Bangladesh Startup Ecosystem 2021-22: Coming of Age

LightCastle Analytics Wing
August 30, 2022
Bangladesh Startup Ecosystem 2021-22: Coming of Age

Executive Summary

Bangladesh is often overlooked with MENA funds flowing into Pakistan and India securing its own focused funds, attributed to its country size. Additionally, Bangladesh is also isolated from ASEAN. However, the country, home to 165 Mn people, is one of the fastest growing economies in Asia, with a GDP per capita higher than India. In recent times, the country has attracted global attention attributed to its remarkable economic and social progress, over the past decades. Even with the setbacks of the COVID-19 pandemic, the South Asian nation has demonstrated noteworthy resilience and is on track to become a middle-income country within the next few years.

The startup scene has also surged, as businesses emerge to satisfy unmet demand across the country. This growth in Bangladesh’s vibrant startup ecosystem is driven by three key factors:

  • Booming digitization catalyzed by the COVID-19 pandemic: With a young tech adaptable population, comprising 48 percent smartphone usage penetration and 68.4 percent internet usage penetration, Bangladesh is on the road to a digitally inclusive future. This momentum was further propelled by the COVID-19 pandemic, as the need for digitization was amplified across sectors during and after the pandemic.
  • Changing population demographics with increasing consumption demands: The population of 165 Mn has a mean age of ~28, with 62% of the population under the age of 35. The country also has a growing Middle and Affluent Class (MAC) population, which will become 35 Mn by 2025 (larger than the population of Malaysia). As post-pandemic consumption patterns are expected to boom globally, Bangladesh is at an inflection point fueled by a digitally savvy population with a swelling appetite for consumption, leaving many opportunities to be seized by startups.
  • Increased public and private attention to supporting the startup landscape: Through policies encouraging investments, as well as Startup Bangladesh Limited, a flagship venture capital fund under the ICT division, the government has displayed an increasing interest in building a more enabling environment for startups. This momentum is amplified by private sector enthusiasm, which has manifested in the form of multiple accelerator and incubator programs for startups. 

Bangladesh’s position as a maturing startup hotspot has also grabbed international attention. Currently, the country boasts more than 1, 200 active startups creating drastic impacts in day-to-day Bangladeshi lives through new, innovative products and services. The country has attracted a total investment of USD 505 Mn in 2021 and 2022 (up to quarter 2), with a total contribution of USD 498 Mn from global investors. In 2021, bKash – the largest mobile financial services in Bangladesh, raised USD 250 Mn from Softbank, for more than a 10% stake, raising its valuation to around USD 2 Bn, making it the country’s first unicorn

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Over the past decade, the country has received an average investment of USD 2.40 Mn (excluding the bKash-Softbank deal) over 232 deals. Nearly 70 percent of all deals were made by Venture Funds and Angel Investors, with seed and pre-seed stages making up almost 75 percent of all deals. Even excluding the bKash-Softbank deal, Venture Funds contributed the majority of total investments raised, with around 82 percent of USD 804 Mn raised over the last 10 years coming from Venture Funds. Larger investments from Venture Funds and Corporate Investors were mostly injected at Series-A or Series-B+ stages of startups, whereas smaller-ticket investments from Angels and Accelerators, and Incubators went into the pre-seed and seed stages.

As the startup ecosystem in the country matures, the support for startups needs to evolve. While increasing digitization across the country and enhanced public and private initiatives are major enablers for the ecosystem, a number of challenges slow down the growth. Inconsistencies in policy and regulatory frameworks, finite supply of skilled labor, and limited access to financial markets are significant hurdles for Bangladeshi startups. To further enable the evolving ecosystem, there needs to be widespread advocacy for startups, supportive policy, and regulatory frameworks, stronger capacity building, and continued public-private partnerships.

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The way forward for startups relies on a strengthened startup policy to facilitate ease of starting and operating startups, with streamlined regulations and requirements. Encouraging investments towards startups is also crucial, requiring better incentives for investors as well as a fund of funds set up through public-private partnerships. In addition, the startup ecosystem needs to be nurtured through industry-academia collaborations to encourage innovation and talent development at the school and university levels. Last but not least, the budding startup ecosystem in Bangladesh needs continued government support through enabling policies and regulatory sandbox frameworks to foster innovations in the country.

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a data-driven approach to create opportunities for growth and impact. We consult and collaborate with development partners, the public sector, and private organizations to promote inclusive economic growth that positively changes the lives of people at scale. Being a data-driven and transparent organization, we believe in democratizing knowledge and information among the stakeholders of the economy to drive inclusive growth.

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