Revitalisation imperative for Bangladesh's startup ecosystem

Bangladesh has made significant progress in creating a startup ecosystem in recent years, and many creative businesses are sprouting up everywhere. They have introduced a variety of policies and programs aimed at supporting startups, including tax exemptions, subsidies, and funding opportunities, as a result of numerous initiatives by the government and private sector players. In the meantime, players in the private sector have set up incubators, accelerators, and angel investor networks to help entrepreneurs.

However, the startup scene experienced a decline in growth in 2022, with funding growth turning negative and hardly any local angel funding. It appears that this trend will last through 2023. The time is now for the government to act decisively to reenergize the startup ecosystem and draw investment. 

Recent trends imply that the startup ecosystem's expansion has encountered a stumbling block. StartupBlink data show that Bangladesh's place in the world's startup ecosystem has fallen from 103rd in 2021 to 123rd in 2022, reflecting a downward trend in startup activity. Additionally, the data reveals a sharp decline in startup funding, with total funding falling from USD 50 million in 2021 to only USD 22 million in 2022. Additionally, there has been a glaring lack of local angel investment, a critical funding source for early-stage startups.

There are numerous factors contributing to this decline. One of the main causes is the ongoing global economic downturn brought on by the Russia-Ukraine war, fluctuating Dollar exchange rates on the money market, and the global decline in investment activity. Additionally, it has affected startups' capacity to function and expand by causing disruptions in supply chains and business operations. The absence of a favorable regulatory environment for startups is a significant additional factor. The regulatory environment remains complex despite the government's efforts to assist startups, making it difficult for them to navigate.

To address these challenges and revive the startup ecosystem, the government must take action to create a more supportive regulatory environment and attract investment. One crucial step would be simplifying the regulatory environment for startups, reducing the time and cost associated with compliance. This would involve streamlining the process for business registration, licenses, and permits and creating a one-stop shop for all regulatory requirements. The government should also create tax incentives for investors, including tax breaks for angel investors and venture capitalists, to attract more investment into the ecosystem.

The first-ever electric car manufacturing startup in Bangladesh, Palki Motors Ltd., has generated much interest among people looking for an affordable mode of transportation. As his business venture advances in the market, Mustafa Al Momin, Co-Founder and CEO of Palki Motors, has provided some insights into the ongoing startup situation. 

"Although the global entrepreneurship ecosystem is declining due to the current economic crisis, the situation is different for startups that only need a small investment. When a venture requires a significant amount of investment and capital, investment becomes a problem." 

According to Mustafa, investors don't want to take risks by giving away large sums of money because the global economy is not doing well.

He also points out that the majority of Bangladeshi business owners who are just starting do not have the knowledge or experience needed to launch a new enterprise. Many startup founders aren't even familiar with the fundamental concept of a startup. They tend to adopt conservative strategies and become defensive when discussing them. Due to their cautious approaches to business strategy, defensive founders frequently have difficulty raising money. 

In recent times, poor business models and improper execution have been one of the main causes of underperforming startups in Bangladesh. Even though there are numerous training programs, few entrepreneurs can enroll in them. The government has provided adequate support for business owners. As an illustration, iDEA, STARTUP Bangladesh, has been working closely with and aiding entrepreneurs. Startup Bangladesh, iDEA, and GP Accelerator Program all played significant supporting roles in the launch of Mustafa's innovative venture. He emphasizes the need for proper awareness, strategy, and willpower among prospective startup founders because economic growth can occasionally be sluggish.

Therefore, the government should invest in human capital development in the startup ecosystem. This would entail training and education for entrepreneurs and startup employees, as well as the development of internship and mentorship programs to assist startups in attracting and retaining top talent. 

The government should also collaborate with universities and other educational institutions to encourage student entrepreneurship and innovation, creating a pipeline of future entrepreneurs and startup employees. Another critical step would be to help startups develop physical infrastructure. This would entail establishing a nationwide network of incubators and accelerators to provide startups with the necessary resources and support to succeed. The government should also consider establishing startup hubs in major cities, providing a central location for startups to collaborate, access resources, and connect with investors.

"Funding winter is essentially occurring everywhere in the world. If we wish to comprehend the fundamental metrics of investing, it should be evident that when the global economy is booming, VCs/Angel Investors/Portfolio Managers allocate capital to high-risk investments for a higher return. Due to the current global economic downturn, high-risk investments such as startup investments are not profitable for investors." 

"Investors who wish to maintain their wealth during a recession allocate their funds to fixed assets such as gold and real estate. And due to the global recession, the entire startup ecosystem is affected," said Mainul Haque Mahi, Procurement Lead at Agroshift, a Bangladeshi Agritech Startup. 

"However, there are founders who are still able to raise funds amid the crisis. It's just that money isn't cheap, and drawing money from VCs right now requires a real skillset. In Bangladesh, I believe several venture capital firms are doing an excellent job of supporting young startups, particularly Startup Bangladesh (A government-backed Venture Capital fund). However, funding fell by 70% in 2022 compared to 2021. To keep the flow of new startups going, we need to fill the gap locally." Mainul added.

To summarize, Bangladesh's startup ecosystem requires revitalization as it has the potential to become a thriving hub of innovation. While the government has taken steps to assist startups, the recent decline in startup activity and funding emphasizes the need for additional action. To stabilize the startup ecosystem, the government must continue to nurture a more welcoming regulatory environment, attract investment, build physical infrastructure, and invest in human capital. Additionally, startup founders must be knowledgeable and strategic in approaching new businesses.

The writer is currently an undergraduate student at the Department of Human Resource Management, University of Chittagong.

iftidaeme@gmail.com