Levering Startup Investments for Bangladesh’s Economic Growth

LightCastle Analytics Wing
August 25, 2022
Levering Startup Investments for Bangladesh’s Economic Growth

Over the last decade, Bangladeshi Startups have raised over US$800Mn investments, spearheading the economy and creating 1.5Mn+ direct and indirect employment opportunities while positively impacting the citizens’ day-to-day lives. In the first half of 2022, Bangladeshi startups raised over US$90Mn. But what will drive the country’s startup ecosystem to the next height? When will we see the rise of unicorns?

LightCastle Partners, along with Startup Bangladesh Limited, Anchorless Bangladesh, Bangladesh Angels, and BD Startup Founders, hosted an informative session to share more insights on the Bangladesh Startup Ecosystem, titled “Levering Startup Investments for Bangladesh’s Economic Growth” on 11th August 2022.

The discussion panel comprised key experts representing startups, government bodies, angels, and institutional investors.

  1. Mr. Hasan A. Arif, Head of Investments Portfolio, Startup Bangladesh Limited
  2. Ms. Sadia Haque, Co-Founder and CEO, ShareTrip
  3. Mr. Nirjhor Rahman, CEO, Bangladesh Angels
  4. Mr. Rahat Ahmed, Founding Partner and CEO, Anchorless Bangladesh

Mr. Bijon Islam, Co-Founder & CEO of LightCastle Partners, presented the keynote presentation as well as moderated the panel discussion.

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Ms. Sadia Haque, Co-Founder and CEO, ShareTrip

“As a tech-based startup, it is crucial to understand what the market requires as the environment shifts. It would be best if you also made yourself capable of adapting accordingly, be it a worldwide emergency like COVID, the current global instability, or the rising tensions for a funding winter. In times like this, take full advantage of your in-house technology team and aggravate your developments to the need to tackle the situation.”

Ms. Sadia Haque
Co-Founder and CEO, ShareTrip

The State of Investments in Bangladesh Startup Ecosystem

Startup growth has been taking off worldwide, with Asian startups increasingly gaining global traction. In comparison, startup investments in Bangladesh grew almost ten times despite low investments to GDP ratio (0.1%). Bangladesh is the 37th largest economy in the world, with a booming business sector and a tech-savvy population — making it an ideal time for startups despite challenges in a business environment.

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The country has attracted a total investment of US$800Mn with 60% of it raised in the last six months – US$505 Mn in 2021 and 2022 (up to quarter 2). Seed and pre-seed stages make up almost 75% of all deals. Global Investors contributed US$498Mn, and nearly 70% of all deals were made by venture funds and angel investors, including some big names like Softbank, Ant Financials, Tiger Global, and Sequoia, in the last decade.

Bangladesh’s startup ecosystem faces many challenges and limitations in policies, access to skills development, and financial markets. Still, the ecosystem has been shifting in recent years and is coming of age.

Mr. Bijon Islam, Co-Founder and CEO, LightCastle Partners

“Bangladeshi startups raised more than US$800 Mn Investments in the last decade, but when will touch the billion dollar mark? Or have our first true unicorn claim? For that, we need more capital injection. With global investors making up almost 96% of all investments raised, our ecosystem needs to collaborate and promote Bangladesh globally to attract capital in Bangladesh.”

Mr. Bijon Islam
Co-Founder and CEO, LightCastle Partners

The Rise of Startup Angel Investments

Three or four years back, there weren’t as many angels in the ecosystem. There wasn’t enough competition to get into the startup deals. Hence there was a lack of liquidity for early-stage deals, and many of them turned out to be predatory, diluting more in an early-stage round than it should, hampering later-stage funding rounds.

Things have been changing over the last three years. Angel investments have spiked up in Bangladesh, and we now have angel networks like Bangladesh Angels, the country’s first angel investment network. It has over 350 members and has invested US$6Mn angel investment in a portfolio of 37 companies.

It has become easier than ever to raise angel funding. Previously Bangladesh Angels had to start a deal from scratch. Nowadays, startups are reaching out for additional investments after raising a portion of their fund in the hope that BAN can close the remaining amount of the round.

Meanwhile, angels are finding deals and reaching out to Bangladesh Angels to structure it properly so it works both for the angels and entrepreneurs.

The rise of more promising startups and crowding investors has helped increase the ticket size and speed of deals. For Bangladesh Angels, half of all their deals closed was just only in this year. In the pipeline, around ten deals are worth US$8.5 million, indicating a massive shift in the angel ticket sizes from US$200K to US$800K.

Follow-on investments and co-investments with local/ international investors are also catching up. The proliferation of local corporate groups/ institutional capital like Deco Isho Group and IDLC and the introduction of investments made by the Gov. through Startup Bangladesh Limited indicate exciting times for the angel ecosystem.

