Saqeb Mahbub is a Partner at Mahbub & Company, a Dhaka-based full-service law firm. Mahbub & Company is a fascinating firm. Founded in the early 90s, the firm has a strong root in litigation, arbitration, and corporate legal matters and at the same time, has a cultural orientation of going into and exploring new emerging trends. For instance, M&C is one of the few firms in Dhaka actively working in the startup scene, on technology policy issues, legal ramifications of emerging technologies, and industries in a world increasingly dominated by tech. Over the years, the company has built a solid practice in the startup and technology policy space.
Startups, fundraising, VCs, angel investing — these are relatively new affairs in the context of Bangladesh. There remains a significant knowledge gap when it comes to legal matters in these areas. Mr. Saqeb and his team at Mahbub & Company have been doing important work in the space.
I recently had an opportunity to speak with Mr. Saqeb. Trained as a Barrister, Mr. Saqeb has an excellent mind. Apart from law and technology, he takes a deep interest in philosophy, psychology, and our eternal quest for living a meaningful life. What follows is a lightly edited transcription of our conversation.
We talk about the evolution of Mahbub & Company (M&C), what separates M&C from other law firms, the culture at M&C, how law firms work, how technology is changing legal services, legal fundamentals for startups, the common legal mistakes founders and investors make when it comes to company incorporation and fundraising, common legal challenges startups, and investors face, startup and technology policy in Bangladesh, his approach to work, productivity, and leadership, why the ultimate meaningful thing we can do is touching lives of other people in a positive way, and much more.
The interview is full of original thinking and an excellent read in its entirety. I hope you enjoy reading it as much as I enjoyed doing it. Build great things.
Thank you for agreeing to this interview. We talked briefly about how you came into the legal profession off the record. Let's start there. Please tell us about your background and journey to what you are doing.
I always had in mind that I would be a lawyer because my father is a lawyer. Growing up, I looked up to him and saw the profession as something that I wanted to pursue. My parents wanted me to be a lawyer as well. Luckily for me, the interests had aligned. So I again followed in my father's footsteps. He studied in the UK. I went to the UK, London School of Economics. After finishing my degree, and qualifying as a barrister, I came back.
There is a tradition in the legal community that lawyers' children don't start with their parents. They work with some other lawyers for a few years before working with their parents. So I was sent to Barrister Rafique-ul Huq, a legend in corporate and banking law. I spent three years from 2010 to 2013 working there. It was towards the end of his career, and I tried to learn as much as I could. He passed away two years ago.
In 2013, I thought this is the time to go back to my father's firm and start my work. That's when I started building my practice within Mahbub & Company.
Since my father was and is the boss, I had some leeway in managing my time and resources. I used that to attend these international conferences and learn about new areas of practice. That's how I got interested in the emerging areas of practice such as laws related to technology, intellectual property, data privacy, etc. These are not traditionally practiced in Bangladesh. There is an established practice in these areas but on a small scale.
I had the opportunity to do these things that probably someone without a head start couldn't have managed. I was making this investment in myself since I joined in 2013. It has helped me to segway into the tech and startup scene in Bangladesh. Startups are a quite recent phenomenon in Bangladesh. The meaningful funding events in Bangladeshi startups are an even more recent phenomenon. But I have been investing my time in this sector since 2013. I was reading up on what was happening in India, Singapore, and elsewhere, and waiting for opportunities to come to Bangladesh.
We have a great practice in corporate law. We work for a lot of the big local and foreign companies in Bangladesh, which is a major part of my practice.
For me, it's been 12 years of legal practice. About nine years in Mahbub & Company. I have a team of about 11 working with me. We have grown from five to eleven in the last three years and plan to grow more. That’s about my journey so far.
I have a couple of questions about startups, intellectual property, technology policy, and all those things. Before that, I want to learn a little more about your work and Mahbub & Company. Can you briefly talk about what Mahbub & Company does as a company?
What makes Mahbub & Company different is that we're neither the most expensive nor the cheapest law firm, we sit at a point where we’re about creating value for our clients.
We have an extremely client-service-focused approach. The goal is to make the client feel that he has received good service. Sometimes we can’t guarantee outcomes, which may go either way in a legal case. We often have to give bad news to the client. And that is the job of a lawyer, to be objective, to give them the bad news when they need the bad news. We are not like everything's going well for you. Sometimes the client will come to us and ask, you know, can I do this or that and we give them the bad news that you can't do it. Sometimes we will try to find another way but we can't say that we can always give good news.
But even when we can't give good news, we make sure that clients feel that we feel their pain as much as they do and that they feel cared for, understood, and heard. We make sure that the client has the fullest understanding of what’s happened, what's going on, and what we’re doing. We take clients on a journey throughout the process and explain everything.
We focus on the client experience a lot. And that has been a very big part of how we operate. It is the core philosophy of how we work.
Another thing that makes us a little different is that we have strong roots but we also venture out a lot.
You probably can touch a little bit about the history and background of the firm.
My father established this firm in 1994. In that sense, we’re an old firm. We have gathered knowledge of law over the last 27 years. That makes us a small subset of firms that were born in the 90s or before.
We also, as I said, venture out into new areas. We love to talk and think about tech, data privacy, IP and you know, things that are coming up, and things that are not necessarily profitable for lawyers to do right now, but things that are happening globally, which will affect us in the future. We try to know and hone that knowledge, even if it's not something that we can generate income out of right now.
