The general sentiment about the Bangladesh startup ecosystem is a mix of gloom and skepticism. One group, mostly outsiders relying on sporadic funding news in the press and baseless speculation, imagines startup founders in Bangladesh are selling air and getting rich overnight by conning the investors. This group is secretly happy that time is hard for startups. While they want to say they wish the best for the ecosystem, they are no better than typical malevolent humans who get jealous of their neighbor's good luck. They would happily announce that the startup era has ended for Bangladesh. In reality, the era is just getting started.
Another group, hardcore investors and learned founders, as they would like you to recognize them, while highly optimistic about the future of Bangladesh startup ecosystem can’t come to a consensus about the difference between SME and startups. They would often go on lengthy rants on social media about why this difference is holding the ecosystem back. They would frequently complain about why there are founder quality problems, which is of course true to some extent like any other ecosystem, and why Bangladeshi founders’ lack of ability to write good emails is at the heart of the crisis. But they remain hopeful and some of them are genuinely trying to help.
Then there is the group who are looking for some juice from the ICT ministry. In their view, a few unicorns are just around the corner.
Then there is a final group who you will not find anywhere. They are busy building. They understand that these things—building companies and building ecosystems—can’t be done overnight and take real work. They prefer quiet hard work. They are raising money or investing in companies, in the case of the investors, and they don’t seek immediate payback for doing any of it. They see it as their work. They share about their work and they seek the right kind of attention but they are rarely into seeking status or undue benefits, and so on. You will find both founders and investors in this group. They come from both within Bangladesh as well as from abroad. This is the group where we think we need more people. We hope that some of the good people from the former groups will eventually graduate to this group as we mature as an ecosystem.
When this is the state of affairs, it is risky to write a prediction piece on Bangladesh's startup ecosystem. You can come under crossfire from either of these camps because of stepping on their imaginary toe.
I am almost always extra cautious. This is the burden of coming from a lower middle-class background. You're always too cautious to live. Every small risk is high stakes and can make or break your life. I don’t want to come under any crossfire. So I am like those palm-reading stores that almost always offer upbeat predictions— happy weddings, unexpected wealth from some Nigerian princess, foreign trips funded by the ICT ministry, and things like that. But I also have an idealistic side to me.
While I prefer not to rock the boat much, my idealistic side likes to call a spade a spade. I am always oscillating between glass less than half full to half full.
Today, it is no different. However, I think I am also going to surprise all these different camps today—ones who think startups have no future in this golden Bengal and those who think we must become like Silicon Valley, the sooner the better.
Overall, I see a hopeful future for the Bangladesh startup scene. The new golden age might not arrive tomorrow, or next month, or even next year. Our second unicorn may be a few years away. We may become a unique ecosystem unlike any other where million-dollar funding will remain as sporadic as today but that will not limit the number of high-quality and fascinating companies. But if I take a long enough time horizon, the trends are encouraging.
It’s hard to kill the entrepreneurial nature of a people.
Let’s spell it out.
From an earlier drought, the global startup investment is now in a slow recovery mood. Most markets have not recovered from the massive funding decline that happened over the last few years. For some markets, while recovery has started, for many others the dip continues to linger.
Despite the potential, Bangladesh has historically suffered from a lack of attraction from investors. A growing number of international investors have mandates for the SEA and MENA region and then India separately. Unfortunately, Bangladesh is not considered when investors are looking into any of these markets. And Bangladesh as a separate market still doesn’t command enough attention.
This puts Bangladesh in a difficult circumstance.
It means the gradual acceleration of startup investment Bangladesh experienced before and after the COVID pandemic is not going to return to that level anytime soon. However, we expect some positive upward trends, whatever small that may be. If the political situation stabilizes, expect the number and size of deals both to go up significantly.
That being said, even if the overall funding scene remains depressed, it will not essentially be a huge setback for the ecosystem. There is already a tacit understanding in the ecosystem that things will not improve soon and that founders have to find a way to build sustainable businesses regardless.
There are some 17 local AIFMs with the license of alternative investment from the SEC. But none has managed to raise a meaningful fund as yet. Some of these firms have been active in the market such as BD Venture, IDCL VC Fund I, BVCL, and so on. Several of them have been trying to raise a fund with limited success.
While this is unfortunate and one of the major reasons behind the lackluster growth of Dhaka’s startup scene, we don’t expect this reality to change in 2025. The regulatory and cultural wind remains a challenge for the growth of this sector. That being said, two to three firms are actively trying to raise funds and if the local and global political scenario moves towards relative stability, we may see some small to medium-range funds by the end of 2025.
We are already seeing a tendency to build sustainable businesses instead of wishing to raise external capital. VC narrative has also shifted towards more sustainable businesses. To that end, this is not a prediction for that matter. While there is an inflated false perception about the number and amount of investment in Bangladeshi startups, the majority of good companies in Dhaka are bootstrapped or are very capital-efficient.
Bootstrapping is not new for Bangladeshi entrepreneurs. Contrarily, VC investment is a new thing for the country. While VC capital can meaningfully help drive innovation and large-scale businesses, it also comes with an added burden. We believe there will be more bootstrapped companies in 2025 that will seek to build sustainable businesses first.
Startup is a long-tail game. Your scale of success as an ecosystem is proportional to the number of attempts you make. The more companies you produce, the more success you will have. Meaning that the number of companies an ecosystem produces has a lot to do with the overall number of successful companies that come out of that ecosystem. If there are 100 companies, 1 or 2 are going to be big and 10 will do moderately well. If there are 1000 companies, the number of companies doing well will be 100. That’s the math. Like everything else, quantity is what produces quality or success in the case of startups as well.