Mr. Nirjhor Rahman, CEO, Bangladesh Angels

“We need a continued talent pipeline to bring more investment into our ecosystem, and I think there are two good sources. One is the repatriates who come back to the country after having studied and worked abroad, built abroad, and have come and built businesses. The second is the young talented executives who have worked up their way in the local startups, have made a name for themselves within the ecosystem, and are now trying to build their businesses.”

Mr. Nirjhor Rahman
CEO, Bangladesh Angels

Effective Policy Advocacy Attracts Foreign Investments

The Startup Bangladesh Limited, championed by the ICT Ministry, is intensely active in startup policy advocacy. It deliberately advocates for infrastructure, policies, and regulations necessary for a thriving ecosystem. Together, it brings other ecosystem builders, stakeholders, and ministries on board to work together towards creating a more friendly environment for startups and investors.

To promote an enabling Startup Policy for the growth of startups and attract foreign investments in the ecosystem, first, the government needs to streamline the definition of startups in legislation to prepare policies and provide incentives. It needs to identify startup investments and ensure an investment-friendly environment for international startup investors in Bangladesh, such as reducing entry barriers, introducing TAX benefits, and easing the repatriation of foreign investors’ profits.

The government must streamline business processes, policies, and regulations to ease business and work its way up the “Ease of Doing Business” Index to boost the confidence of international investors.

Startup IPO in the local capital market is also in discussion with DSE. Within years, we expect to ease the regulations and set up a proper regulatory framework through selected startup IPOs case by case.

Mr. Hasan A. Arif, Head of Investments Portfolio, Startup Bangladesh Limited

“We have seen many startups struggle to grasp the current policies and regulations, or perhaps their business model does not abide by the current policies. So what do you do then? Do you shut down the business? Or do you live with the fear that you might get shut down, even though you have an ethical business model? Hence there is a need for a startup sandbox scheme, and if any startup founder is struggling with any policies, they can bring it to Startup Bangladesh Limited. We are here to help.”

Mr. Hasan A. Arif
Head of Investments Portfolio, Startup Bangladesh Limited

What Makes International Investors Interested in Bangladeshi Startups?

It is crucial to understand that investors don’t just wake up in the morning and say they’re going to invest in a Bangladesh startup. Instead, they want to make the best investment possible with the best return from the entire world – effectively, which the Bangladesh startup ecosystem needs to be able to offer.

Anchorless Bangladesh is a New York-based fund that only invests in Bangladesh startups. One of its goals as a fund is to bring international Capital into the local market. From their experience, there are a lot of funds based in Singapore, Hong Kong, or New York, and they want to feel more comfortable in the Bangladesh market because most of these companies don’t have offices on the ground.

Also, many European and US funds interested in Bangladesh tend to be global funds that look for thematic stories in specific sectors/ verticals, such as investing in fintech startups in emerging markets (bringing millions of people under the financial inclusion net).

So as the ecosystem grows, naturally, more investors will be interested in coming. Hence Anchorless likes to do con-investments with other international investors with more vertical expertise. It currently has connections with 95 global funds to help connect local Bangladeshi investors with the right source of capital.

Mr. Rahat Ahmed, Founding Partner and CEO, Anchorless Bangladesh

“We have to remember that people do not wake up in the morning and say, I’m going to invest in a Bangladesh startup. They wake up in the morning and say I want to have the best investment possible. So we need to be able to offer that.”

Mr. Rahat Ahmed
Founding Partner and CEO, Anchorless Bangladesh

Takeaways for Startups

  • There has been a significant shift in mindset towards startups in the last three years. The growth of each startup collectively creates a more hopeful future for the entire ecosystem.
  • Raising investments has become far more accessible than in pre-covid days, with more local and international active angels and institutional investors. The core objective is to build efficient business models with positive unit economics.
  • Angel investor networks are a great place to present your early-stage ideas with minimal tractions.
  • International investors are keen on emerging market solutions but rarely invest alone; hence focusing on co-investment rounds is bound to raise luck, as startups need to present lucrative deals for the international investors to compete against startups offering the same in other countries like Singapore, Indonesia, Pakistan, India, or Vietnam.
  • To attract follow-on rounds, startups need to manage the cap table better with high-quality co-founders, angels, and investors. The venture with properly structured fundraising will be able to raise further on a scalable basis.
  • Startup Bangladesh Limited, the US$65Mn government-backed VC fund, is here to support the local startup ecosystem with growth capital to support startups.
Bangladesh Startup Ecosystem 2021-22: Coming of Age

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About Author

Mehad serves as a Project Manager @ LightCastle Partners as well as the Country Coordinator @ Biniyog Briddhi. He looks upon business development, projects, and research related to startups, entrepreneurship, and investment advisory.

For any queries, reach out at [email protected]

If you are interested to learn more about the Startup Ecosystem of Bangladesh Document download full report

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.

For further clarifications, contact here: [email protected]

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