Bangladesh’s Startup Ecosystem: Gaming Forward Following on to Bigger Headlines

The startup ecosystem in Bangladesh, starting its journey in the early 2010s, has gone through a remarkable transformation and is finally coming of age. The ecosystem crystalized around Dhaka and Chattogram on the back of sectors such as IT, e-commerce and digital marketing among others. The next wave, fueled by ride-sharing and logistics industry, has taken the ecosystem even further.

Investments received by ride-sharing and logistics sector players: Pathao (USD 12 Mn from Go-Jek), Shohoz (USD 15 Mn from Golden Gate Ventures), Deligram (USD 2 Mn from Skycatcher) have successfully captured the attention of both local and foreign investors. An enabling digital ecosystem, demonstrated by high internet and smartphone penetration rates of 55% and 31% respectively, has given rise to the number of technology-enabled service providers within the startup arena.^[1] In the coming years, emerging sectors: Fintech, Agritech, Healthtech, Edutech, Deep tech and Analytics will keep spearheading the growth of startups in Bangladesh.

How is the ecosystem developing?

In order to gain deeper understanding of the ecosystem, we interviewed founders and top management from 100+ startups across the industries. We asked them about the current and expected sentiment of their respective industries. Applying harmonized index formula, each industry has been scored on a scale of -100 to +100. The overall startup confidence index stands at +40 indicating a moderately positive sentiment. At the same time, we asked investors to mention the top sectors they preferred based on current performance and future growth prospects.

Both the investors and startups have rated Fintech and Ride-sharing and Logistics as two of the most promising sectors. Healthtech and Edutech are esteemed to be on the forefront of the next growth. Despite investors’ high confidence in e-commerce sector and lucrative funds raised by Chaldal (USD 5.5 Mn from International Finance Corporation), Daraz (acquired by Alibaba), Sindabad.com (USD 4.2 Mn from Aavishkaar Frontier Fund), players are considering the sector as a low confidence one as the percentage of online purchase is still less than 1% of the total retail purchase regardless of the high disposable income and internet penetration rate.^[2]

Who are the ecosystem builders?

Bangladesh’s startup ecosystem has had a late start compared to its regional peers. However, the exemplary growth was possible due to the successful implementation of a number of countrywide incubators and accelerators programs. The global and local incubators and accelerators have been assisting entrepreneurs in aspects ranging from scaling up their ideas to raising funds and becoming sustainable in the long run. GrameenPhone Accelerator powered by Seedstars is one of the largest tech accelerator programs that has assisted successful startups such as – Sheba.XYZ (online service marketplace), CMED Health (A.I. enabled healthtech platform), Repto (online learning platform) among others to graduate.

Since 2016, Banglalink incubator, in association with ICT Ministry, has been facilitating innovative ventures to grow further. Jeeon (m-health platform), ishkul (school management software), Axis Technologies (personal and industrial robotic automation solution provider) are some of the most promising alumni graduating from the network. Robi Axiata Limited has recently launched R-Ventures (a reality show and investment platform) aiming to transform digital business ideas to a reality.

In recent years a significant number of local incubators and accelerators programs are coming up to guide both tech and non-tech startups. Startup Dhaka grabbed the attention from the global market with its flagship documentary in 2013 highlighting the promise of startups in Bangladesh. Tiger Cage, SD Asia and Future startups have been inspiring youths through their media presence to pursue an entrepreneurial career rather than waiting for jobs.

Global players namely Truvalu, YGAP are running accelerator programs for Impact Enterprises. SmartCap – a platform by LightCastle Partners targeted at Impact Enterprises has run or supported more than 15+ accelerator programs till date. Mentoring entrepreneurs, facilitating access to finance, creating market linkages are some of the focus areas of SmartCap.

Who are the investors?

The Angel market is growing rapidly in Bangladesh with presence of players such as -Bangladesh Angels, Pegasus Tech Venture, SBK Tech Ventures, Bangladesh Venture Capital among others. The angel’s network – a consortium of angel investors in the country has been working towards bringing together promising early stage startups to and introduce them to serial entrepreneurs, tech executives and investors. Majority of the angel investors are focused on tech startups at present which might shift to impact sector in the coming years.

Venture capital firms have been playing an integral role in building the startup ecosystem. Emergence of sector specific VC firms are helping startups targeted to serve niche market e.g. Ignite Impact Ventures is focused on social-impact oriented technology startups in frontier market.

Where is the ecosystem headed?

Bangladesh, with a target to become the next Asian tiger needs to maintain a stable GDP growth with a healthy employment rate. However, the rising graduate unemployment rate (40%) and plummeting Ready-made Garments (RMG) export trend have created major obstacles in achieving the goals.^[3] Expanding private sector especially the SME/Startup business segment can be one of the most effective solutions for keeping the economy thriving.

Startups in Bangladesh, despite of being the most potent engine for growth, face challenges in three levels. Firstly, the absence of proper mentorships and access to funds make it difficult for early stage startups to escalate. Through proper implementation of accelerator and incubator programs and circumvention of capital needs through investors’ network, this challenge can be addressed. Secondly, due to market malpractices (e.g. lobbying, using speed money, bad payment terms), the financial cost rises manifold resulting in closing down of ventures at an early stage.  Lastly, the older generation have a negative outlook towards entrepreneurship and assume that one only does business if one fails to get a respectable job. Therefore, younger generation often prefer waiting to get a job rather than creating it.

Our interviews with startup founders and top management revealed that 32% of them had positive sentiment about the ecosystem development while 27% had negative sentiment. One founder said “the ecosystem will not gain enough traction unless there is a continued series of startup success stories. To be considered as a success story a business must graduate from the startup phase.” Another said “In the next 6 months to one year, a tectonic shift will take place within the ecosystem and local investors should prepare themselves to accommodate it.” One founder added that the ecosystem is enabling only for early stage startups but not for those requiring more investment.

Bangladesh was ranked 116th out of 126 economies in the Global Innovation Index 2019.^[4] Although the economy has been performing well compared to its regional peers, in terms of innovation Bangladesh was ranked lowest indicating the lack of investment in areas such as – research and development, infrastructure, knowledge creation and diffusion among others. Having one of the most inefficient regulatory structures, Bangladesh ranked 176th out of 190 countries in the Doing Business Index.^[5] Nonetheless, all these adversities could not prevent Bangladeshi entrepreneurs from raising multi-million-dollar funds, nor discouraged foreign investors to enter the market. Moreover, local ride-sharing platform – Pathao extended its operation to Nepal in October, 2018 as the first Bangladeshi startup.

In 2018, Bangladeshi startups raised around USD 27 Mn while Indian startups raised USD 4.2 Bn.^[6] The huge discrepancy between the two markets with similar digital ecosystems can be partially answered by the difference in the number of startups but the absence of an enabling environment is the pivotal reason behind the gap. Presence of accelerator and incubation programs, mentorship and training, availability of funds in the market are not enough to initiate the next big revolution within the ecosystem. The entire business environment needs to be transformed to facilitate the growth of startups. The conclusion is clear: Bangladesh’s startup ecosystem is slowly, but surely, coming of age.

This article was written by Silvia Rozario, Business Consultant at LightCastle Partners. Data Collection was done by Asif Newaz, Business Analyst at LightCastle Partners. For any queries, you can reach us at [email protected]