For example, we wrote an article on the legality of cryptocurrency in Bangladesh in 2018. We're still talking about whether cryptocurrencies will ever be legal in Bangladesh. But you know, we invested that time in 2018. We wrote about data privacy. We've written about these topics so that anyone in the world can learn about these things in the context of Bangladesh. That there's someone in Bangladesh who is thinking about it. So that's the kind of dual philosophy that we have.
We are strong in our roots. We have a strong litigation history. Litigation is basically court cases. That used to be the major part of practice in Bangladesh in those days because there was not as much commercial activity as now. There were not many corporations. We have that litigation expertise and knowledge cultivated for 27 years. But we are also exploring these new areas.
At our firm, we are mostly generalists. Specialization is there but everyone does everything. Someone who is working on a startup deal also goes to court for a half day a week. We make sure that on a rotational basis everyone goes to court at least once a week so that you have an all-rounded knowledge of what's happening.
Because when client comes, they don't necessarily have one problem. They may come with one problem, but may also have other things to ask. We can’t just pass them from department to department. We want to make sure that everyone has enough knowledge about what the rest of the firm is doing so that s/he can at least offer a basic understanding. If specialist knowledge is needed, then that is brought in. But everyone can offer you a basic understanding of things.
It doesn’t mean we don’t specialize or have experts. We do specialize and have experts. But while you’re developing expertise in one area, we also encourage you to develop a general understanding of other areas of work. Everyone gets opportunities to pursue knowledge of everything. Our people spend 10-20% of their time doing things outside of their specialization. That way, we kind of challenge everyone every day.
That's beautifully put and a unique insight into the operational philosophy and the cultural aspect of the organization. Can you please talk about your focus as a firm and the services you provide?
Mahbub & Company is a full-service law firm — that’s the internationally recognized term for what we are. There are specialized firms, which work in specific practice areas and there are full-service firms that have a broader range. We do a broad range of things that involve court disputes and also things that have nothing to do with courts.
For instance, we advise foreign investors looking to enter Bangladesh on legal and relevant matters. They want a mapping of the regulatory environment in Bangladesh — how to set up an entity, taxation-related issues, liabilities, regulatory things they need to consider, licenses they need, and so on. That’s kind of the start of the relationship with us. Once we have them establish the entity, then they need employment contracts, service handbooks, regulatory advice, support, etc and we help with that. We help them with any disputes and confusion that come up.
In a nutshell, we advise them about Bangladesh. We set up their company, help them get all the licenses, and make the necessary contracts with their staff and partners like you know, suppliers, etc. That's usually the like lifecycle of work that we do for foreign investors.
We sort of give them a service experience of Bangladesh. They see Bangladesh through us, at least in these initial stages.
We work with local corporate houses where the type of work we do is extremely diverse. It can be anything — an employee dispute, a dispute with banks, contracts with international and local partners, etc, and everything under the sun when it comes to legal matters.
Another type of clientele we work with is mergers and acquisitions. Mergers and acquisitions practices happen when a company takes over another company or buys shares in another company.
For example, there's a large American fast-food chain in Bangladesh. I won't name the name. An Indian company had 51% of the shares, and a Bangladeshi Group of Companies had 49%. They were running the restaurant together. Then the Indian company wanted to get the rest of the 49% as well and own 100% of the company. So it led to a large acquisition deal. We handled that deal from negotiation to drafting the contracts, paperwork, closing formalities, signings, and executions. That's an example of how our M&A practice works.
Under that subset comes startups where we help investors and startups navigate legal challenges. When we are representing the startup, we help them create or review term sheets, investment, and shareholders agreements, help them understand various terms, etc. Sometimes startups come up to us and ask, you know, we've received this document, what is it? While you can Google the meaning of many of these terms, it's sometimes not contextualized. A lot of our startup practice is educational, helping people understand many of these terms.
We also represent investors such as angel investors, corporate houses that invest in startups, and VCs. With corporate houses, we find there's a lot of education needed still. Sometimes they, you know, want to invest in these startups but treat these startups as regular businesses. We help them understand what is and isn't acceptable in the market.
We advise startups and investors on redomiciling in Singapore, or Delaware, which is a crucial part when a startup is getting investment from foreign investors.
A big part of our practice is what we call dispute resolution. This is an internationally recognized umbrella term, which includes litigation, which is court cases and arbitration, an out-of-court dispute resolution mechanism.
In fact, the biggest chunk of our work is cross-border dispute resolution. We represent foreign clients, usually in disputes with Bangladeshi clients. We file cases or negotiate on their behalf because they don't have anyone on the ground. We help them do a strategy for how they should resolve the dispute. We call it dispute resolution, that term means we find a resolution to the dispute either through litigation or arbitration. Just because you come to me with a problem, we don't say, okay, let's go file a case. Instead, we say let’s see how we can resolve this problem. That's where the term dispute resolution comes from.
That is also our philosophy. When we see a dispute between two parties, we look for the best ways to resolve the dispute, as opposed to just filing a case, which can be productive, or counterproductive, which means sometimes, the client may be investing a lot in legal fees, but they're not getting what they actually wanted. Sometimes we also tell the client that look your case is not good enough, it’ll not hold up in court. So better you settle with the other party out of court.
These are the major ones.
We’re also working in emerging areas like data privacy. We advise companies, mostly foreign companies, on data regulations in Bangladesh and so on.
We have advised clients on cryptocurrency, for example — what are the crypto regulations in Bangladesh, whether we can enter this market, what needs to change for us to enter, etc.
