Navigating Global Undercurrents In Startup Investments

LightCastle Analytics Wing
December 13, 2022
Navigating Global Undercurrents In Startup Investments

The Declining Trends In International and Local Startup Funding

Post-pandemic recovery, the Russia-Ukraine war, harvesting and production challenges, and supply-chain disruptions are leading to economic downturns worldwide. This has brought slowdowns in startup investments worldwide. It declined by 34% from USD 113 Bn in quarter 2 to USD 75 Bn in quarter 3 in 2022. 

The growing gap in global funding has also been felt by  Bangladeshi startups. They raised only USD 5 Mn in Quarter 3 – 5% of the total USD 95 Mn raised so far this year. 

To address pressing concerns about the global funding winter and how startups should tackle the current situation and approach investors for a further round of funding, LightCastle Partners, Startup Bangladesh Limited, Anchorless Bangladesh, Bangladesh Angels, and BD Startup Founders organized a webinar on November 28, 2022 on Navigating Global Startup Funding Undercurrents. 

The panel consisting of local and international investment and startup exerts, moderated by Bijon Islam, CEO and Co-Founder at LightCastle Partners, included:

  1. Hasan A. Arif, the Head of Portfolio Investments at Startup Bangladesh Limited, the $65Mn VC fund backed by the ministry of ICT. His career spans more than 20 years of work experience with expertise in Private Equity and Investment Management and includes many senior management positions in Financial Services and Technology Management companies in the USA. In his previous role, he worked as a Vice President for State Street Corporation, one of the largest asset management companies in the world located in Boston, Massachusetts, USA.
  2. Nirjhor Rahman, the CEO of Bangladesh Angels, the country’s first angel investment network that connects startups with smart capital via individual and institutional investors. He brings with him more than 10 years of experience in the development sector, management consulting, and investment advisory. Nirjhor is particularly interested in water and sanitation and early-stage/ angel investing for frontier markets.
  3. Rahat Ahmed, the Founding Partner & CEO at Anchorless Bangladesh, an early-stage venture investment fund focused on advancing the local startup ecosystem through access to global resources. He is passionate about strengthening the Bangladeshi startup ecosystem by connecting innovative local startups to global investors. He also serves as the Senior Advisor at Startups Next, a startup incubator for North South University, the country’s leading private university.
  4. Robin Butler (CFA), a partner at Sturgeon Capital, a London-based VC firm focused on investing in startups aimed at solving critical problems in the frontier and emerging markets. Mr. Robin’s background is eclectic, pivoting from a historian-linguist to VC via nine months of living and studying Farsi in Iran. A student of Arabic and Middle Eastern History at university, Mr. Robin has lived, worked, and traveled in emerging markets for the past ten years. 
  5. Sadia Haque, the Founder and CEO of ShareTrip, the country’s leading online travel platform that provides end-to-end travel solutions. Previously, she has worked at Banglalink, Nokia, BBC Media Action, and Grameenphone Ltd. She has more than 14 years of experience with expertise in marketing.

The event began with a keynote address by Mehad ul Haque, Project Manager and Sr. Business Consultant, LightCastle Partners.

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

Placing Bangladesh In The Global Market

With the nascent state of the Bangladesh startup ecosystem, the country still fares at its early stages of digitalization and venture capital flows compared to its peers. According to Sturgeon Capital, which has an investment portfolio stretching between Bangladesh, India, China, Indonesia, and Latin America, Venture Capital funding per capita in Bangladesh stands at around US $1 – half of that in Pakistan and a quarter of that in Indonesia. With a better understanding of its fit in the global cycle, the country holds considerable opportunities to attract more global investors with a coherent global brand perception.

According to Rahat Ahmed, at its current stage, mid to late-stage investors are faced with a quality crisis when it comes to Bangladeshi startups. Moreover, because investors are more comfortable with directing their funds to peer countries whose ecosystems are further developed, Bangladeshi startups have an additional expectation to be ahead of regional counterparts to gain global attention.

Rahat Ahmed, Founding Partner & CEO of Anchorless Bangladesh

“One of the things that is a bit frustrating lately is the negativity regarding Bangladesh, domestically. When we speak to international investors, they understand that the Bangladesh story still has 10 years to develop – the population is maturing, there is a rising middle class, etc. So short-term worries are not reflected in the western view of the Bangladesh market [unlike in the domestic perspectives].”

