Something quite fascinating has happened the other day in Dhaka’s startup scene, BD Venture, the country’s first formal venture capital firm, has announced in a small gathering that the company has successfully exited from EON Food, one of its earliest portfolio companies, in which BD Venture invested BDT 20 million in 2014.
EON Food is a food-tech company having operations in food processing, value-added poultry products, processed fish items and ethnic products. The company said it has turned profitable and the exit has happened because EON has decided to buy back its shares from BD Venture.
I suspect that EON is in the process of raising another round of funding, BD Venture decided to exit and share buyback is one of the many ways VCs exit from investments in later rounds of funding.
While BD Venture announced the exit, it did not share much about return or valuation or any other information for that matter. This is not unusual given that EON remains a private company and the exit was not a result of an IPO or a major investment round.
Usually, venture capital firms look for an annual return of 25%-30% for the lifetime of an investment and often talk about 10X return on an investment. Venture capital investments are fundamentally different from almost all other forms of investments. The risks are relatively high thus the expectation of return is higher too. Usually, all of your investments don’t succeed. Very few VCs are there that see 50% success rate of the portfolio companies, but often one successful exist makeups for rest of the misfires. Similarly, VC money is not mere money, it is smart money that comes of other benefits such as advice and connections for the startups.
This is an important event for Dhaka’s nascent venture capital ecosystem for several reasons. This will certainly encourage more investments in local startups, improve overall confidence in the market and as well make it easier for local VCs to raise investment.
At the same time, it is an even more important event for BD Venture which has been in the process of raising investments for its funds.
The real significance of the event I think is in the fact that BD Venture now has an instance that it can use as a proof for its ability to find potential startups - the most important ability for any venture capital firm - and ensure a return for its investors.
This is an equally important return for BD Venture in every measure because while venture capital firms claim to invest in teams and people, they actually invest in markets and products because market ultimately determines the fate of a company. In fact, it also tells at least arbitrarily that BD Venture can also find good teams.
1. Further reading on BD Venture: Read our profile of Mr. Shawkat Hossain of BD Venture Limited from a few years ago here.
2. Further reading on the role of market in the life of a startup here in a piece on Pathao.
3. Cover photo credit here.