VIPB, Equity Investment Ecosystem and Life: An Interview With Zia U Ahmed, Founder and Chairman, Venture Investment Partners Bangladesh (VIPB)

VIPB, Equity Investment Ecosystem and Life: An Interview With Zia U Ahmed, Founder and Chairman, Venture Investment Partners Bangladesh (VIPB)

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“Building a business is hard and you will go through constant ups and downs, you have to have the stamina to stay patient when things get tough and still work hard day and night,” says Zia U Ahmed, Founder, and Chairman, Venture Investment Partners Bangladesh (VIPB).

Mr. Ahmed has a wonderful story, a testament to the reality that our life is not linear and that it takes us to places. Mr. Ahmed was born in Dhaka where he spent a large part of his early life. Growing up, he was into sports and politically conscious. Here, he recalls his childhood days spent in Dhaka and impact the 60s and 70s have had on his way of looking at life and work, shares the founding story of VIPB, how VIPB helps entrepreneurs across the country to build sustainable companies and its ambition going forward, talks about what he looks for in founders and companies before investing and why patience and our ability to think long-term are two most important qualities for a meaningful life.

Future Startup

Thank you very much for agreeing to do this interview. The first question is about yourself. Where did you grow up and then from there your journey to what you are doing today?

Zia U Ahmed

I was born and brought up in Shanti Nagar area, in Dhaka. I started my first formal schooling at Viqarunnisa. Those days they used to allow boys up to Class one.

From Class two, I went to Don’s School in Segun Bagan area for one year. Then I got into St. Gregory’s where I studied from class 3 to class 7 in English medium. From class 7, I went to Momenshahi Cadet College, which is now Mirzapur Cadet College, from where I did my SSC and HSC, both in Science.

On a personal level, I lost my mother at a very early age. She died in December 1957, I was only 7 years old at that time. My father lived long mashAllah. He died in 1991. Growing up, my home environment motivated and encouraged education. My parents, especially my father supported me going to an English medium school. I was first in my family to attend an English medium school and then Cadet College.

After College, I got into Dhaka University, Economics Department in 1970. But I did not complete my degree at DU. My father was surprised when I chose Economics. He thought I would go for engineering. Most of my college friends from science group went for engineering.

After the Liberation War, in 1972, I left Bangladesh. I went to the USA in August 1972 and started my undergraduate at the University of Oklahoma in Norman, Oklahoma, USA. It is not very far from Oklahoma City. That is the number one university in Oklahoma, specially for Social Science and Arts & Sciences. From there I got my bachelor degree in Economics – major in Economics and minor in Finance in May 1975.

Then I went for graduate studies in Economics at the University of Virginia. It is in a city called Charlottesville, two hours south of Washington DC. I obtained my PhD diploma in Economics from the University of Virginia in 1982.

While I was working on my Dissertation for PhD, I worked as a part-time Instructor at the University of Virginia (UVA) for my last 2 years at UVA. I also worked as a part-time consultant at the World Bank in Washington DC.

After my PhD in 1982, I went for full time teaching. I taught for two years at the Mary Washington University in Fredericksburg, Virginia. After teaching for two years, I was offered a post doctoral research position at the Ohio State University in Columbus, Ohio which was funded by USAID for conducting research on rural finance in Bangladesh under the Rural Finance Project of Bangladesh Bank in 1984. I came to Bangladesh in 1985 for doing post-doc research and was working closely with Bangladesh Bank’s Agriculture Credit Department.

It was part of a USAID’s Rural Finance Project (RFP) and I came as a research specialist from Ohio State University where I was doing the post-doc research. From 1985 I worked on that project for the next three years till 1989. In 1989 I left that work and went back to the USA. Then I got a consulting assignment from Asian Development Bank for a project preparation work in Bangladesh in mid-1989. We worked on designing a US$25 million project under that engagement for the development of Small and Cottage industry in Bangladesh working with BSCIC.

After completing that project in Summer of 1990 I returned to the USA.

