Impact of COVID-19 on South Asian Startups: Bangladesh & Pakistan

As the COVID-19 pandemic and the ensuing lockdown brings businesses to a halt, it is time for the global startup community to take up roles to support and learn from each other. Startups and SMEs are usually the hardest hit during an economic downturn, and the impact of COVID-19 has been no different. Bangladesh and Pakistan, being the home to an array of emerging startups, have been gravely affected by the ongoing crisis.

While the nature of the impact is evident, reliable data on the impact and mitigation plans are challenging to come by. However, LightCastle Partners and Invest2Innovate have both taken up the initiative to conduct market studies in their respective countries to capture data to gauge the impact of coronavirus on the startup ecosystem.

The organizations came together in a virtual session to deep dive into the collected data. They brought forth discussions around what startups should do to navigate through this period, governments’ role, and the different spaces for opportunities to thrive in the post-COVID era. 

The discussion panel consisted of research analysts, founders, and institutional investors from both countries, represented by:

1. Bijon Islam – CEO & Co-founder at LightCastle Partners
2. Kalsoom Lakhani – CEO & Founder at Invest2Innovate, PK
3. Ambareen Baig – Research Lead at Invest2Innovate, PK
4. Tina Jabeen – Investment Advisor at Startup Bangladesh
5. Muneeb Maayr – Founder at Bykea, PK

The scenario of Pakistan’s Startup Ecosystem

I2I conducted a study on 101 startups to capture the impact of a 30-day lockdown, and shared the following findings:

1. Close to 50% of the companies were forced to suspend their services temporarily.
2. While the majority of the sectors were affected, organizations in travel, e-commerce, transportation, and on-demand were among the hardest hit.
3. Companies from the hardest-hit sectors accounted for 45% of the sample, of which 56% reported closure of operations
4. In-depth analysis sees that 46% of E-commerce, 67% of on-demand, 83% of Tourism, and 100% of Transportation startups have shut down their services.
5. EdTech, health-tech, and e-groceries have been doing well during the pandemic, among which 51% of the startups are continuing to provide services and seeing increasing demands.
6. 52% of the respondents have postponed their plans of expansion while 61% of the companies have already canceled scheduled hiring decisions
7. 50% of the startups have reported delays in closing their current investment deals. While 37% reported not having any investments in the pipeline at all.
8. Around 42% of the sample have reported only 1-3 months of cash runway.

The Scenario of Bangladesh’s Startup Ecosystem

A survey conducted by LightCastle Partners on 200+ startups in early April in collaboration with Bangladesh Startup COVID-19 Response Group revealed the following findings:

1. 56% reported a decline in business activities by more than half, while another 24% reported a complete business closure.
2. Similar to the findings in Pakistan, the hardest-hit sectors in Bangladesh are e-Commerce, f-Commerce, and ridesharing. 
3. 52% of the seed-stage startups saw a decrease in business.
4. $ 56mn annual loss feared by a total of 300 Bangladeshi startups in 2020.
5. Grocery Logistics and Fintech are the essential sectors that have seen a positive impact on business.
6. Alarmingly, 60% of the startups only have a cash runway of fewer than 3 months.
7. 59% of startups seek leverage – mostly long-term low-interest loans to pass this crisis.

Considering the gravity of the situation and the investor’s sentiments, startups should put significant emphasis on sustainability and profitability rather than scalability. In addition, they should Seek support from impact-based funds such as Biniyog Briddhi, Youth Co:Lab, Internet Society Foundation, and DFID.

The Way Forward

Amidst all the negative impacts on the economy, certain positive aspects are coming to life – consumers are increasingly adopting digital services like online education, virtual healthcare, cashless payments, and e-groceries. Working from home is becoming the new norm, and subsequently, individuals are becoming tech-savvy through the usage of various co-working tools such as Slack, Monday, and Zoom. 

In the post-COVID, businesses will have the opportunity to leverage the digital space and design products and features to enhance their services further, as mentioned earlier. While services like virtual education and healthcare are limited to the urban demographics, with the digital transformation, such services are expected to be widely available to rural regions as well.

What Should the Startups Do Now?

The startups that can survive the upheaval are most likely to have the upper hand once the revival begins. Since investors would not be willing to reward top-line growth unless it is of high quality, startups are suggested to capitalize on several things:

1. Currently, investors are in the sit-back and analyze mode where they are researching their existing portfolio. Thus it is not the ideal time to start a new business or look for funding.
2. Research, product development, cutting costs, and long-term plans are some of the critical actions to focus on startups, which will enable entrepreneurs to secure the capital once things get stable.
3. In terms of innovation, rather than thinking of something from scratch, startups should look to formulate ideas that can enable existing businesses with tech solutions.
4. Startups should look to have strategic partnerships with each other to tackle the ongoing crisis. 
5. Although funding is going to be hard to get by, startups can seek to get funding from impact-based funds such as Biniyog Briddhi, Youth Co:Lab, Internet Society Foundation, and DFID.

To conclude, now is the time for startups to do the research, utilize the time pivot to business models, which are going to be valuable for humanity, and come out of the pandemic as winners.

COVID-19 Impact on Startups of Bangladesh from LightCastle Partners

The virtual session had over a hundred participants from Bangladesh, Pakistan, and other countries. To participate in our coming virtual sessions, sign up here.

This article was written by Mehad ul Haque, Senior Business Consultant, and Ishtiak Mourshed, Trainee Consultant from LightCastle Partners. For any queries, you can reach out at [email protected].

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