Reaching For the Stars | Uncovering the potential and challenges of the Bangladeshi startup ecosystem

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As humankind advances, we are seeing new avenues being opened up. Coupled with next-generation technologies, we are now witnessing several industries being transformed from the ground-up. People no longer stand in line to get takeaway food, rather get food delivered directly to their doorstep with the click of a button. Roads are now being filled with on-demand cars and bikes, the riders of which get customers with the help of a smartphone app. Such radical changes and disruptive innovation can mostly be credited to startups – high-growth companies who place technology at the center to ensure exponential growth. While the European and American markets have witnessed the meteoric rise of startups like Uber, Airbnb and Shopify – innovation of similar scale has also taken place in this part of the world as well. Bangladesh has now introduced some of the most revolutionary products and services; that too made right here at the heart of the country.

Startups like Pathao, Chaldal and Sheba.xyz are some of the many that are carrying the flag of innovation forward. The country is now generating more than 5000 IT graduates per year, and such trends are expected to rise, considering almost half of the total population is under 35 years and a rapidly growing middle class expected to reach 34 million by 2025. But how are Bangladeshi startups performing as a whole? What are the bottlenecks that are hindering growth? Let’s take a look.

A POPULATION FILLED WITH POSSIBILITIES

Bangladesh as a whole is one of the well-suited places to launch and grow a startup. Why? Because the massive population can ensure scalability if the product-market fit is well and technology adoption throughout the country is increasing exponentially. Being the 8th largest population of the entire world comprising 164 million people, 98% of them are under the coverage of a mobile phone connection, 62% of them have internet connectivity and around 94 million people are expected to use the wonders of mobile internet. That has led to the massive rise of app-based startups like Pathao, HungryNaki, iFarmer, Sheba.xyz etc. While the urban-rural divide is still an addressable issue, startups are growing fast enough in order to ensure the rural residents can also get access to these new products and services.

THE BANGLADESHI STARTUP ECOSYSTEM

The startup ecosystem in Bangladesh initially grew on the back of two large metropolitans – Dhaka and Chattogram around the early days of 2010. The sectors were also quite well-defined, mostly hovering around IT, e-commerce and digital marketing. Over time, as new players entered the market and as industries started to take shape globally, Bangladesh witnessed the inception of ride-sharing and online food delivery startups. And there have been quite a few significant global investments in our local startups over the years. Some of the notable ones were – Pathao (US$12 Mn from Go-jek), Shohoz (US$ 15 Mn from Golden Gate Ventures), Deligram (US$ 2 Mn from Skycatcher.

The startup ecosystem in Bangladesh has seen fabulous growth in the last decade. It has not only been about the emergence of new startups, but also the increase of involvement of the other key stakeholders of the ecosystem. The ecosystem now comprises around 1000 startups, with 200 new ones being formed every year. The 1000 active startups have given employment opportunities to around 1.5 million people. Investments have also skyrocketed as well, with US$ 200 Mn injected into the economy in the last decade. Accelerators and incubators have also started to emerge in order to nurture and assist the growth of these startups. Grameenphone Accelerator has long been the forerunner of startup accelerators in Bangladesh, leading to the initial funding for companies like Sheba.xyz (online service marketplace), CMED Health (AI enabled healthtech platform), Repto (Online learning platform) and many others. Over the course of the next few years, many other accelerator programs also started to take shape. Some of the most notable ones are – Banglalink Incubator, R-ventures (by Robi), NSU Startups Next etc.

INVESTORS OF THIS GROWING ECOSYSTEM

It is obvious that a tech-enabled, high-growth business will be in need of constant funding in order to grow rapidly. The Bangladeshi startup ecosystem has also seen a number of local and global investors injecting capital, both monetarily and intellectually, in order to take the industry forward. The angel market has witnessed the presence of veteran angel investor consortiums like Bangladesh Angels, SBK Tech Ventures, Pegasus Tech Ventures, Bangladesh Venture Capital and many more. Tech companies like Ant Financial and GoJek have also invested into the Bangladeshi startup ecosystem. Corporate foundations like Omidyar Network and Bill & Melinda Gates Foundation are also an integral part of the industry.
The Government of Bangladesh is also playing a massive role in bolstering the ecosystem. The Government of Bangladesh has launched its flagship venture capital fund in March, 2020. Named as Startup Bangladesh Limited, the venture capital fund has an allocated share of 500 crore taka. In 2021, the state-owned venture capital firm announced to invest 100 crore taka in 50 startups in 2021. In accordance with the plan, the company has put in 15 crore taka in some of the leading startups of the country, namely Eduhive, Chaldal, Moner Bondhu, Dhaka Cast, Pathao, Intelligent Machines and Sheba.xyz.

