Bangladesh Startup Ecosystem Update Q’3 22: Navigating Global Funding Undercurrents

LightCastle Analytics Wing
December 20, 2022
Bangladesh Startup Ecosystem Update Q’3 22: Navigating Global Funding Undercurrents

Executive Summary

  • Post-pandemic recovery, the Russia-Ukraine war, harvesting and production challenges, and supply-chain disruptions are leading to economic downturns worldwide. This has led to the global startup investment landscape seeing a slowdown in funding rate – with the greatest decline in Quarter 3 of 2022. Silicon Valley has raised the lowest amount this quarter since the end of 2019, and global funding has gone down by 34%, from USD 113 Bn to USD 75 Bn.
  • Bangladeshi startups have also felt the growing gap in global funding, who raised a total of USD 4.99 Mn in the Quarter 3 – 5% of the total amount (USD 95 Mn) raised so far this year. Global investments in the Bangladeshi startup ecosystem have slowed as uncertainty rose. This has led to the proportion of global funds compared to total investments decreasing to 38%, from a decade average of 94%.
  • As investments from global sources slowed, homegrown Venture Capital funds have picked up most funding in Q’3 of 2022, contributing to 61% of all investments raised. Notably, Startup Bangladesh Limited, the country’s first flagship venture capital fund by the Government of Bangladesh, contributed to most of the deals made this quarter. Nine out of 16 deals in Q’3 were by Startup Bangladesh Limited, contributing to 82% of all local funding disbursed.
  • The majority of funding (34%) funneled into Seed rounds of investments. Meanwhile, Venture Capital fund investments were also saturated in Series-A and Series-B rounds. Accelerators and Corporate investors invested in the Seed rounds of startups, while Development Financial Institutions contributed with grants and equity funds.
  • Recent activities and initiatives indicate increasing support for homegrown startups. Bangladeshi investors are cautiously optimistic about the future. However, for Bangladeshi startups to navigate these challenges, support from investors at home, as well as the government, are crucial to mitigate the impact of decelerating global investments. Startup founders need to rely on strategic investment raising and improved business and revenue models to survive the funding undercurrents ahead. Building resilience in the ecosystem requires urgent action from all players in the ecosystem.

The Global Economy Is Nearing An Economic Slowdown And Startups Across The World Are Experiencing Its Impact

Fueled by the COVID-19 pandemic and consequent lockdowns, recent geopolitical tensions, and challenges induced by climate change have led to supply-chain disruptions around the world. As a result, inflation and recessionary pressures have spread across economies, including Bangladesh. These disruptions have taken a toll on startup ecosystems globally, even in the largest startup hubs.

The Global Economy Is Nearing An Economic Slowdown And Startups Across The World Are Experiencing Its Impact

Startup Funding Has Been On A Downward Trend With Asian Startups Predicted To Face The Largest Effects

Global investments have seen a 34% quarter-on-quarter drop in Quarter 3 of 2022, from USD 113 Bn to USD 75 Bn. Although the impact of a funding slowdown is felt globally, Asian startups are predicted to see the largest drop in investment:

While investments picked up quickly in the post-pandemic recovery, recent global events have pushed funding down globally in 2022

“With an active war in Europe, post covid global supply chain disruption, and multiple trade wars, the outlook for global financial is bleak. I believe the capital will be scarce for some time. In this scenario, A company should think about running independently and focus more on to attained profitability rather than rapid growth. This situation will also make us more resilient, which can help us to fight any future challenging case.”

Sinthia Islam, Co-Founder and Chief Content Officer, Shajgoj Limited

As uncertainty rises around the world, global attention to Bangladeshi startups has already decelerated. The Bangladeshi startup ecosystem relies heavily on global sources of investment, making up around 94% of all investments on average in the past decade. As investments decrease globally, homegrown startups are predicted to experience:

  • Smaller ticket sizes and valuation,
  • Increased early-stage funding replacing larger late-stage valuations,
  • Local angel investors fill in the gap of global investors.

“As the world economy is pushing unfavorable tides towards us, we need to be like sailors against the angry sea, going into survival mode. An integral part of building this resilience is managing cash flows for keeping the business sustainable. Startups coming out of this difficult scenario will be able to tackle any other problems in the future.”

