Layoffs and spending cuts indicate Dhaka’s fledgling startup scene has a difficult time ahead but it doesn’t warrant pessimism.
There has been some news about the layoffs happening in Dhaka’s tech startup scene. Delivery Hero-owned multinational food delivery company Foodpanda announced a fresh layoff of 20+ people. The company has already been going through cost-cutting amid a slowing down of demands and rising costs. Previously, Alibaba owned Daraz, and its sister concern HungryNaki slashed jobs. Grocery delivery leader Chaldal closed its operation in at least three locations outside Dhaka that it launched early last year. Sheba laid off a significant percentage of its people last year.
First of all, this is not unusual given the broad macroeconomic condition in Bangladesh and across the world. Inflation has put huge pressure on consumer spending. Global economic challenges have almost dried up the startup funding landscape. Bangladeshi startups were already in a disadvantaged position in terms of attracting global VCs and investors even before the current economic crisis. The current condition has exacerbated the whole situation.
While explosive growth has been the norm for tech and startups in many markets from the US to India, it has not been the case for Bangladesh. Bangladesh has a strong economic growth story, but Dhaka’s startup scene doesn’t benefit from it yet.
Many people tend to complain about startups being wasteful or always raising money instead of building sustainable companies. While part of this observation maybe true, it is pertinent to mention that fundraising events remain few and far between for most Bangladeshi startups. For instance, in entire 2022, Bangladeshi startups raised something north of $110 million dollars in funding, which is, to be honest, insignificant, and many companies in markets like India raise that amount in seed rounds. Dhaka’s startup scene is fledgling, it is yet to become an industry.
The attention Dhaka’s startup scene receives today comes at the heel of the coronavirus pandemic. When the Covid-19 pandemic ravaged the world and moved more of daily life online, several tech startups experienced accelerated growth that led to increased hiring and thus attention.
We have seen increased funding activities comparable to some neighboring markets and more people starting companies. Some major tech companies doubled their number of people to meet the demand. We have also seen a significant rise in the number of companies entering the digital commerce space. The country also enjoyed a brief period of increased investment activities and attention from global investors. Many prominent international investors made their first investment in Bangladeshi startups between 2019-2022. But this period was short-lived owing to the global financial uncertainties, rising inflation, and various internal and external challenges.
It is important to acknowledge that Bangladesh’s startup ecosystem, until now, didn’t receive any meaningful attention. The attention the country has been receiving for its economic growth story didn’t materialize into investments.
Most international VCs don’t have a separate mandate for Bangladesh. There are investors who have mandates for SEA and India. Pakistan is often considered along with MENA, which has allowed the country to move ahead in attracting meaningful investment in recent years. Bangladesh, on contrary to that, remains isolated. This reality was slowly changing. The growth of Dhaka’s startup scene in the recent past has allowed local startups to attract some renewed attention.
But now, the exuberance is fading. Raising investment has become much more difficult. It was already difficult before but things were slowly changing, which is no longer the case. Even the companies like Chaldal which has a reputation for being very well run are struggling to raise investment.
The industry is confronting one of the worst challenges in its life. Layoffs are happening across verticals. There are rumors that several well-funded companies are facing mortal blows.
While the full extent of the pain remains to be seen, here are six takeaways from what has happened so far.
“After job cuts by e-commerce giant Daraz Bangladesh, now top food delivery platform Foodpanda Bangladesh has started downsizing its team”, writes TBS. “Foodpanda Bangladesh and its affiliates have laid off dozens of employees recently amid a significant fall in food delivery orders since customers are tightening their belts owing to higher inflation and deepening economic woes,” writes the Daily Star. Previously, companies like Sheba went through a similar process. There has been a significant decline in new hiring in most places.
A couple of things are happening: inflation and economic uncertainty have led to a sharp decline in consumer spending who are tightening their belts. Startups are trying to optimize their runway and reduce costs by slashing spending in discounts and similar growth tactics further discouraging another group of customers. Finally, a slowdown in venture funding has led to an apparent cash crunch in many startups that were expecting to raise new rounds of investments. It is a pretty terrible situation to be in.