Rahat Ahmed, Founding Partner & CEO of Anchorless Bangladesh

One key to building a better image of Bangladesh in the global market is to restructure the problems as opportunities. For example, with a growing population and a median age of 27 years, the country has enormous potential in its consumption patterns. By reframing the issues into solutions, startups in Bangladesh can leverage the early-stage position of the country to build a strong outline for their business models.

Robin Butler,  Partner at Sturgeon Capital

“Bangladesh needs to work on its PR for the venture ecosystem and the startup opportunities present in the country. There is work being done to raise awareness regarding the successful Bangladeshi origin founders, and these efforts are what is important for raising awareness about what is happening in Bangladesh.”

Robin Butler, Partner at Sturgeon Capital

The Domino Effect In The Local Market

Bangladesh Angels Network is the largest angel forum in Bangladesh, with 250+ angels. Over the last three years, they built a portfolio of 37 startups, investing USD 6 Mn. The decline in global startup investments reflects in their funding trends in the past year, with a considerable number of deals in the first half of 2022 but slowdowns in deals in the second half.

With a number of non-residents Bangladeshi investors in Bangladesh Angels Network relying on wealth from stocks or housing, international economic uncertainty has caused increased conservativeness when it comes to funding. As a result, due diligence and term sheets are more rigorous and strict, and ticket sizes have waned.

Nirjhor Rahman, CEO of Bangladesh Angels Network

“For the VCs that we co-invest with or do follow-ons to our own investments, they are definitely taking longer with due diligence, liquidation preferences are higher than they used to be, maybe stronger languages regarding exit clauses and redemption rights.”

Nirjhor Rahman, CEO of Bangladesh Angels Network

What Should Startups Keep In Mind?

Surviving the tighter due diligence process requires a thorough and up-to-date profile for startups. Hasan A. Arif explains that they must ensure that they have the necessary licenses to prevent misunderstandings, and have a clear and coherent data room that can be backed by financial statements.

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

“From the due diligence perspective – firstly financial and regulatory compliance – make sure you have the proper licenses to avoid ambiguity, this is important for newer innovative startups. From the data perspective – you have to make sure that your data room is crisp and clean, and that the financial statements you produce are coherent with the financial transactions in the bank. Another thing to keep in mind is to keep a clean cap table, updated with the filings.”

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

Moreover, homegrown startups can turn to strategic long-term envisioning for resilience. Sadia Haque shares the experience of ShareTrip, an online travel platform that provides end-to-end travel solutions. As a travel platform, the COVID-19 pandemic has not been kind to ShareTrip’s operations when the travel industry shut down as a result of repeated lockdowns. Yet, with a clear goal of creating a long-term presence in the market, ShareTrip looked towards opportunities in collaborating with players in the same market – offline travel agencies – who were looking to get onboarded online. Now, with a collaborative effort with suppliers in the market, ShareTrip has higher revenue and hit profitability from the last quarter of 2021, when the pandemic’s hold on the economy was still strong.

Sadia Haque,  Founder and CEO of ShareTrip

“You need to have the right planning, vision and goals so that you are not going to be disrupted by the current situation, but you are looking into the changes and dynamics taking place in the market and converting those into opportunities.”  

Sadia Haque,  Founder and CEO of ShareTrip

Key Takeaways For Startup Founders

  1. Turn problems into opportunities. In an emerging economy such as Bangladesh, where the ecosystem is restrained by a number of challenges, startups can create a strong product and business model by developing solutions that can alleviate the obstacles.
  2. Build an airtight profile for financial and regulatory compliance and due diligence. With up-to-date compliance and a crisp and verifiable data room, startups can take extra steps to secure funding through the investments currents. Dedicating and building a team to due diligence and compliance can be a worthwhile step.
  3. Have a clear vision and planning to avoid disrupting operations. By optimizing funds to prioritize the longevity of operations, startups gain better confidence from investors in their ability to face critical economic and market challenges.

Watch the recording of the webinar here

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.

For further clarifications, contact here: [email protected]

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