Then another job opportunity came, I joined USAID directly from Washington DC to work in Bangladesh. I came back to Bangladesh in Fall of 1990 to work for USAID from the Fall of 1990 to the end of 1996. I was the Project Coordinator on two projects, the Export Development Project (EDP) and the Financial Sector Reform Project (FSRP). That time it was the largest technical assistance project in the non-health and non-food sector with an ambition to improve the banking system including strengthening the central bank and the Bangladesh Bank’s financial sector and promoting exports from Bangladesh.

The engagement was completed in December 1996 and I went back to the USA after the end of the FSRP. Back in the US, I got introduced to University of Maryland, IRIS Center and later in April 1997, I returned to Bangladesh again as the Chief of Party/Team Leader of the USAID-funded JOBS Project with a goal to create job opportunities for Bangladeshis in the SME sector. I worked on the project for about 3 years, from summer 1997 to 1999 before leaving the project in the winter of 2000.

In 2001 I joined IFC in its SEDF activities in South Asia and again returned to Bangladesh as Program Coordinator for Access to Finance component of SEDF which eventually morphed into a regular IFC Advisory Service operation in South Asia.

In 2005 I left IFC to start my own venture. I always wanted to do something in the private financial sector. I came to see that there was a gap in venture financing in Bangladesh and wanted to explore the opportunity. I discussed the idea with several NRBs living in the US and UK, and a few institutions in Bangladesh which eventually led to the founding of Venture Investment Partners Bangladesh (VIPB) in 2006 with equity investment from US-based NRBs and Bangladeshi institutional investors

We started our commercial operation in 2008. Along with our venture investment operations we obtained license from Bangladesh SEC to manage public equity assets or Mutual Funds in 2009 through our wholly-owned subsidiary, VIPB Asset Management Company Ltd. In 2015, after BSEC (Alternative Investment) Rules, 2015 we also obtained a license for a VC or Private Equity Fund Manager.

We are currently managing a total of three funds. Two are the listed funds, SEBL First Mutual Fund and the National Life Insurance (NLI) first mutual fund. Both funds are performing very well. The investors are happy with our performance.That led us to start our third fund which is an open-ended fund. We started our VIPB Accelerated Income Unit Fund in July 2016 with 10 crore taka fund and the total Assets under Management (AUM) has grown to over Tk. 150 crore in the past 18 months since inception and the Annualized Net Asset Value (NAV) of this Unit Fund has grown over 30% since inception so the investors who participated in the fund from the beginning has got an annualized return over 30%. On a year on year basis, this Fund has increased its NAV by over 33% since January 2017.

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You have to be patient. Most people are in a hurry. They want to get rich overnight. Now, in the business, there are other things such as being able to identify the right opportunities for investing and all, but you have to be patient, above all. Because in business and in life, nothing happens overnight,unless Allah (SWT) wills it for you.

Future Startup

You were also involved with SEAF Bangladesh.

Zia U Ahmed

After leaving IFC in 2005, I was in touch with my old colleagues at IFC. They knew of my involvement in VIPB. In 2009 they approached us if we would be interested to participate in a global request for proposal to set and manage a Bangladesh focused SME FUnd. I thought it would be interesting to manage a small fund for IFC. At the end of 2009, we went there and we perceived it. We were new at the time and we didn’t have much experience so we went on a partnership with SEAF to bid for the IFC SME Ventures Fund management in Bangladesh.

Small Enterprise Assistance Fund (SEAF) is a non-profit based in Washington DC. I knew the chairman of SEAF very well. So, we partnered with them. SEAF is one of the oldest SME focused fund managers in the western world, with operations in about 20 countries in Eastern Europe, Asia and South America.. We thought it would be great for us to partner with them and they also thought that going with VIPB would make them a strong candidate.

The second reason was that they did not know Bangladesh very well so we could give them the local support. That was what happened. We started the actual operation in July 2010 and I was one of the founders. It was a collaborative effort of VIPB and SEAF.