THE CHALLENGES OF THE ECOSYSTEM

Despite all the tales of possibilities, there are many avenues that are yet to be addressed head-on. The first and one of the most evident problems is the absence of mentorships and the availability of funds. While there are plenty of incubators and accelerator programs, many of them are poorly structured, barely provide the entrepreneurs with proper resources and eventually do not lead to much impact.

Also, market malpractices often lead to increasing expenses that eventually lead to winding down a startup at a very early phase. The other crucial challenge is a cultural one – the perception that the elder generation has towards entrepreneurship. This deprives the ecosystem of many young, talented founders as young minds flock towards getting a stable job rather than trying things out and experimenting with new ideas. Educators must be made aware of the benefits of their students working for startups, which include, but are not limited to, working in a challenging and ever-changing environment, being flexible and adaptable, taking charge and leadership when and where necessary, and so on. These abilities will help graduates advance in their respective fields in the future. One interesting method for companies to take is to approach instructors and cooperate with them on courses. Students in the classes may be given assignments based on challenges that startups encounter, and they will be expected to solve these problems using the skills they have learned in class. This will not only make the students aware of the startup activities, but it will also provide them with valuable real-world experience. Also, the lack of innovation is also very evident. While many startups in Bangladesh are direct replications of proven models in South Asia, there are many problems deep-rooted in our country that can be solved in unique ways. Innovation should be fostered, so that problems can be solved in our own unique style.

LESSONS FROM THE NEIGHBORING INDIA

While Bangladesh is growing steadily, our neighboring country India has also been making remarkable progress. The Indian startup ecosystem, which defied odds during a pandemic-hit year to create record 12 unicorns, has the potential to be the engine of growth in the medium to long run, according to the Economic Survey 2020-21. Currently, India is home to 38 unicorns – startups with valuation of over USD 1 billion – as per the Nasscom Tech Start up Report 2021. The US and China have 243 and 227 unicorns, respectively.

 

To facilitate the growth of startups, the Indian government had announced the ‘Startup India, Stand-up India’ initiative. As on December 23, 2020, the Indian government has recognized a total of 41,061 startups and 0.47 million jobs have been reported by more than 39,000 startups. 319 startups have been granted income tax exemptions till November last year.

Bangladeshi entrepreneurs raised roughly US$27 million in 2018, whereas Indian startups garnered US$4.2 billion. The disparity between two economies with identical digital ecosystems demonstrates the lack of a supportive environment. Accelerator and incubator programs, mentorship and training, and the availability of financing in the market will not be sufficient to close the gap. The entire business climate needs to change to make it easier for startups to thrive. Our startup ecosystem has come a long way since its foundation, but it still has a long way to go before it matures.

WHAT DOES THE FUTURE HOLD?

Bangladesh, the 39th largest economy and one of the fastest growing countries, showed an impressive annual GDP growth rate of ~6.5% over the last decade. The country’s annual GDP growth rate officially surpassed that of India’s in 2016 and has been higher than that of its neighbor since then. So all hope is not lost, and with the entire world slowly adjusting itself with the new normal, the startup ecosystem in Bangladesh is set to come back stronger and better, As stated by Nirjhor Rahman, the CEO of Bangladesh Angels, “2021 represents a key harbinger for the ecosystem in Bangladesh. We have already surpassed the entire investment total of last year by Q3 of this year. We have had the biggest edtech investment deal in the ecosystems’ history in Shikho. The announcement of Startup Bangladesh’s inaugural fund made incredible waves around the region. So things are exciting. But even as more foreign, smart capital looks at the market, we are hidebound by regulation. We still have ambiguity in our processes and policies when it comes to recognizing inbound capital, outbound repatriation, as well cross-shareholding between Bangladesh and jurisdictions like Singapore and US, where international investors would prefer to invest.”

The value of the global startup economy is roughly USD 3 trillion. Through innovation, job creation, regulatory breakthroughs, the growth of new industries, and cultural revolution, the startup ecosystem assists the larger economy and society. Innovation increases operational productivity and competitiveness, resulting in the creation of jobs that are not only high-quality but also well-paying. Innovation increases operational productivity and competitiveness, resulting in the creation of jobs that are not only high-quality but also well-paying. Bangladesh is well positioned to achieve sustainable development goals through using disruptive technologies and innovative solutions, with an emphasis on financial inclusion, social fairness, and equal access to technology. A methodical strategy to developing Bangladesh’s startup ecosystem is an opportunity to accelerate the country’s progress with young people at the lead. This is a must-do in order to nurture both the companies and leaders of tomorrow. Doing so will eventually lead us to the very promise of our nation’s independence – a self-reliant, tech-enabled nation, brimmed to the full with infinite possibilities.

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