We are in FinTech. We have advised multiple payday loan companies, BNPL companies, and companies dealing with earned wage access (EWA). These are small areas, but we’re one of the first movers.
I’m deeply passionate about technology. So it comes from there. But we also feel that, if we build the knowledge, it will be good for both us and the ecosystem. Even if doesn’t make us money now, knowledge is always useful.
How big is the company?
In terms of lawyers, I think we’ve 17 lawyers. That is a big law firm in Bangladesh.
How does the business model of law firms work?
Law firms generally don't look at themselves as businesses in Bangladesh. That is a taboo topic. Law is a profession. We are taught to be shy about money. We cannot advertise. It is banned for lawyers. Now it's hard to acquire clients without advertising. So we have to be creative in that.
For business development, we participate in these global research of law firms where they rank law firms around the world. These are kinds of directories. They research big law firms that work with foreign clients or multinationals in different countries. They run surveys and talk to clients. And they publish rankings. We do well in these rankings. That's how we get exposed to a lot of our clients. Because international clients read these websites to find out who they need to go to in Bangladesh. So that's a good business development activity for us.
Another way we do our business development is by putting the knowledge out there for free, which is not common in the legal profession in Bangladesh. Because we’re kind of taught that our knowledge is our secret recipe. You don't obviously give it away for free. When a client comes, you make the client pay for that knowledge.
We, however, have a different philosophy to that. We think that the client doesn't even know sometimes what to ask for. If we can educate people in an industry about the laws, their legal obligations, and their rights, they are more likely to use a law firm for advice. They may read something that we published, and go to someone else, which is fine. If we didn't publish it, they might not have contacted any lawyer, thinking a lawyer wouldn't understand their problems.
We look at industries that we like or working on, and we create what we call knowledge products. We say this is the insight into this particular new regulation that has come up. Then lots of people read it. Some people read it to learn. Some people read because they want to compete with us, which is fine. Then some people will read it and think, okay, this is a law firm that takes its practice seriously, let's go and ask them. So we kind of generate conversations like that. We are a semi-open source law firm in a way.
From a P&L perspective, what are the major cost centers and how do you generate revenue?
For us, the major cost is humans. We can actually operate remotely using technology. We have done it during COVID. We don't need an office, we don't need a lot of files either.
If I go more specific, the biggest cost is training. Bangladeshi employers don't want to invest in training. But we don't believe in that. Moreover, the legal profession is a bit different. People who come in from university after their studies are usually not ready to advise clients or work on projects. You have to train them. In fact, on-the-job training goes on for years. First two years, they only train.
The traditional method was/is that you pay the trainees peanuts. Since they come to learn, you either don't pay them, or you pay them little. Because they need your training they will work for you, regardless of whether you pay them or not.
But we are trying to be different. We invest in talent that we think will create value for us in the future. Not only do we pay them living wages, but we also make sure that they get a good training experience. That has been the philosophy for the last few years. The idea is that these people will be leading projects in Mahbub & Company in a few years. We are constantly competing with multinationals and banks that have deep pockets and can offer better salaries to junior lawyers.
Traditionally, junior lawyers don't get paid much in law firms. So they are attracted to these in-house roles, which are not necessarily legal practice. We try to compete with them. Someone may want that life, which is fine. But if someone wants to be a lawyer, they shouldn't feel like they're forced to give up their dream because law firms don't pay enough to sustain their family or lifestyle.
There was a sort of brain drain where lawyers in practice either left Bangladesh or took an in-house role in multinationals because the legal profession wasn't looking out for them. But if you ask them, given the chance most of them would rather be in legal practice. We have brought back people, and try to bring back people.
That’s our lawyer-focused, people-first strategy. We want to create a generation of new lawyers who, you know, may or may not work for Mahbub & Company in the future, but they have at least had good training, which they can take anywhere.
That's excellent. I have a couple of questions about the legal services market and all those things. We'll come to those questions later. Can you briefly talk about the support and services you provide to startups and investors?
What we do for startups is, as I said before, a lot of education. There are two broad areas. One is structuring, how to structure your entity to be ready for investment. That can be either how they incorporate in Bangladesh, what should be in their memorandum and articles, how they should do the official cap table, how they should do their filings, et cetera.
The other part of that is how they will domicile abroad such as in Singapore or Delaware. We advise about how to do that, what are the risks and challenges of doing that, and how that arrangement works. We also do the arrangement. We work with partners in Singapore to help startups incorporate in Singapore and then connect the two companies — the holding company and the operating company. That's part of structuring to get investment. Most of the time it happens parallelly but it's two distinct parts of the work.
The other part of work is the investment. For instance, when it comes to investments, startups and investors either can come to us. It can be the early stage, growth stage, pre-seed, seed, series A, or any other round. We advise on the documentation and other relevant aspects for the funding round.
The documentation starts with the term sheet. The term sheet is the skeleton of the main investment contract that will happen eventually. It includes the main financial aspects, the key investor rights, valuation, etc. It's supposed to be a short document in ordinary language so that everyone understands and it's easy for parties to quickly agree.
But it's not a binding document. It’s a document that parties sign so that the lawyers then have a good understanding of what the parties want and have agreed on broadly, and then can take it and make an investment agreement. The investment agreement is commonly called the share subscription and shareholders' agreement. It gives flesh to the skeleton that was the term sheet.
