With more than 125 million mobile subscribers and 24.5 percent Internet penetration, this youthful country is brimming with opportunity.
Beep! At 9 AM, a few weeks ago, I received an email requesting to host the e27 Echelon Qualifiers in Dhaka, Bangladesh. I immediately thought that it was a risky bet, but an exciting one, considering the need to explore the synergies in one of the most challenging startup ecosystems in South Asia. Doubts crept in. Isn’t the country already facing huge problems due to political unrest and economic instability?
But, after a few discussions, we finally decided to visit the capital city of Dhaka to understand the heart and soul of entrepreneurship in the country.
Bangladesh is a mobile-first nation, with more than 125 million mobile subscribers and 24.5 percent Internet penetration. With 70 percent of the population under 35, media consumption is increasingly skewed towards digital. In fact, Bangladesh has a lower median age than most Asian countries, except Pakistan. Hence, surprisingly, the country presents a hotbed of young talent that is hungry to innovate and solve local problems.
“I am amazed at the quality of startups in Bangladesh. Their ideas are very promising and have the potential to compete at a global level,” says Hideki Fujita, Founder of SEGNEL Ventures and an investor in Bangladesh’s CodersTrust and Chaldal.
We have often heard that entrepreneurship is gender-blind and Bangladesh proves it by giving women an empowering edge. A plethora of women entrepreneurs have built successful businesses in the country.
The art of solving local problems
The success stories of NewsCred, a leading content-marketing platform, as well as bKash, a mobile payment service and Bikroy, the online marketplace, has made us believe that success doesn’t necessarily come from breakthrough innovation, but from flawless execution.
However, entrepreneurship is not easy in Bangladesh as it takes a lot of courage, a perfect environment, right investors and a great talent pool to support innovation.
“Each country has its unique problems and startups are solving these tribulations based on their understanding of local challenges,” explains Mustafizur Khan, Founder and CEO of SD Asia, which creates content about startups, entrepreneurs and business in Bangladesh. SD Asia started life as a crowdfunded documentary titled Startup Dhaka, which raised over US $9000 from 56 backers around the world.
One of the best examples of such a unique emerging market challenge is the millions of people in Bangladesh who are unbanked.
“More than 70 per cent of the Bangladesh population lives in rural areas where access to formal financial services is difficult,” Khan explains.
“Yet, these are the people who are in most need of such services, either for receiving funds from loved ones in distant locations or to access financial tools to improve their economic condition. Less than 15 percent of Bangladeshis are connected to the formal banking system, whereas over 68 percent have mobile phones. bKash was conceived primarily to utilize these mobile devices and the telecom networks to extend financial services in a secure manner to the underserved remote population of Bangladesh.”
The country’s existing infrastructure challenges also provide opportunities to build new businesses. According to Minhaz Anwar, Codirector of the Founder Institute in Bangladesh, many of the startups in Bangladesh that have achieved success have first solved a local problem and gone global or regional afterwards.
Foreign companies need a strong local partner
Bangladeshis are in general friendly and open when it comes to marketing and advertising efforts. They have not yet reached the level of cynicism that can be prevalent in more developed economies. Misha Ali, Director of Marketing at Bikroy.com says, “From day one, Bangladeshi consumers have given us valuable inputs about our platform and services. Hence, up-and-coming tech companies will find an eager audience, more than willing to share comments and constructive feedback.”
But Bangladesh can also be a difficult place for foreign companies to operate, and therefore, presents a unique set of challenges that can only be met with a strong local partner.
“The winners are not only the entrepreneurs who really do their homework on which VCs are interested in what and take the extra effort to reach out and meet them, but also those who know how to get around the red-tapism that can be present in most developing economies,” Ali says.
“The premium segment consumers give feedback, but the other segment is pretty reluctant about giving feedback. The culture of ‘give feedback to get more’ must be practiced more here,” Islam says.
Dhaka — the hub of a mini startup revolution
Technology focus in the country has been on online classified sites, job websites, food delivery service, gaming, listing services and online groceries. But e-commerce takes the lead in terms of drawing investments.
Bikroy, Chaldal, Daraz and Ekhanei have secured a significant amount of investments from funds in Silicon Valley, Switzerland and Germany.
Currently there are over 800 IT and ITeS (Information Technology enabled Service) companies registered in Bangladesh with an estimated total industry turnover of around US $200 million.
“Nearly 76 per cent of these companies are involved with customised application development and maintenance,” states Khan.
Dhaka has the most thriving startup community in Bangladesh because it has the highest number of universities, as well as easy access to 3G and other forms of technology.
“Young folks in the city are more aware of the movement of tech startups around the globe because of the increasing number of networking events, hackathons and startup meetups,” says Khan. The startup community is largely formed by young and aspiring entrepreneurs who want to make a difference in the country.
Startups can easily expand to neighboring countries
In terms of export destinations, North America (Canada and the US) dominates, whereas European countries such as the UK, Denmark, the Netherlands and Germany have emerged over the last few years as major export hubs.
Bangladesh can be a great test case for technological ideas and innovation in the region. Tech companies that take root in Bangladesh can easily look to neighbouring countries when they are ready to expand.
“Just over the border, millions of Indians speak Bangla as their first language. On the other side, Myanmar is just coming online, with millions of people now signing up for Facebook and other localized services. Even markets such as Nepal and Sri Lanka are ripe for the ideas of Bangladeshi entrepreneurs, and given its close proximity to China, it is not outside the realm of possibility that Bangladeshi companies will soon be providing technology services to those countries, which are very quickly becoming middle-income markets,” says Ali.