In 2016 I finally decided to leave SEAF and focus fully on VIPB’s operation to raise and manage a venture capital fund. In 2015 Government made an alternative investment rule. At that time SEAF was not interested in getting a license and VIPB was interested. So in 2016, VIPB got a license from BSEC for alternative investment fund manager. That’s when I decided to give full-time to VIPB.

Future Startup

Growing up, was there any particular event or struggle that influenced the way you look at the world, work, and life?

Zia U Ahmed

It is hard to say right now. In St. Gregory’s I had a lot of friends. I was a team person and was active in sports. I was not a star player but I was good enough to be on the team on certain occasion. Our basketball team was very good and Kamrul Hasan was our lead player from our class. Unfortunately, I think he died about 15 years ago. It was a very premature death. He played in the Bangladesh National Basketball Team and also at the University level. Sports helped me to develop some really good skills such as working as a team player. This continued even when I entered Momenshahi Cadet College in January 1965.

I was politically involved from a very early age. Throughout my early life, we went through several major political events and it was natural for me to be politically conscious. When I went to Cadet College, I was a team player there as well. And I became a house prefect then house captain and subsequently the College Captain (1966-67).

I also kept in touch with the political development in Dhaka. I remember distinctly in 1962, when I was only in Class 5 (1962) in St. Gregory’s School, a number of Gregorians would sneak out of the class and join anti-Ayub and anti-ML protest marches and meetings with Bangabandhu, Bhasani and other major political leaders seeking autonomy for the then East Pakistan. Then in 1964-65, I got involved along with my neighbourhood childhood friends in the first (indirect) election campaign in support of Fatima Jinnah against Ayub Khan under the Basic Democracy System. After the loss of Fatima Jinnah in that election in January 1965, political unrest continued. There was a lot of things happening at that time. Maulana Vasani was more vocal about the independence of Bangladesh in those days. I don’t remember whether Vasani used the word Bangladesh but I know he was very vocal about separation of the country and all. Over time, Bangabandhu was implicated in the false Agartala Case and eventually, Bangabandhu and several others were arrested and hearings of the Case continued for quite some time which led to more and more protests all over the then East Pakistan, specially Dhaka.

I remember joining those meetings without permission from our cadet College authority along with my very close friend and classmate at MCC, Nizamuddin Quasem. Nizam was more involved and connected in politics than I was, though.

After I joined DU in Fall of 1970, we all know what happened in the aftermath of the Great Cyclone/Tornado on November 12, 1970, and the General Election in December 1970 – the first fairly held direct democratic election in Pakistan which changed the course of history in South Asian sub-continent.

Future Startup

How did your political awareness from an early age influence your worldview in your later life?

Zia U Ahmed

One of my teachers in Cadet College thought I should be a lawyer, that I should join the legal professions and then be a leader. But of course you know leading, politics is one thing as a student but different as a career, I think I never considered it.

I chose economics because I thought I could contribute in terms of policies and all. That was indeed a decision that was influenced by my political consciousness. So I think helping people and engaging in society, these are some of the things that I carry even these days that was sort of result of my involvement in politics in those days.

Future Startup

What was the motivation behind choosing economics as major?

Zia U Ahmed

I didn’t think that engineering was something I would like to do as a career. I was reasonably good at mathematics and I liked politics, economics was sort of at the intersection of both.

Moreover, some of the best students I knew at that time attended Dhaka University Economics Department and they were doing great in life. So I wanted to follow.

Zia U Ahmed

And Alhamdulillah, many of my classmates, who attended Dhaka University, Economics Department in 1970, have done wonderful works in life. Almost 10 to 12 of them became Secretaries in the Government and some as Ambassadors. Some of them who left the civil service and joined World Bank, and Asian Development Bank did great, too.

Those of my classmates who had joined the central bank, all of them or 4 or 5 of them became the Deputy Governors at Bangladesh Bank. One of them, Dr. Atiur Rahman, became governor of Bangladesh Bank.

Future Startup

You have several decades of experience working in diverse sectors, what are some of the biggest lessons from your journey so far?