Usually, shareholders' agreement doesn’t come up with new terms and sticks to what was agreed in the term sheet. However, if the parties want they can still change the terms. If it's the first time for a startup raising funds, then there's a lot of, you know, advice sought such as asking about the meaning of different terms, the industry standard for various aspects of a deal, etc.
For example, liquidation preference is a common clause in the investment agreement. The industry standard is that liquidation preference will be 1x. If the company is liquidated at some point, the investor will get 1x of what he invested back. That is something that the startup may ask us that, you know, is 1x usual, or is it 2x, Or is it 0.5x, etc? These are the things that we talk about and explain what is what.
We also talk to investors. Often we become lawyers for both parties if it's a small ticket early-stage investment, and they don't want to spend on two sets of lawyers. Both sides either know us or trust us. We say you know, we will help you get through this investment and be objective. It is not very common in the commercial world, but in early-stage startup deals, it is common, where one law firm represents both.
What are the common legal challenges that early-stage companies and investors face in Bangladesh?
The biggest challenge is the fact that startups need to incorporate abroad because our policy environment is not yet sufficiently equipped to deal with an exit for an investor. If an investor is not of Bangladeshi origin, that investor doesn't feel very safe if the company is domiciled in Bangladesh. That is a challenge because it means that this startup which is trying to use its last penny to grow, has to then go to another country, set up a company there, and has to pay legal fees there just to give this investor peace of mind.
Bangladesh has a relatively conservation regulatory regime that put certain limitations such as our foreign exchange regulations. If you want to sell your shares in a Bangladeshi company and get an exit or leave as a foreign shareholder, you have to get Bangladesh Bank's permission. If it's from a private limited company, which startups usually are and then Bangladesh Bank can question the valuation of your exit. It happened in the past when the regulators questioned and disagreed with that number and rejected applications.
That can be a deterrent sometimes. Because you want to invest with the peace of mind that when the time comes, you can take your investment out. That is how startup investments work. VCs or angel investors are not necessarily there for the long term. They are there to provide early-stage funding, and then they want an exit. If the exit is not guaranteed, if the exit is not smooth, then they don't feel safe. That's why every startup that has had VC funding is domiciled in Singapore or Delaware.
I would say it's not ideal. We’ve to make certain improvements in the system before we can ask investors to invest their money in Bangladesh. Now they put the money in Singapore, and the Singapore company channels the money to the Bangladeshi company here.
If the Bangladesh regulatory environment was better, then it would have encouraged investors to invest in the Bangladeshi company itself, and that would also cut down costs for startups.
This is a common discussion we have with people. Some of the regulatory structures in the country have reasons for the way they are such as some of the foreign exchange rules. But as you mentioned, if we make some changes in the regulatory regime, then it would have been probably positive, and easier for the early-stage companies. Do you have any recommendations, say, these are the things we can take a look into without compromising other priorities but still can improve the condition for startups?
I'll get into that. Just to add to my previous points. This difficult regulatory procedure of repatriation does not just discourage foreign investors such as VCs, but it also discourages local investors. I'll tell you why.
Local corporations or local VC funds such as IDLC or Startup Bangladesh can only invest in Bangladesh. They have to have their shares in Bangladesh. Then when the startup needs to raise funds it will also incorporate in Singapore or Delaware. Foreign investors will get an exit from there. But what will happen to the local VCs? It makes things complicated for them.
If this uncertainty could be resolved, they would have an easier job convincing their stakeholders to be like, let's invest more because we can get an exit. Now, they don't know if they can get an exit because they cannot go to Singapore, they can only be in Bangladesh. Now some of them are putting in clauses where they're saying that if the foreign exchange laws are relaxed, we will take shares in Singapore with the hope that someday it will be relaxed.
Again that is a deterrent, because if I'm a local investor and I think this startup is going to give its investors exits from Singapore, why am I investing in the Bangladeshi company? But I cannot invest in the Singapore company because I'm a Bangladeshi national or a Bangladeshi company. So then I'm stuck and I'm like, Okay, no, I don't need to take that trouble. So it discourages both internationals and Bangladeshis.
The suggestions, if we look at India, India has been tailoring its foreign exchange laws, tailoring its corporate compliance requirements, tailoring its financial regulations, and so on for a long time. For example, I don't know if you are aware of it, they have this sandbox system where they allow a tech company to run for a year without a formal license. They give startups a chance for a time being, where they can test out their idea, they can see if it works, and then you know, they have a sort of collaborative process where they have a pathway to a license if required.
We don't, for example, have that. We don't have a special kind of legal framework that will allow a startup to navigate this repatriation thing. It could be done in a manner that only qualified startups could access that flexible regulation perhaps when it comes to the repatriation of sale proceeds of shares.
Another is if we could have systems like a sandbox in place, where for a particular period of time a startup will have an opportunity to test out their ideas without having to take a license. Then it will make it a lot easier for innovations to flourish.
The regulatory system should not be blind to startups. Regulators need to understand that we need to cater to startups and innovative ideas, which may not have a place in the current regime of regulation. They might be doing something that we have not thought about yet. So how about let's have a discussion with them about what they're doing? If there is a way to give them a time period where they can prove their concept, they can show us what they are going to do, then think about how to regulate them instead of shutting them down.
Otherwise, when a startup that requires a license to operate doesn't have a license, and when investors ask do you have a license? Because to do this business, you need a license, and they say, oh, no, we don't have a license, so then it becomes a problem for the startup. Because you're in a highly regulated industry and you don't have the necessary licenses, we can’t invest in you.