The government should provide tax breaks for investing in startups
Setting up a private limited company is not a complex process as long as the procedures are followed properly. A company can be formed in just five to six simple steps and the registration process in Bangladesh could be started off with taking a trade license in three to seven days at most, the experts explain. Khan states that currently software companies enjoy a tax holiday and in this year’s budget, the Information and Communication Technology (ICT) sector has recommended to continue to extend the tax holiday for the next 10 years.
The government is trying to promote general awareness about the importance of the digital ecosystem to connect millions of people. As a part of that strategy, the ICT ministry has held fairly large, annual ICT events, coding competitions, favorable tax policies and economic incentives through soft loans from the Bangladesh Central Bank with the support of the Bangladesh Software Association (BASIS) and Access to Information (A2I). The government is actively working on establishing a policy framework and legal provisions for attracting venture funds and private equity entities from outside the country.
“The government should provide a tax break for investing in startups and there should be a separate tax break for startups with a clear and well-defined definition of a startup entity. The registration process should also be eased,” says M Fayaz Taher, CEO of Fortuna and a cofounder of SDAsia.
Harvesting the new crop of angels
The investment scene in Bangladesh is evolving, as more and more sustainable businesses are coming into play and high net worth individuals locally are getting attracted to the ecosystem. Traditionally, the country saw investments from friends and family but now there is an informal, local angel investment network which mainly invests in tech startups at amounts ranging from US $10,000 to US $50,000.
“A lot of due diligence, relationship-building and time is required for this new crop of angels because without a preexisting relationship, their risk is compounded. Building that relationship becomes of utmost importance,” says Samad Miraly, an angel investor and the executive director of Olympic industries.
Angels have been providing a lot of the early-stage support, but with the popularity of startup funding rising in Bangladesh, international and local VCs are jumping on board. To name-drop, 500 Startups and Fenox Ventures are investing in early-stage startups here and firms from Singapore, Hong Kong, the UK and Australia have also invested.
“They’re obviously seeing something here. This should change a savvy investor’s scoffing of, ‘Why Bangladesh?’ toward a more eye-popping, ‘Wait…why Bangladesh?’” Miraly adds.
He is sealing partnerships to launch a meaningful accelerator program to provide a locally relevant but internationally supported service.
Taher has been actively participating in angel investments in the country and feels that the network can grow rapidly as investors are looking out for the next big tech fix.
“People consider the Indian market very sexy and so most of them tend to think Bangladesh will have a spillover effect. Hence, if we can get some good successful stories out there, we can attract more venture capital funds,” he explains.
Lack of a mature VC community
There are hardly any local venture capital firms in Bangladesh and most of the international VCs who invested in local startups have done so by registering the companies outside the country due to undefined policies.
As Anwar puts it, “most VC companies don’t support startups that are younger than two years because in Bangladesh, the policy is not clear on equity/exits and various other laws regarding funding.”
But the market is evolving and funds from Silicon Valley, Middle East, UK, Singapore, Hong Kong and Australia have shown interest in Bangladesh’s tech sector. Khan points out that Fenox VC has undertaken an initiative to put together a $200 million fund for helping local and global entities to invest in IT startups emerging from Bangladesh. Apart from the funding, Fenox intends to come down to the ground and nurture, develop and grow Bangladeshi companies while connecting them to the right strategic players.
“From the opening up of valuation methods to the forthcoming venture capital policy framework, the attractiveness of the policy environment for investing in Bangladesh is progressing steadily. We’re not the Wild West, but we’re not Silicon Valley either – we’re a happy medium with potential for disproportionate returns!” says Miraly.
However, experts argue that the venture capital market still needs to mature. “You need more deal flow and more companies progressing from seed to early and early to Series A/B rounds for the ecosystem to prosper,” says Taher.
Absence of meaningful support networks
The tech startup ecosystem is still in the early stages in Bangladesh with major challenges. Taher feels that there are very few entrepreneurs building tech companies with a singular product/focus. Absence of a proper exit strategy and the small size of the market can also be a problem for startups. There is a shortage of skilled human resources on the technical side including lack of quality and quantity of the mentors.
Anwar says, “Government policy has not yet trickled down to the local offices and a majority of the government services don’t yet understand the whole concept of young people starting businesses outside Dhaka or major cities.”
Khan believes that there is an absence of meaningful support networks. “There aren’t any proper incubation centers, accelerators and there is a serious lack of mentors who understand the startup space,” he says.
It is difficult to access capital as the total number of angel investors is limited.
“There is a lot of ‘dumb money’ out there, but we all know how sound investors can really help a startup in the early stages of growth,” Khan says.
The society, as a whole, has yet to embrace the concept of “entrepreneurship as an opportunity.” Parents view business or entrepreneurship as a risky venture and it is not encouraged at all by the immediate family.
“Our schools are not designed to promote critical thinking that encourages students to take risks. So a lot of young startup founders have to battle both in the market to compete for talent and on the home front to win the confidence of their family,” he states.
But addressing the challenge is simply a matter of time. “Success breeds success, and we are only now seeing global Indian talent move back to India. This will happen in Bangladesh also,” Miraly says.
“We are in a place where innovation is not necessarily needed. We can transpose localized versions of already proven international models to achieve success here. It is a truly compelling starting point for Bangladesh,” Miraly concludes.
For Bangladesh, there’s still a long way to go, a lot of growth to be had, a lot of companies to be built, and soon-to-be open fields to conquer. Now is the time for a lot of small innovations: every day, every week, every month and everywhere.
This article first appeared in e27.