josh Buckley, Airlift’s coffers and cap table were now full of foreign money and notable investors such as Y-Combinator’s Sam Altman. In a little under three years, the company had become the poster child of the Pakistani startup ecosystem, shining a bright spotlight on the opportunities presented by the country’s ever-growing, digitally-hungry middle class.

“With more than 250 startups since 2015, an increasing internet penetration driven by low-cost smartphones – there were 184 million cellphone users at the end of 2021 – and affordable data, Pakistan is one of the final few untapped markets for startups and investors to offer internet-based services similar to those in other parts of the world. These services include ride-hailing, and food and grocery delivery, among others.” - Al Jazeera

A leak in the bucket

Airlift’s quick-commerce strategy was heavily influenced by the concept of “blitzscaling”, a strategy coined by LinkedIn founder Reid Hoffman, which advocates for hyper-fast growth while accepting the chaos that ensues. Some speculate that Airlift’s blitzscaling strategy was heavily influenced by Aatif Awan, one of the startup’s major early backers, who served a stint as a LinkedIn executive.

While Airlift was known for having a progressive culture and extremely generous employee compensations/benefits compared to other Pakistani companies, key infrastructure and operational deficiencies started eating away at the startup’s already thin margins. Former employees now speak of warehouse (dark store) mismanagement, leading to waste, pilferage, and redundancy in the number of warehouses in a specific city. Furthermore, former employees also complained of a disconnect between the company HQ and the operational teams on the ground.

“Senior management was never in the warehouses. They just sat inside and did their meetings on Zoom, not bothering to check the issues in the warehouses, leaving the burden entirely on the live operations team.”” - Former Airlift warehouse manager for Rest of the World

The company’s aggressive expansion strategy amplified the operational flaws described above, and dug a deeper hole in the company’s finances. While the company had managed to raise and sell the vision during the notoriously prolific 2021 venture capital market, matters would get thornier as the market corrected.

Indeed, 2022 proved to be the year venture investors started being a bit more demanding about companies’ finances, and a bit friskier about emerging markets. The increased scrutiny on companies’ path to profitability was felt by the Airlift team, who cut back on their South African adventure and shed about 31% of its workforce in early 2022. Founder Usman Gul seemed relatively happy with the results of the operation:

“In the note Tuesday, Gul said Airlift was able to achieve order-level profitability, maintain reasonable scale, and reduce financial burn by 66%. “As of July 2022, Airlift was about three months away from operating profitability (i.e. positive cash flow from operations), and about 6-9 months from company-level profitability (i.e. Free Cash Flow),” he wrote.” - TechCrunch

Final blow

It is in that state of tightened capital markets and race to profitability that Airlift embarked on its journey to raise a Series C, essential to keep the company’s bank account operational. Then, in a matter of days, what seemed like a done deal all came crashing down. Some of the round’s lead investors warned Airlift of a delay in wire transfers, owing to the changing investment climate.

“The company appeared to have the commitments it needed as it sent the final documents to investors on July 5. But just two days later, things took a turn for the worse. The lead backer delayed sending the money, wanting more investors to wire funds together with it, Gul said, without revealing the main investor’s name. The other investors asked for two to three months, citing fears of a global recession and downturn in capital markets. Less than a week into the negotiations, Airlift’s coffers had dried up and the company had no option but to wind down its business.” - Fortune

On July 13, 2022, facing the inevitability of missing payroll, the Airlift founding team decided to put an end to the story and shut down Airlift for good.

Letter sent by Airlift management explaining the reasons for the shutdown (source)

Airlift’s impact on the ecosystem

The reactions to the shutdown seem to be a bit exaggerated. Some speculated whether this put “a nail in the coffin” of the Pakistani ecosystem, while others claimed Airlift’s failure would disincentivize foreign investors from investing in Pakistani startups ever again. What I propose is a more holistic view of Airlift’s impact on the ecosystem, and what its failure means.

First, Airlift managed to aggregate a solid pool of internal, local talent during its three years of operations. The funded, progressive and exciting startup attracted some of the country’s brightest minds, who were finally faced with a third option for their eternal dilemma of either leaving Pakistan or working for a multinational corporation. While Airlift lacks an exit and thus didn’t lead to the creation of hundreds of new angel investors, its impact on Pakistani mentalities is still notable.

“In a country where corporate and management consulting jobs have long been considered the only “stable” job options, the success of Airlift has helped change the destiny of many young professionals. Akin to the “Paypal Mafia ” in the U.S., “Airlift Mafia” includes the founders of several prominent Pakistani startups such as Dastgyr (raised $41M), agri-tech supply chain startup EasyFresh Technologies (which delivered over 1,000 tons of produce within the first three months of its launch), and inter-city courier service Parcel Logistics, among others.” - Rest of the World

Despite its failure, Airlift also proved to young, ambitious Pakistani founders that it was possible to raise the kind of money needed to build a world-class startup right from home.

Let’s move on to the impact of Airlift’s failure on Pakistani startups ability to raise more money. First and foremost, yes it would’ve been better for Airlift to become a unicorn. As the ecosystem's poster child, its failure was inevitably very visible. Whether this will lead to venture capital leaving Pakistan en masse is a valid question for the uninitiated, but is simply not how venture capital works.

The rise of the Pakistani middle class and its appetite for digital products is too big of an opportunity for intelligent VCs to pass on. If anything, Airlift’s failure led to a massive upskilling of the Pakistani ecosystem, who got hit with a harsh reality check following the euphoria of the 2021 VC market. Pakistani current and future founders are fundamentally better as a result of Airlift’s failure. Any semi-decent investor knows that.

Airlift’s failure is a story of rapidly changing market conditions, flawed strategic choices, and operational inefficiency: in short, the main reasons behind almost all startup failures. The failure wasn’t a story of government corruption, founder pilferage, and extremely toxic company culture, which could indeed make foreign investors question the Pakistani market. In my opinion, Airlift’s failure is painful in the short-term and might lead “tourist” investors to leave, but the good ones know that this type of event is a key step in any startup ecosystem’s lifecycle.

Pakistani total startup funding over the past couple quarters (source)

Conclusion

I think the best way to view the Airlift story is to take a bird’s eye view of the ecosystem. In 10 to 15 years, how will people talk about this story? I believe Airlift’s failure cemented rather than questioned the relevance of the Pakistani startup market. Airlift showed the brightest Pakistani talent that they could build world-class startups at home, while also providing them with a data and insight-packed case study for them to refer to when building their own company.

VCs leaving Pakistan now have clearly not understood the rules of their industry. Failures like Airlift make the ecosystem and the founders that come after it more cognizant of the risks taken. Biotech founders in the US will probably think twice before promising their product works after seeing Theranos’ Elizabeth Holmes in court.

Airlift has broken the mental barriers that massive rounds couldn’t be raised in Pakistan. Let’s see who takes advantage of this newfound mental freedom.