It sometimes appears that our regulatory regime is insensitive toward the needs of startups. They don't look at startups differently. But we should be more proactive and sensitive. I understand. These things are complex. There are risks of abuse. We have to be careful about that. You can use a knife to kill a person or cut an apple. Just because you can murder someone with a knife, you can't ban knives. The vast majority of the time, knives are not used to kill people. So we have to be, I would say thoughtful, and insightful about how we regulate and enforce the regulation. Just because something is not regulated doesn't mean it's illegal. You have to understand that if something is not regulated, you then think about how to regulate it. You don’t just shut it down.
We need these constructive changes if we want to create space for innovation in this country. We have to regulate proactively and mindfully and make sure that the bad guys don't abuse the system but also that the good guys are not held back by the system.
That's beautifully put. There needs to be a certain kind of openness toward innovation. You allow people to try things out. And at the same time, you need to be mindful that people are not abusing the system. What are some of the common mistakes startups make when they incorporate and when they are raising money?
In terms of incorporation, sometimes to cut costs, they won't have a company for a long time. They will work with a trade license or a partnership company. It's usually not a problem, because you can just transfer your existing business to the company. But it is ideal to have a company.
Sometimes what we have seen is that not a common mistake but a bad mistake, founders include some inactive people in the cap table — the founder’s wife, parents, etc. This sometimes happens when there is a single founder and they need two shareholders to incorporate. To meet the requirement, they will have another family member on the cap table. A lot of the time, these inactive members will have a substantial number of shares as opposed to a minor token number of shares, which is okay. But when they have a substantial number of shares, that becomes a problem to deal with when you are raising investments. Because then investors are like, what is this person doing in the cap table, who has nothing to do with the company but has, say, 10, or 15%, 20% of the company? These things need to be corrected in a way.
Another mistake is giving away a lot of equity in the early stage, an issue we deal with a lot. We see that some startups don't have a good idea about these things and give away everything that the investor asks. Well, it goes both ways. Sometimes investors are not educated enough to know that they shouldn’t ask, say, for 40% of the startup. But sometimes they will ask for 40%/50%. They would reason that I'm paying the money and we should be equal partners. I think this is partly because we are at the early stage as an ecosystem. There are not many professionals to guide these corporations and startups.
Before this meeting, I had a meeting with a startup that is getting investment from a local company, and that company is asking for 51% of the startup. That is a useless investment for them. Because that means this founder then has no incentive to work for this startup. Many of these investors don't realize that they're not investing in any asset, they're investing in a person. They have to build up that person. And if they don't invest in that person, and take the majority stake, then the startup is going to die at some point.
However, things are changing. I've seen excellent change over the last three years. People now have access to better information. A lot of the time we see founders not making any mistakes at all.
Usually, founders make several mistakes during the incorporation. For example, you put that the qualification shares required to be a director are 1000 shares. That makes it difficult because the founder may not have 1000 shares in the operating company to become a director. In the end, the Singapore company or the Delaware company will take over the founder's shares, and the founder will have a token number of shares. So when we do the restructuring we then change the fact that they don't need 1000 shares to be a director, they can have 10 shares and still be a director. That is a common issue.
There is a general lack of understanding about some terms that come up, for example, anti-dilution. We spend hours explaining anti-dilution clauses to startups and investors. The term is a bit misleading because the investor thinks that anti-dilution means that they will never be diluted. But that’s not what the anti-dilution clause is. So we have to explain what it is and what's purpose.
Any other similar terms that people should learn?
There are a few others. ESOP is one. In many instances, people don't understand how to approach it. We have to explain how that works.
Sometimes, people struggle to understand the basic fact that when the company is raising funds, they are allotting new shares, as opposed to founders selling their shares. What they do is they issue more shares, and the company sells those shares to new investors.
How does that work? Can you briefly explain that?
For instance, you are three founders and each has, say 5000, 2500, and 25000 shares respectively. So, 10,000 shares, 100 taka each, 10 lakh is your capital. You're raising one crore taka, now investors will not buy founders' shares, instead, the company will issue new shares, which the investors will buy directly from the company. Because if they buy shares from the founders, the founders get the money personally, but the company doesn't. Whereas when the company issues new shares, that's when the company gets the money.
So, in an investment deal, usually the company issues new shares, which investors buy and the investors pay money directly to the company.
That concept sometimes is lost, particularly if it is a first-time investment for both the investor and the startup.
Vesting is another difficult one to explain. Do you want me to explain vesting?
Yes. And also, a lot of companies die because of founder disputes. I think it is because founders usually don't have vesting in place. Two founders working together and don't have an agreement or the company is structured in such a way that if a dispute arises, they don't know how to resolve it. And Since there is no vesting, everything kind of ends in a mess. Do you see those kinds of things?
I haven't seen many problems caused between founders. Probably some don’t reach us or it's very early to say because it hasn't been many years.
The idea behind vesting is that the investor wants the founder to stay in the company or the founders want each other to stay in the company for a particular period. The usual industry standard is three or four years. So you want the founder to stay with the company for three years. That is the idea of vesting.
So your shares are kind of vested over the three years. Once you agree to a vesting schedule, you can’t sell your shares before that time frame. If it is three years, you have all your shares at the end of the three years, and you can sell them, you can get an exit at that time, theoretically. Practically, it's way more difficult.
The idea is that you keep the founder invested in the company where he's using his blood, sweat, and tears to build the company, as opposed to leaving it. It’s difficult to explain sometimes, but it's not a debated term.