Zia U Ahmed

You have to be patient. Most people are in a hurry. They want to get rich overnight. Now, in the business, there are other things such as being able to identify the right opportunities for investing and all, but you have to be patient, above all. Because in business and in life, nothing happens overnight,unless Allah (SWT) wills it for you.

This is the weakness of the most developing countries. We want instant gratification and this is probably the trend of the world now. At VIPB, we have a long-term strategy and we have been able to maintain that and withhold our greed and continue with our ethical values and it has helped us to produce good results.

In our two funds, we have on an average a return of over 15%. If anybody invested over time from the beginning then they probably would have 50% returns. So, this is one of the good things that I think I would like to talk to people that be patient and work for the long-term. People listen then you know it is very hard to withhold greed. But those who will do in the long run they make a good return on their investment. That I can guarantee.

Although as a fund manager legally we are not supposed to guarantee anything because there are always ups and downs in the business cycle. I can guarantee in the sense that somebody who has long-term vision, have patience and follow fundamentals they won’t lose in the long run.

Future Startup

What was the motivation behind starting VIPB?

Zia U Ahmed

We thought that there was a gap in the market. When I was working at IFC, as I already told you, we used to provide technical assistance and consultation to businesses. At the end, we would end up with reports. I don’t know how many people read the reports at the end of the project. But I realized that only training and technical assistance does not make any difference unless you help entrepreneurs in some material way such as increasing access to investment or other form of financing.

I thought it is a good thing that you train entrepreneurs and then what, how can you help them to move forward and grow their business after the training. That’s where I saw a need for funding which was always absent. After training some entrepreneurs, if we could fund them then they could improve their company with better machines or investing in growth or hiring more people and so on.

That’s when I thought of putting together something that would genuinely help entrepreneurs to grow their business. That’s what I thought our SMEs needed to grow bigger. It is very easy to access fund in the western countries where there are venture capital and other things. That was the motivation. I wanted to introduce the concept of venture capital adapted to the ground reality of Bangladesh.

When I left IFC, my wife told me if you want to do something then do it now otherwise it would be too late. That’s how everything started.

I started working on VIPB in 2005 and by 2008 we were ready to operate. We launched on January 29, 2008, I still remember the date. Initially, we invested from our own balance sheet money. We have made about 723 investments. We have made good investments and bad investments.

In the summary, we found that small SME clients are better in terms of growth and returning investments compared to few bigger ones. They are too smart for us because in venture capital we give money without any collateral. We also have learned some of the weaknesses in our management.

The main thing is the person. When there are more than one founder, we look for their skill combination. When founders have complementary skills, it gets easier to build a business. The other things are how motivated founders are, how dedicated they are and how committed they are. And most importantly, long-term plan for building a business.

Future Startup

What went into building the initial operation of VIPB?

Zia U Ahmed

We looked at what was available in Bangladesh. Although we thought the western style venture capital was missing, there was Grameen Fund before us. But it was a nonprofit entity. So it was not that in term of reaching entrepreneurs.

We tried to identify our weaknesses and the first challenge for us was finding good people who could run our operations. It was challenging because it is hard to find people with relevant experience in the sector. After much hustle, we get into a partnership with a group of former Grameen Bank employees who would work with us as local agents. It was good for us in a way because we did not have to set up a huge operation from the start.

It worked well to some extent and then our partner’s management became non-responsive. So, It became ineffective. We learned a lot from that collaboration. It was an outsourcing model through a third party entity.

We have now decided to outsource but not through any third party instead hire people ourselves and train them and then outsource. More like insurance companies where agents work independently.

As I said we have learned a lot from past few years of operation. We will complete 10 years this year.

Future Startup

Please give us an overview of VIPB i.e. size of your team and operations and the number of companies you have invested in.

Zia U Ahmed

We have made about 723 investments over the past several years. At our peak, we have had about 16 people including people in our local offices. We have offices in Khulna, Rajshahi, Tangail and a few other places. We have downsized our operations in local offices at this time and waiting for raising our first fund under the new Alternative Investment Rules.

