Unleashing the startup saga in 2024

Year 2024, the Year of the Dragon, is set to bring strength, courage, and good fortune. The startup world is no exception. As global economic conditions continue to change, the startup economy encounters a fluid landscape navigating through unique challenges and potential opportunities.

Looking at the global startup economy, there were formidable challenges in the past year. The New York Times reports that more than 3,200 startups, including Hyperloop One, Convoy, and Bitwise Industries, all closed up shop in 2023, losing about US $27 billion within the startup economy. This was denoted by a closed exit market and a substantial decline in capital distribution to limited partners, inevitably raising concerns.

While Bangladesh has been hailed as the next startup goldmine by the Bangladesh Startup Summit report of 2023, reality often likes to contradict our optimism. We currently have 2,500 active startups in Bangladesh, with an additional 200 being launched every year. But what does this actually mean for our nation's startup economy on a grand scale?

To grasp the larger picture, it is crucial to examine the startup ecosystem as a whole. The strategist, usually the founder, stands at the top of this food chain. Generally, startup founders aim to solve issues that plague or enhance our daily lives, making them feel like a million bucks or at least making it in sales. More often than not, their million-dollar idea breaks the bank before it can turn into a cash cow. Approximately 90 per cent of startups fail within the first year, the major reason being, you guessed it, funding!

Bangladeshi-American venture capitalist Sakib Jamal provided some insights regarding the national startup funding concern. Having dipped his feet into the startup scene, he shares, "I think founders need to recognise that funding the ecosystem in Bangladesh is still immature, and thus, they have to balance growth with capital efficiency." He adds, "As interest rates increase worldwide and economies tighten, we will definitely see capital allocators take less risk and reduce funding for early-stage and other high-risk investments."

Lightcastle Partners highlighted this concern in their Bangladesh Startup Investment Report of 2023, indicating a sharp fall in investments by 38 per cent year-on-year to $285 billion. Jamal further points out, "In Bangladesh, the big problem is the market size constraints -- the total addressable market (TAM) is just not as big as people think it is. Essentially, disposable income is not high enough for a number of the Western-cloned models to work in Bangladesh." This paints a clearer picture: our nation needs its own unique model to navigate the startup environment.

As the global economy faces several uncertainties stemming from two ongoing wars, supply chain disruptions, geopolitical tensions, and constraints, will investment in startups sustain a dip even further into 2024? Particularly in the context of Bangladesh, numerous factors are also at play. This is in addition to the current forex depletion crisis, import restrictions, sluggish growth of exports, and of course bottlenecking remittances, which only serve to devalue the local currency further against the gold standard, the US dollar.

Despite noteworthy commercial activities within the industry, the aforementioned factors shed light on a broader issue. Bangladesh is largely untapped, even as the country continues to show signs that it can be a powerful marketplace for both domestic and foreign investors. As human capital is widely available, foreign direct investment could be vital for economic growth since it brings new ideas and energy to the country's business ecosystem. In terms of foreign investments specifically, India receives far more startup capital percentage-wise in comparison to Bangladesh. Surely, the sheer size of India is a factor, but Bangladesh does not lack ideas within the realm of startups. So, why the disparity? The venture capitalist believes that a big part is the quality of founders that come to Bangladesh. He shares, "Bigger, more mature markets attract the best founders, and although we're seeing some of that happen (a few foreign founders are building in Bangladesh now), it still does not make inherent sense if you want to build a massive, venture-scale business i.e., highly valued, often over a billion dollars, that provides sufficient return for institutional investors."

These insights reveal the universal truth within the Bangladeshi startup community. Our founders do not invest in sales skills enough. To reiterate, the low-hanging fruit here lies in 'polishing' or educating founders in Bangladesh; institutions in the country are oozing with talent, but we don't have the right environment to cultivate that talent. Although the Innovation Design and Entrepreneurship Academy (IDEA) project and Startup Bangladesh Limited offer aspiring entrepreneurs training, mentorship, and financial assistance, there is still room for scalable development. This also means an active initiative to improve industry-academia collaboration to help cushion the growth of startups.

The era of overvaluation based on hype is behind us. Investors now prioritise startups demonstrating genuine value and a clear path to profitability. This shift presents opportunities for innovation that can provide practical solutions to pressing problems, such as reducing carbon emissions in industries, making finance more accessible to the masses, or revolutionising the way we work and communicate.

A more liberating reign of private corporate venture capital, in conjunction with the government aiding in policy support, can genuinely transform Bangladesh into a robust opportunity for investment benefit, and the aggregate economy will be a benefactor of the rewards. Stepping into the future, this growth can blossom to have a continental halo effect in which we shall bask.

Tazrian is an aspiring researcher in economics and a member of the Youth Policy Forum Environmental Team.

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