In terms of ESOP (Employee Stock Ownership Plan), do we have the regulatory framework for that in Bangladesh? How do companies approach it, particularly startups?
There is no regulatory framework for that in Bangladesh. However, by the time there is a requirement by the investors to have ESOP, the company has already moved to Singapore, or Delaware, where you have a much better regulatory environment to execute ESOP. I don’t usually see ESOP conditions in very early-stage investments.
Many companies want to do it because they want to encourage employees to stay long-term and motivate employees. How should they approach it in Bangladesh?
There is no problem, no bar to ESOP in Bangladesh. What you don't have is that the company law and taxation regime are not favorable yet. You can do ESOP fine. What you can do abroad is you can have a fund as a trust that can be registered with the tax authorities where the company puts in money. That whole process doesn't exist in Bangladesh. So what you can do for employees here in Bangladesh is you can give them shares at a nominal price, and that's fine. Just that you don't get any tax benefits for doing that, but you theoretically can have ESOPs.
Are there any taxation-related challenges when you're raising money?
Not that much, not as yet. We’re not at that stage as an ecosystem yet, where there will be taxation-related issues. Taxation-related issues will come up when the companies will mature enough that they go to IPO.
At this point, we're assuming that the Bangladeshi IPO will not happen, it'll be either Singapore IPO or Delaware IPO.
The taxation issue will come when Bangladeshi companies are profitable enough to give dividends to their parent companies or holding companies. Then there's a tax liability before taking the dividend out. You have to pay 20% of that dividend. But it's not necessarily a complicated thing. As of yet, I'm not sure if there have been any dividends paid out by any startup in Bangladesh.
What would you suggest, what are a few things founders should pay attention to when raising money?
When raising money, many founders don’t pay much importance to term sheets, since it's a non-binding documents, etc. I've seen cases where startups told me, you know, we need to close this deal quickly, let's not do a term sheet, and instead do an agreement straight away. But that can be counterproductive. The term sheet is an important document where you can lay down your conditions, and look at what you're giving up for the money you're getting.
One is you're giving up equity, that is fine. You're agreeing to do that. But look at the small print, what you're giving up may also be board rights. You should think twice before giving an investor board rights at an early stage just because they are giving you money whether it is beneficial for your company.
You have to know that person well when having that person on the board. You can't let someone pay their way into your board. That is something that startups often ignore. They think, okay, they invested in the company, we'll make you a director, no problem, which can be counterproductive.
Then there are things like information rights or observer rights. Observer right might sound harmless. But you still have to invite that person to board meetings. And that person will talk when that person comes. When they talk, you're under pressure to listen to them even if they're just an observer, officially, their name is not in the board meeting.
Sometimes when you're giving them board rights, information rights, you know, say your investor is invested in a competitor. Are you looking at whether your investor is investing in competitors, because there is no bar in the law doing that? So the fact that you're giving them a lot of access to the in-house workings of your company, you know, is the investor taking that information and keeping it to himself, Or is he using that information to you know, go into another board meeting and saying, Oh, this is what they are doing? So yeah, let's do this here, too. Then you and your competitor both are doing the same thing. That part is perhaps something that sometimes is ignored because you're like, taking it too lightly.
Then there are things called reserved matters. Reserve matters is a list of decisions that the company can’t make without the investor's consent. The investor wants this list to be long. And startups want it to be short. This list can contain day-to-day things about your business. You don't want to run after your investors for consent for day-to-day things. Investors are busy people. This is not their main business. They have other businesses to run. They are not always there to get consent. So when you are putting in these huge lists of reserved matters and allowing the investor to look at or veto day-to-day menial decisions, you're going to be stuck in your operations. These are from the perspective of startups.
Since I also advise investors, from an investors perspective, sometimes investors do pay the money without signing anything. It's more common than it sounds, where investors pay money without signing any documents. It is a bad practice and can turn into a disaster if the startup doesn't issue the shares on time.
At this point, there is trust in the community. You kind of know each other for which it works. But it will stop working very soon.
The shareholders' agreement specifies how the money will be paid. After signing that the money should be paid. Many investors give the money after the term sheet and sometimes before that. Investors should take the time to do the due diligence and at least look at the basic things.
Sometimes I've seen investors giving money to a sole proprietorship or partnership, where the basic incorporation didn't happen. It's hard to account for this money. It doesn't take that long to incorporate a company. It can be done in a week. So investors should insist that you go back and incorporate and let me put the money in the company account. That way, even if you give me shares later, I put money in the right account, as opposed to giving founders checks in their names. Investors are sometimes too eager to catch that good valuation that they don't want to wait.
Another thing investors perhaps should be careful of is how they exit. So you're investing in Bangladesh, so what happens to your investment if the company then also corporates in Singapore? Do you get to transfer your shares to Singapore? Or do you get an exit from Bangladesh? You have to think about that before and usually, it should be catered for in the contract. This is also something that is overlooked, which they shouldn’t.
I think we have covered pretty much a lot of things about startups and incorporation. Is there anything else that we need to touch upon in terms of investment, raising investment, and incorporation probably that I did not ask about?
I talked about regulations not being equipped. But another area where we are not equipped is our court system. This is a problem in terms of what happens when there is a dispute. Say a foreign investor has an issue with a Bangladeshi startup, wants to sue that startup, and where do they go, and how does that dispute resolution work?