Currently, we are not making any new investment rather recovering the old ones. Part of the reason is that under the new rule that we have registered we have to start as a new fund manager. That’s why we are not making any new investments. We are just closing down the old ones. And then next year, inshAllah, in 2018 we will raise fund for our new fund under the new rule.

Currently, we are focusing only on our mutual funds which don’t require a lot of people. Our CEO, Shahidul Islam, is an expert and has got a very good reputation in Bangladesh.

Future Startup

Are you focused on any specific sectors or you are sector agnostic?

Zia U Ahmed

We are sector agnostic. However, we have mostly invested in the agriculture sector, almost 40% of our investments are in food and agriculture sector from farming and fisheries and dairy to processing and rice mill and so on.

We also invest in women entrepreneurs. One of our women entrepreneurs based in Rajshahi became the best SME women entrepreneur of Bangladesh under the SME foundation in 2011-12. She also received an award from Prime Minister Sheikh Hasina.

Some investors only invest in technology. But we cannot do only technology because we are small and tech is just showing some early sign of growth in Bangladesh. Our thesis is we invest in companies where we see growth potential and where we believe the companies would create employment opportunities.

Future Startup

How does your model work? Do you take equity in your investee companies?

Zia U Ahmed

We invest in mostly small-scale SME companies that are sort of post microcredit scale. At first, we don’t take equity in these companies rather we do something different which we call income sharing model because most of our investees are not yet organized as limited companies that make it difficult to do equity investment.

It is mostly cash-flow basis. If you are in a fisheries business, we look for the cash flow in your business. For instance, a fisheries businessman needs money in the early season when s/he is harvesting so that s/he can invest and s/he returns the money when s/he is selling fish. That’s how it works. It is not like standard microfinance but mainly based on cash flow. When they need money we give money. When they earn money they pay us back. That’s the basic model. So if you don’t match with the cash flow then there will be defaulters.

Technology is something I’m excited about, overall. Technology is interesting because you can apply it at the intersection of almost everything. You can apply it to health, education and to many other areas. And yes, health and education are also going to be hugely important sectors.

Future Startup

Do you make equity investment as well?

Zia U Ahmed

We have made a few equity investments. Since we are new, we want to go slow because in SME equity investment is risky. It is long-term in nature as well. In many of our equity investments, we didn’t have a very good result. People realize that there is no collateral or nothing, they try to take advantage. They want to get rich quick.

Another problem is when friends start a business together, and at some point, they get into a disagreement and fight, the co-founders problem, and the business suffers and we get stuck. We have developed a strategy, a model which will help us to overcome this. But we have to wait till we start it.

Future Startup

What qualities do you look for in a company when you decide to invest?

Zia U Ahmed

The main thing is the person. When there is more than one founder, we look for their skill combination. When founders have complementary skills, it gets easier to build a business.

The other things are how motivated founders are, how dedicated they are and how committed they are. And most importantly, long-term plan for building a business.

Building a business is hard and you will go through constant ups and downs, you have to have the stamina to stay patient when things get tough and still work hard day and night. If you are a kind of person who gives up easily when things become difficult, it would be impossible for you to build a business.

You have to have a vision and be passionate about that vision. Entrepreneurship is a 24-hour thing which a lot of people don’t realize. You have to have that level of energy to continue for a very long time.

Future Startup

What are some of the potential sectors in Bangladesh?

Zia U Ahmed

Technology is something I’m excited about, overall. Technology is interesting because you can apply it at the intersection of almost everything. You can apply it to health, education and to many other areas. And yes, health and education are also going to be hugely important sectors.

Agriculture will remain a very important sector given that we have a huge population to feed. Then and again, you can use IT there as well.

Very challenging. I am sad to see the rise in Non-performing loans in the banking sector. It is discouraging. Default has become a norm and major irregularities are happening without any repercussions. This has an impact on overall investment ecosystem.

Future Startup

What are the challenges for VIPB now?