Adnan I. Halim, Founder & CEO, Sheba Platform Limited
The downward trend in startups investments is felt by both Bangladesh and its South Asian peers such as Pakistan
Total Investments Raised Decreased in Quarter 3 Leading To A Smaller Average Ticket Size Than in Previous Quarters

Quarter 3 made up around 5% of total investment in 2022. In comparison, 71% of the total investments of 2022 were raised in the second quarter, owed to the Ecom Express’ investment in PaperFly and ShopUp’s Series B4 funding from Valar Ventures and Flourish.

Around 95% of the total funding raised in 2022 were through deals in the first half of the year

Despite a consistent number of deals, Quarter 3 was behind in terms of total investment raised compared to previous quarters of the year. This led to the average investment size falling in Quarter 3, making up 9% of the average investment size in the first half of 2022.

While the number of deals remained the same in Q'3 compared to Q'2, the average ticket size decreased

USD 4.99 Mn Was Raised In Investments in 2022 Q’3 Across 16 Deals Made In 15 Startups

With an average ticket size of USD 312 K across 16 deals, in Quarter 3 of 2022 investments from global and local sources funded 15 startups in Bangladesh.

Investors At Home Stepped Up To Support Startups Funneling To Enterprises Across Seven Sectors

Investors At Home Stepped Up To Support Startups Funnelling To Enterprises Across Seven Sectors

Global investments made up only 38% of total investments in Quarter 3 – a drop from a 94% average in the first half of the year. With global funds declining,  homegrown investors such as Startup Bangladesh Limited took the lead in Q’3. Overall, this brings the proportion of global sources of funding to 75% for 2022 to date.

“It’s an exhilarating time for the startup ecosystem in Bangladesh as we see a lot of innovations coming to us for funding. We’re working to implement the government’s vision of Smart Bangladesh by supporting the ecosystem to develop at least five unicorns in Bangladesh by 2025.”

Sami Ahmed, Managing Director, Startup Bangladesh Limited
Global Investments dropped by 59% in Q'3 from the first half of 2022

“In 2022, we have seen many top VCs, LPs, and other institutions visit the country to understand the startup landscape further. I strongly believe that with the current conversation changes taking place in the ecosystem in terms of policy, entry and exit strategy for global investors, startup IPOs at an early stage and others will provide  the foreign investors with much needed confidence to come and invest in the Bangladeshi startups.”

Sadia Haque, Founder & CEO, Sharetrip

Consumer Services, Fintech, and Logistics & Mobility accounted for 60% of all funding raised in Quarter 3. Consumer Services has been the leading sector throughout the entirety of 2022, followed by Fintech and Logistics & Mobility.

Fintech and Logistics & Mobility continued as top sectors in Q'3

Local Venture Funds Led The Investment Landscape With Investments Saturating In Seed And Series B Rounds

Venture Capitalists made up the largest segment of all investments in Quarter 3. 36% of all investments in Quarter 3 were made in Seed rounds, followed closely by 34% in Series B rounds.

Venture Capital (VC) Funds were the leading investors in 2022 Q'3

Activities in 2022 Demonstrate Active Initiatives To Boost Local Investments

Increasing accelerator programs, government initiatives, and mergers & acquisitions indicate a maturing startup ecosystem in the country.

Activities in 2022 Demonstrate Active Initiatives To Boost Local Investments

“I’m cautiously optimistic to see more companies raise international investments in the coming year and adding to the total raised by the ecosystem, as I know of several companies already negotiating and trying to conclude rounds with regional and international VCs.”

Nirjhor Rahman, CEO, Bangladesh Angels Network

Ecosystem Players Must Act With Urgency To Continue To Support Homegrown Startups Through The Funding Slowdown

“Qualified founders solving real problems for a country of 170 million people should not have issues raising capital. The dollar amounts are still relatively small, and international investors are keen on exposure to Bangladesh’s strong macroeconomic story — and it’s possible that a high-quality Bangladeshi startup can outperform shiny tech stocks like Tesla and Snowflake in the next few years, which is not something we could have said easily a year or two ago.“

Rahat Ahmed, Founding Partner & CEO, Anchorless Bangladesh

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

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