In 2018, we published that not enough people were starting companies. We pointed out two main reasons behind it: our cultural challenges and unnecessary difficulties around starting companies. We wrote that if we want to be a successful ecosystem we have to find ways to encourage and enable people to start companies otherwise big and small success will always be scarce.
Starting companies in Bangladesh remains expensive and challenging to this day. Meaningful policy and administrative changes remain few and far between. However, we have been seeing a gradual cultural shift in favor of entrepreneurship over the last several years. This change is fueling a slow entrepreneurship movement in the country. The number of people starting serious businesses has grown meaningfully over the last several years. We see this growth to continue in 2025.
We published in 2018 that there was a lack of diversity in the types of companies people are starting in Dhaka. We wrote that it was a major problem in Dhaka’s startup scene. The startup scene in Dhaka was full of homogenous companies. Everyone was starting yet another ride-hailing, find-tech, online medicine delivery, food delivery companies, and so on. Here is an excerpt from that piece:
“ If you look closely at Dhaka's startup scene, particularly the most talked about part of it, there are a few big buckets and sectors where we see a lot of companies and more people are entering these sectors.
I would not suggest that it is something new to our market. It happens everywhere. But what happens in Dhaka is that most people tend to follow the same route instead of thinking originally and trying to find different ways of doing the same thing. The point is you could build many different types of ecommerce companies but everyone seems to like to build the same types of ecommerce companies with similar models and strategies.
Now take a look at the major buckets. We have a handful of ride-hailing companies trying to do the same thing. We have a handful of e-commerce companies. We have a handful of service marketplaces. We have a handful of payment products. We have a few ed-tech companies and some ad-tech companies.
I would not claim that we don’t have existing companies outside of these major verticals. There are some very exciting companies doing brilliant things. And in the above-mentioned verticals, some companies are redefining business as we know it. The point I wanted to make is that we could have done better. And we have to.”
My understanding of this phenomenon has evolved over the years. I think that it is natural to see a lot of companies entering a trendy vertical. For instance, we are now seeing a lot of AI companies. This happens for many different reasons. Of course, humans are mimetic, which is a key reason behind this. Then when a vertical is trending, it attracts a ton of attention from investors, talents, and other stakeholders. The risk that comes with entering a hyped vertical is that only two-three (max) companies survive the eventual competitive bloodbath and most other companies die. Since the investment scene has tightened and people are generally critical of startups, founders today are more cautious. They no longer fall for a trend merely because everyone is doing it. As a result, we are seeing more diverse companies across verticals now. We think this diversity of types of companies will grow in 2025.
Efficiency is a challenge for a majority of our local companies, technology and otherwise. A large number of companies struggle with efficiency and execution. Many of them are unnecessarily overstaffed.
We have written in the past that our companies have to find ways to improve the productivity of their team members and be mindful of processes, systems, and a better way of doing things. Otherwise, these weaknesses are going to cause disaster as the market matures and more serious players enter the market.
The key reason behind this execution and efficiency problem remains, which is the quality of people. The shortage of quality people remains a challenge in Bangladesh and it is a complex challenge that will take time to solve. What has happened over the last several years is that founders are more aware today and they understand that if they want to survive and thrive, they have to be efficient and effective. We believe this trend will accelerate in 2025 and more companies will take initiatives to improve efficiency.
Our only policy recommendation for the Bangladesh Government on business and entrepreneurship has always been the same: make starting companies easy and inexpensive. While many things about our business ecosystem have changed, starting companies continue to be expensive in Bangladesh. Getting a trade license is complex and expensive. Incorporation is expensive. Running a business is expensive. Moreover, along with the expenses it takes a huge effort to get these things done. The regulators should pay attention to making starting a business inexpensive and easy for people. However, we don’t expect this reality to change in 2025. Starting a business will still be difficult and costly in 2025.
There is a performative aspect to startup. While there may be value in being performative in some instances, in most instances, it can be costly for early-stage companies. We have written in the past that in many instances, the startup community tends to treat building and investing in startups as some kind of a performance show instead of a serious exercise in building businesses and creating wealth. I have attended corporate startup events where startup founders are made to play the role of performers. Founders come and present their nonexistent and sometimes unprepared companies in front of a group of people who are neither going to use their products nor going to invest in their companies.
Along with this now added a trend of ranting about startups on both ends of the spectrum—speculative and unnecessary chatter in favor and against the startup ecosystem. We think this trend will continue and intensify in 2025.
However, founders who are building serious businesses don’t get enough time to do these things. In many markets, such as Y Combinator, a US-based incubator program actively encourages founders to spend all their time on building businesses instead of doing unnecessary performative actions. We think a growing number of startups in Dhaka will grow conscious of this.
Building companies is hard. No matter how much money you raise, what support you have, or who backs you, ultimately you have to build a business, and building a business takes everything that you have. In 2024, this reality will not change. You will still have to do the work.
Over the last several years, some local corporations such as GP, Robi, BSRM, and Transcom have shown interest in investing in startups. We believe this trend will accelerate as more corporations realize they can’t do everything in-house and investing in high-quality startups is a meaningful strategy to hedge against future disruption risks and as well as to expand into new verticals.
Expanding into new verticals is always risky. No matter whether you do it in-house or invest in an outside company. Several local companies tried to expand into ecommerce and other tech verticals in the recent past and all of them burned their fingers. Doing something in-house adds the extra challenge of an innovator’s dilemma for these companies. As more companies realize this, we think more companies will take an interest in investing in startups as an expansion strategy.
Sorry to disappoint you, but there will be no new Bangladeshi unicorn in 2025. If this happens, it will be beyond wonderful. I wish and hope we are wrong on this one. Unicorns are cool and good to have.