Zia U Ahmed

There are some minor regulatory issues, which I think is a matter of proper wording, which makes it costly for fund managers, in relation to duties and taxation. I think it will be sorted out soon. That’s one thing.

The other thing is around people which we have been slowly trying to overcome. That’s why I said 2018 will be a big year for us.

Future Startup

Are you raising fund?

Zia U Ahmed

We are not raising money at this moment. Unless tax and stamp duty issues are fixed, we will not go for raising money because it would complicate the matter. Our goal is long-term and we want to start with proper preparation.

Future Startup

From 2018, what are the plans going forward?

Zia U Ahmed

Once regulatory issues are fixed, we will go for raising fund and then after getting ready with the fund we will start looking for investments. We already have a list of companies that we have helped in the past. We will go back to them and see whether they can assist them to grow bigger. That’s one.

Another priority is to embrace the use of technology in our operations. We do use technology, but we want to adapt tech in all sphere of our operations.

Future Startup

What do you think about the overall equity investments and venture capital ecosystem in Bangladesh?

Zia U Ahmed

Very challenging. I am sad to see the rise in Non-performing loans in the banking sector. It is discouraging. Default has become a norm and major irregularities are happening without any repercussions. This has an impact on overall investment ecosystem.

The banks can afford because they are using depositors’ money but we can’t afford that. The real challenge is not only that these things are happening, it is that this culture sends a wrong signal to overall ecosystem and encourages people to take advantage. This is a huge challenge.

It’s better to have a co-founder when building a company because it is a difficult journey and when you have someone like-minded and team player to support and share, it gets easier to get through tough time.

Future Startup

When we allow people to get away with doing wrong things, it sends a wrong signal to everyone else who wants to take advantage of the system.

Zia U Ahmed

Yes, it sends a wrong signal. This is the number one challenge because default culture is bad for the economy. This is true in many developing countries.

Having said that, the positive side is that majority of Bangladeshis are very entrepreneurial. So I think our job is to find out those entrepreneurial people. Not everybody is an entrepreneur. So we have to find those people and support them. There will be a few people who would not turn out good, that’s I think a problem for the person in the long-run.

Our model is again we insist on the entrepreneurs. We make sure that the entrepreneurs understand what they are getting into. We also look for cultural fit, if the entrepreneur’s vision doesn’t match with us, even if it is the smartest one it will not work out at the end.

Bangladesh is a wonderful place. We have immense potentials. We just need to work a little harder, a little better and do more honest work.

Future Startup

You have worked with many entrepreneurs and companies and helped them with investment and advice, from your experience, what does it take to build a sustainable and successful company?

Zia U Ahmed

Again going back to what I have said, patience, dedication, passion and of course a good idea.

It’s better to have a co-founder when building a company because it is a difficult journey and when you have someone like-minded and team player to support and share, it gets easier to get through tough time.

Don’t give up when things get tough. If you give up every time you face difficulties, you will never succeed. Commit and give your 100%.

Future startup

What does it take to be an effective leader?

Zia U Ahmed

You have to treat people fairly. That’s number one.

Then you have to live by your words. If you don’t live by your own words, you can’t expect that your subordinates will follow your words. It is important that you lead by example.

Future startup

What is your management philosophy?

Zia U Ahmed

I try to find the right people and empower people.

Now, empowerment does not mean merely giving authority or more responsibility, it means the team should know that when the company does well, he/she will also do well. This culture is not that prevalent in our country yet. But it exists in the western world. The secretary of Apple has also become a multimillionaire.

Future Startup

What advice would you give to people who are just starting out?

Zia U Ahmed

Again, if you have a dream, make sure that you understand it and that you have the means to achieve it. Then commit. Have a long-term vision and consistently work hard for a long-time.

Don’t give up when things get tough. If you give up every time you face difficulties, you will never succeed. Commit and give your 100%.

empowerment does not mean merely giving authority or more responsibility, it means the team should know that when the company does well, he/she will also do well.

(Interview by Ruhul Kader, Transcription by Khaleda Husna Fariha)

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