Less than 6% of the funding managed by Bangladeshi start-ups over the past decade came from local sources
As much as 94.3 per cent of the funding managed by Bangladeshi start-ups over the past decade came from abroad, according to a recent study -- indicating the deficiency of a conducive system in the country for fledgling entrepreneurs.
Of the $317 million received since 2010, only $18 million was from local sources, according to the report styled ‘Bangladesh Startup Ecosystem: Funding Landscape' by LightCastle Partners.
Most of the funding comes from foreign investors as the start-up culture is not well established in Bangladesh yet, said Rahath Ahmed, co-founder and chief marketing officer at Paperfly, an e-commerce logistics solutions start-up that recently received a Tk 100 crore investment from Indian Ecom Express.
Typically, investment in start-ups is risky, so funding from banks is hard to manage, according to Ahmed.
“This is why start-ups rely on private parties for funding -- they dare to take the risk and invest based on the business ideas.”
Tech-based businesses are on the rise in Bangladesh, so funding would be very crucial for the entrepreneurs, Ahmed added.
After a slow spell last year for the pandemic, start-up funding in Bangladesh has picked up pace this year.
In the first two months of the year, start-ups elicited $23.74 million in contrast to the $37.1 million received in 2020.
The funding in 2018 and 2019 make up almost two-thirds of the total disclosed funding worth $317 million in the start-up segment over the past decade, according to the LightCastle Partners study.
Not all the start-up fundings are disclosed and therefore the actual funding may be higher, the report said.
A total of 78 companies got funding through 146 deals, of which 80 deals were disclosed.
Half of the total fund of $317 million was invested in the fintech start-ups while a third in the logistic and e-commerce businesses.
“It is a very promising time for start-ups as there is a lot of overall interest for investing in Bangladesh, especially from abroad,” said Rahat Ahmed, chief executive officer and founding partner of Anchorless Bangladesh, a New York-based venture capital firm focused on fostering the start-up ecosystem of Bangladesh.
In May last year, the VC fund provided $0.6 million to Loop, a technology-enabled logistics company for truckload freight.
Last month, it provided $2.2 million seed funding which is the funding of business at the earliest stage in its life cycle -- to Maya, a health tech start-up, along with The Osiris Group, a private equity firm focused on impact investing in Asian markets.
“We want to support companies that have the ability to not only win the domestic market in Bangladesh but also to expand regionally and globally,” said Ahmed, one of the earliest backers of Pathao, the ride-sharing app that has gone on to become the great start-up success story from Bangladesh.
Founders who are solving large-scale local problems, especially in underrepresented fields with limited solutions, will do well.
"Due to the availability of global capital and how underfunded our ecosystem currently is, investing in quality start-ups that are structured properly may return some of the highest returns in Bangladesh over the next decade."
For context, a fantasy sports app in India has raised more money than Bangladeshi start-ups ever have, according to Ahmed.
"We shouldn't look at that as a negative but as an opportunity to fill the gap to benefit the economy, the founders and the investors. It's a moment in time for us to fund our local talent to create wealth on the ground here in Bangladesh," he added.
Local start-ups face difficulty in getting funding, said Adnan Imtiaz Halim, founder and chief executive officer of Sheba.xyz, a marketplace for home services.
“We are not receiving funds in line with the prospects."
This is because of the lack of infrastructure.
“We have to show significant improvement in the parameters for ease of doing business to boost investors' confidence.”
Foreign investors of Bangladeshi start-ups prefer company registration to be in Singapore for the ease of dispute resolution in case of trouble over investment.
Therefore, obtaining the trust of the foreign investors through government policy support, as done by Singapore and Indonesia, will be very crucial at bringing in more funding for the Bangladeshi start-ups, he added.