The year 2021 has been phenomenal for Bangladeshi startups, as the total funding deployed crossed USD 130 million, the highest in the ecosystem’s history. While some critics are questioning the sustainability of this upswing in VC funding, there are a few convergent factors indicating a tectonic shift in the startup ecosystem. I have tried to make sense of the upward blip in startup funding despite the pandemic, and based on in-depth research and discussions with ecosystem players, I have arrived at a few conclusions. Based on my understanding, the following factors have helped attract the attention of international investors:
Market Fundamentals and PR: Bangladesh’s economy has been performing remarkably well over the last decade, maintaining a GDP growth rate above 6%; braving pandemic-induced lockdowns, and growing at 2.6% in 2020. The World Bank Group expects the economy to rebound by 6.4% in 2021–22, which will further push up the per capita income. Apart from rising disposable income and a growing Middle and Affluent Class (MAC) population (expected to reach 34 million by 2025, according to BCG), the economy has been benefiting from both demographic and density dividends. The young population is keen on adopting technology, which has led to an uptick in smartphone penetration (41%) and internet usage (47.1 million active users). Local assembly of smartphones will make these devices more affordable to the upwardly mobile aspirant class population. Rapid urbanization will result in close to 50% of the population moving to urban areas by 2030: a trend already proving advantageous for tech-enabled companies.
While the above has been panning out for quite some time now, the BD government has recently started showcasing these opportunities for investment. To this end, the government has signed PR contracts with media outlets like CNN, which have led to a flurry of positive media coverage. Investment summits hosted across Europe and North America will provide further impetus for positioning Bangladesh as an attractive investment destination.
US-China Trade War: The Chinese government’s latest crackdown on ‘big techs”—like Ali Baba, Didi, and Tencent—has shattered the confidence of international VCs. This has led some of these investors to look at alternative funding destinations as a means to hedge their bets. Vietnam and India have become the primary beneficiaries, receiving record-high startup investments. Luckily, Bangladesh has also fallen under the radar considering the economy’s growth prospects and appetite for receiving investments.
India Performs: India’s startup ecosystem is coming of age with the successful listing of Zomato, followed closely by a growing pipeline of successful startups like Paytm. Since the Indian startup ecosystem is gradually maturing, investors are keen on exploring the next frontier for investment. Vietnam and Bangladesh have repeatedly emerged as potential destinations for VC funds.
While structural challenges exist while doing business in Bangladesh, opportunities for investing in undervalued Bangladeshi startups abound for international investors, as they keep seeking the next Asian unicorn.
Do you think the spike in startup funding in Bangladesh will sustain itself in the short to medium term?