While we haven't seen a big dispute as of yet in Bangladesh, it happened in India between investors and startups. It will happen in Bangladesh today or tomorrow. There is not enough understanding of this sector in the judicial system and not much groundwork is done there. So if there is a big dispute, we don't know how to address it. If it is possible to create a pool of mediators or arbitrators who can do it outside of court, who have specific knowledge of this industry, and who can resolve those disputes, I think that can be an option. BGMEA has an arbitration cell where they deal with RMG-related disputes. This industry kind of needs something like that before, a dispute happens.
A lot of companies that you are dealing with and we are seeing in the startup ecosystem deal with user data. How does data regulation work in Bangladesh?
It’s almost not regulated at all yet. There was a draft law, which was approved by the cabinet but hasn't been passed as of yet. That draft law was based on an Indian draft law, and that Indian draft law has been scrapped now. So it remains to be seen what will happen to our draft. If our draft law now follows India, then it will be scrapped.
The big tech companies in India didn't like it that much. They lobbied the government to scrap it. The main issue was data localization. You have to locally store user data, which becomes a big problem.
For Bangladesh, it affects foreign startups, who operate in Bangladesh, because they deal with a lot of user data that they store outside of Bangladesh. But not so much for Bangladeshi companies. In terms of other stuff such as how data should be used and who should supervise it, the data controller, etc, these have not come into force as of yet.
We are looking forward to it. And there's not much as of yet. But it is something that is going to come. It has already become an important thing in Europe and North America. Now it's a matter of time before it comes to South Asia.
I think we should have a separate discussion on technology policies and about data regulation, which has become a hot topic across markets.
Tech is moving into every industry. How do you think it's going to change the legal profession and legal services market in Bangladesh?
There are three broad ways how it can change — how people access legal services, how legal service providers provide service, and finally how legal service providers run themselves.
There's a startup called Ukeel, which has been working on the first part — how people access legal services. Their idea is that they're creating a list of law firms. We are one of the law firms. The model is clients will come to them and they will distribute to a suitable law firm. Kind of uber for lawyers. They are still in the early stages of operation.
We're also working on how a customer will access us. So now we have to be more tech-savvy. We have to have a website, presence on social media, messaging platforms, etc. But this is not enough. The primary way customers contact us is through email or phone calls. They go to our website, find the number from contact us, and call us. But this part is changing fast.
Customers today don't want to call, don't want to email. They prefer texting. So it might soon come to where chatbots will take over, like initial queries, filter the queries, and then take it to us. That is something that I think ultimately lawyers and law firms have to come up with.
The other thing is how we will deliver our services. We are already delivering with tech. But not enough. The third is how we manage ourselves. We are using a lot of tech such as collaboration tools like Slack, teams, etc. Law firms use AI-powered tools in reviewing contracts and documents. Ultimately we’ll be using more and more tech in how we do our job. Tools that will save us time in finding issues, in checking whether all the terms that we need are there. Instead of using the naked eye, you use the software. That one area.
Next how we communicate with clients is another area. To communicate, people usually use WhatsApp in Bangladesh. That might also change. For example, if you go to a bank or you go to an ATM and withdraw some money, you get an SMS notification. No law firm has an SMS notification system. For instance, sending an SMS notification with updates on their issue. Ultimately law firms will be what banks are becoming already, which is a minimal footfall in the branch. So you can access your legal services without coming to the law firm or having to email your lawyer.
Everything from how law firms are managed internally, how clients access your service and how you deliver your services to the client — these things are going to change.
In Bangladesh, some work has been done on how to access legal services. But there is a huge untouched area where we see many interesting things happening in other markers.
How do you learn? You said you spent three years with Barrister Rafique-ul Huq at the beginning of your career. You studied law and now are venturing into technology and how tech is going to affect the legal industry, etc. How do you approach learning?
I consider myself a student. I spend at least an hour every day learning new things. I watch videos and read about a new or particular area of law that I want to go deeper into. I feel that at this stage of my career, besides doing my work, I have a duty to bring in work. For me, knowing what's happening around the world, in Bangladesh, and in different industries is important. However, what I learn is not necessarily law. I try to learn how industries operate. I want to create value for my clients. My legal advice shouldn't feel like a cost to my client. Often legal services are treated as a cost. Sales make them money. Legal doesn't make anyone money. But is legal a burden? I want to say to the client that it is not. So I want to position myself as a part of the industry that I'm interested in. I can't be interested in every industry. I have to focus. I want to tell the client that I know that this is how your industry works. These are things that are there and this legal approach will work because it has worked for others in your industry. That is value for the client. The client learns from me how the industry functions, legal-wise. This is how the industry operates and where it is going in terms of legal approach. Now it feels like a value addition and not like a cost anymore.
If you're just reading law from a law book, the client is like this doesn't go with my business. So then you're blank. But if you have enough knowledge of the industry, then you can say no, you know, this is the trend. You can contextualize legal advice, and legal support.
That’s my approach to learning. I don’t read about law alone. I mostly study things that are not law. I try to learn things that could be pain points for my clients, and not necessarily legal problems, but maybe some other problems. It allows me to contextualize that with legal problems.
In my firm, I encourage writing and knowledge building. We regularly write for our blog and also for newspapers.
The other thing is I talk to clients about how they are doing, how their business is doing, and what are their problems, not just legal problems, but general issues that they're facing in their business. I don't want to be oblivious to the other problems that they have. I want to know the spectrum of their problems and then say this is how I can help you with this, this, and this. I might not be able to help with most of them, but I know exactly what the problems are. Sometimes I can even give non-lawyer advice. I was giving valuation advice to a client even though I'm not an expert, but I understood that he was doing it wrong so I gave some advice. Because I didn't stick to just law when I looked at the deals that I have done. I also looked at other things that were happening. So I knew that this valuation or how they got to the valuation is not right. So I could tell that this does not look right, please speak to someone who can do your valuation properly.