Companies across markets are going through job and cost cuts. Facebook parent company Meta, Amazon, Microsoft, Google, and other major tech companies have cut over 200,000 jobs in recent months. The same thing is happening in India where companies like Byju’s are struggling to raise capital and slashing jobs.
There are several aspects to pay attention to. One is that many of the companies that are slashing jobs are good companies. Of course, there are companies (probably more in number) that are not well-run and will suffer more in the coming months but I’m not talking about those. But in Bangladesh and in many other markets, a significant number of the companies slashing jobs are good companies. Cost-cutting is not an unusual thing in the corporate world. It’s often a difficult decision and in fact, a bad decision for startups but it is also something that we have seen before.
Then comes whether this is a crisis moment for the startups in Dhaka. This is going to be a difficult time for startups. Fundraising will be difficult. It means many of the companies will have to make further difficult decisions. We might see a couple of shutdowns down the line.
At the same time, it is also true that not many Bangladeshi startups have raised significant VC money before. It has mostly been a drip. More things regarding investments might have happened if the economic downturn didn't happen.
To that end, I don’t think that many startups were expecting to raise significant capital even before this funding winter. Of course, this is probably not the case for some companies that have been investing heavily in growth and so on and that have raised meaningful capital before. But this is the case for a significant number of startups.
Contrary to that, the slowdown of local angel and seed rounds will create challenges for relatively early-stage companies and can cause a decline in the number of new companies launching in the market. Overall, I don’t think this is a crisis point for Dhaka’s startup scene but it can surely bring some correction, which is my next point.
I have written about the importance of thinking long-term here and I will kind of repeat myself.
There are two groups of people in Dhaka’s startups. One group suggests that early-stage companies in Dhaka have become too reliant on investment and often disregard building a sustainable business. They want to say that young founders are always running after raising investments instead of building a business. The second group suggests that raising capital is important and founders should try to raise capital when they can and optimize for growth and so on.
While these two groups strongly oppose each other, I think they are talking about the same thing and each group tends to overlook some aspects of the other group’s arguments.
First of all, I don’t think it is true that founders in Dhaka are always running after raising capital. Most founders struggle to raise capital. Probably a reality in almost all markets but more so in Bangladesh.
If we look at the data, the total capital raised by Bangladeshi startups over the past years is meager. We are far behind any mentionable ecosystem. In fact, I think founders should have more easy access to money. I have written about this here. To that end, I think this argument that founders are running after raising capital and so on is not entirely true. There are probably instances where this has happened but this is far from the general picture of Bangladesh's startup ecosystem.
However, the second argument for trying to build solid and well-run organizations is something that I think is an important point to note. This is where I think the second group would also agree with the first group that regardless of whether you raise capital or not, it is always useful to build well-run organizations. I have written about many Bangladeshi startups being inefficient before and I think this remains true.
In this context, the current economic tightening has a silver lining. It can offer meaningful lessons for founders and operators about paying attention to sustainability and building well-run organizations.
One of the most successful Indian fin-tech startups is Zerodha. Zerodha was founded in 2010. The world was just coming out of the 2008 financial crisis. Nobody was interested in fintech because people were already skeptical about stock market investing and so on. People were generally discouraged to get into fintech. This was a challenge for Zerodha in the early days. For instance, the company tried but couldn’t raise any investment. But it also afforded the company other advantages. It could quietly build for the next few years because there was almost no competition in space. In an interview with The Ken, Zerodha founder Nithin Kamath talks about the upsides of starting in challenging times.
Some of the most successful startups of today such as Airbnb, Uber, and Stripe were founded between 2008 and 2010 at the height of the financial crisis.
There are many upsides to starting in a time of crisis. As mentioned before, most people would not start anything when there is a crisis. It means you will have uninterrupted time to build your business deliberately. When times are tough, there are fewer distractions.
For instance, there is not going to be much funding for things and glamorous events and so on. It means you will have to be frugal, and inventive, and you will also get uninterrupted time to do your work. Often constraints come with many unseen upsides. So if you are considering starting something, this is the best time to do it.
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