I try to take a broad approach to learning a topic. When you learn something, it is better to get all-rounded learning. Partial learning is useless and it can be dangerous.
You should also know what you don't know. You need to study so that you know what you don't know. If you think that you know everything, that's a bad place to be. When you assume that position, you don't learn new things. Then you end up with that limited knowledge and you can cause disasters.
Do you have any unique or unusual productivity habits?
I’ve found that I'm very productive in the car.
That's very useful when you're living in Dhaka.
I mean, nowadays I'm privileged enough to afford a chauffeur. So I can sit at the back and I can work on my laptop. I'm very productive in the car. So I feel like I have hacked the Dhaka city problem.
Your biggest life lessons.
One is that you should know your place in the world. You need to understand what you can do, and cannot do. If you know what you can do, you can do more of that. And if you know what you cannot do, you can do less of that. That’s something that changed my life a little, where I'm now more focused on what I know I can do or I can do better than anybody else. So I do more of that. And if there's something that I don't do as well as others, what's the point of me doing that, let that other person who's doing it better than me do that, instead of me trying to compete with someone who is doing it way better than me. Let me focus on what I’m better at.
The other specific thing is this idea of being present. Being present wherever you are. Say, for example, I'm in this meeting, if I was on phone calls continuously, if I was checking my phone continuously, I would have a much less enjoyable experience, and you would have a much less enjoyable experience. And this would be a substandard interview. That works in your relationships. That works in your co-worker relationships. Just having that presence, when you are where you are, has a lot of value to me. I've tried to practice more of that. And it's not just the phone, it is about the general idea of staying with yourself where you are at any moment.
The phone is a big thing. It's a big source of distraction. What the phone has done for us is that it has told us that we can do many things at the same time. But we cannot do many things at the same time. So we need to do fewer things and do them better. You may have to give up some of the things that you wanted to do to do some other things better and more. And that's fine.
But we get greedy when it comes to achieving things. We want all the fame, all the money, all the credit. We want to do all the work. And we want to maintain all the social relationships. But we don't want to sacrifice anything.
We don't want to sacrifice anything because everything is easier to access nowadays which was not the case before. That's something that I have learned. It has helped me a lot in terms of finding focus, being productive, to have a goal. It all comes with being present where you are right now.
I think those two are important and great points. That sums up a lot of the things that we struggled with. Your advice for young people who are starting out.
Being open is an important value. It can help someone at all ages, where you can be sort of, you know, because of the education that you had, because of the background that you had, you might think that I could only do this or that. Or If I can't do this, my life does not matter anymore. Being open to a broader range of things can make everything better.
In Bangladesh, we have a problem that either you make it or you don't, but it's not like that. If you're a startup founder, and you give your life to something, and then it fails, that's fine. You have to pick yourself up and move on. And that's because it may have been a bad idea, or it may have been the wrong time, etc. If you're a lawyer, it's the same thing. If you're open to a broad range of ideas, your universe is potentially infinite.
But we are living in a time when everything is getting smaller. We often get into our heads and we think we are right. We want to find people who think exactly like us. We don't necessarily want to talk to people who don't agree with us and have different perspectives on things. It means we are creating barriers for ourselves when it comes to careers or anything. So I would tell young people to have an open mind.
I fear for the new generation. Everyone's forming their small groups. If you see how people engage with each other on social media, it’s brutal sometimes. We cancel people we disagree with. We should be careful about these tendencies.
One final question. We all die. We try all these different things, and then, we'll be gone. Do you think about death? How do you find life meaningful? How do you draw meaning from your work and is there any metaphysical aspect to it for you?
I want to live beyond my life. The way I want to do that is through people that I have touched. It's not necessarily that they will remember my name. The name is not important. But if I have changed something in someone's life that has caused something in someone else's life that is gonna cause something in society to change, some kind of ripple effect, I will feel satisfied, accomplished on my deathbed if that happens.
If I just earn money, spend money and die, that doesn’t make any sense. Yes, if I earn a lot of money, and open charities to probably help someone or take poor kids out of poverty and that kid becomes an astronaut or finds the cure to cancer and things like that. That makes sense. So I want to live beyond my life in some way or the other.
I also, as I said before, limit myself to what I can do. I don't want to do everything. I want to do specific things. I have certain goals, which have nothing to do with me making money. Many of these things instead cost me money.
For example, as I said, I compete with multinationals to hire people. That has a broader long-term goal, of which I might not be the real beneficiary. But I want to benefit the whole legal profession by bringing back people and by doing the reverse brain drain and creating a bunch of people who can be called the golden batch of Mahbub and Company. Even that’s not necessary. If these people succeed, that will be a huge satisfaction for me.
I try to live my life to the fullest every day. If I die today, I have no regrets. I have tried to live my life the best I can to this day. It will be unfinished. I have tried to disrupt a lot of how things are done in this industry. The new people who come will hopefully try to imitate the good or make the good even better. I hope I can do more in the next whatever many years I live.
That was the last question. Thank you so very much for being generous with your time and insight. I enjoyed the conversation.
I totally enjoyed the interview. And I loved the question about death. Thank you.
Ayrin Saleha Ria contributed to this interview.