By Melissa Goh
One country has been left out of Asia’s growth story in the last decade: Bangladesh.
Compared to Indonesia or Vietnam, little is known about the small country that flanks India’s eastern border, besides its core garment manufacturing and agriculture industries.
“Bangladesh geographically falls between the cracks – it’s not India, it’s not Southeast Asia,” says Sylvana Q. Sinha, founder and CEO of Dhaka-based healthtech startup Praava Health. “Investors don’t understand Bangladesh. It’s a new market for them, and it’s very unfamiliar,” she adds.
In a visit to the country years ago, the Bangladeshi American entrepreneur was struck by the lack of quality healthcare accessible to the masses. “It was eye-opening for me. I’d observed that anyone who could afford to leave the country for healthcare was doing so,” Sinha says.
It’s true that healthcare gaps exist and poverty is still widespread, as about 24 million or a sixth of Bangladeshis live below the poverty line. But several homegrown startup founders and investors Tech in Asia spoke to say some of the biggest misconceptions foreign investors have about the country, including safety concerns and a lack of infrastructure, are unfounded.
On the bright side, Bangladesh has a talented and tech-savvy workforce with a median age of 28 – one that’s hungry to consume new services, products, and content. With 164 million people, Bangladesh is the world’s eighth-most populous country and has a population size two-thirds that of Indonesia.
Its yearly gross domestic product (GDP) per capita growth is one of the highest in the world, outpacing China, India, Indonesia, and Vietnam last year.
At the same time, rising levels of mobile and internet penetration in the country present a huge opportunity for mobile-led tech startups, from ride-hailing and food delivery to healthtech to educational technology. Dhaka, its capital city, ranked second in the number of active Facebook users in all of Asia in 2017.
Bangladesh was doing 4,000 food delivery orders daily in 2016, says Kishwar Hashemee, co-founder and CEO of cloud kitchen Kludio, but now, it’s over 100,000 orders a day.” The Dhaka-based business, which Hashemee likens to a “digital food court,” launched in 2019 and competes alongside Pathao, Foodpanda, and UberEats in the food delivery space. Kludio operates its own food brands and handles its own orders and deliveries.
“People assume that because it’s a developing nation, it’s poor, and there are fears of extremism. But once people take the leap and visit, they see it’s a high-growth company with very good fundamentals,” says Ravid Chowdhury, chief financial officer of logistics startup Truck Lagbe.
US-raised Rahat Ahmed, founding partner and CEO of Anchorless Bangladesh, has watched the changes unfold since he first came to the Bangladeshi capital in September 2004. “I remember going back to New York, thinking there was nothing there [in Dhaka],” says the venture capitalist, whose firm focuses on early-stage startups.
Years later, Ahmed has become an investor in ride-hailing startup Pathao and is leading Anchorless’ efforts to woo startups in Bangladesh. The VC firm counts logistics startup Loop Freight and artificial intelligence company Gaze as part of its portfolio.
A funding gap
Investments by global firms can help validate Bangladesh’s startup scene, and that has started to happen.
Deals like Gojek’s investment in Pathao and 500 Startups’ investment in Shohoz have helped shine the spotlight on Bangladeshi startups. Mobile financial services company bKash has also grown in prominence after Chinese payments giant Ant Financial took a 20% stake in 2018.
But Bangladesh continues to lag behind Southeast Asia and India in startup funding. In 2019, Bangladshi startups received US$70.6 million in series A and B funding combined, according to data compiled by LightCastle Partners and Anchorless. In comparison, Indian startups snagged US$2.4 billion or over 30x more funding, even though the country’s GDP is 9.5x bigger than Bangladesh’s.
Raising capital is an uphill battle for many startup founders. “The number one challenge is access to finance. [Overcoming] that is a much bigger challenge than building a company,” Praava Health’s Sinha says. The startup, a vertically integrated network of outpatient health centers powered by doctors, diagnostics, and technology, is partially self-funded. To date, it has raised US$8.5 million in seed and series A funding from “mostly American” investors.
At present, India has two edtech unicorns, observes Ahmed of Anchorless, but “in Bangladesh, the two highest edtech startups are worth US$3 million to US$4 million.” Both countries have roughly similar levels of GDP per capita, so an edtech company in Bangladesh should be able to hit a valuation of US$150 million, assuming investments are proportionate to population size. “But [Bangladesh] doesn’t have anything close to that,” he notes.
Adding to that, present perceptions of the country among foreigners – and even among non-resident Bangladeshis – haven’t all caught up to recent developments in the country, according to local entrepreneurs.
Anayet Rashid, Truck Lagbe’s chief executive, remembers what the country was like in the 1980s to 1990s. “At that time, Bangladesh got a lot of negative exposure as a poor, flood-ridden country. Floods are something we haven’t seen for a long time [now]. Before, Dhaka would go underwater, but that’s a 30-year old story.”
Rashid describes the level of infrastructure build-up he’s observed across Bangladesh in the past few years as “phenomenal.” “Even at the most southeast corner of the country, you’ll see roads and you’ll have four-lane, two-lane roads. I have seen the development and I believe that’s something that investors aren’t aware of,” he says.
Consumption has also ballooned in the last decade, driven mainly by a boom in garment exports that has trickled down to the economy and growing remittances, which hit a record high in 2019.
Bangladesh’s real GDP growth has trended over 7% since 2016, though the Covid-19 pandemic has thrown a spanner in the works. Despite downward revisions by the World Bank, Planning Minister Muhammad Abdul Mannan is still expecting the country to grow at 6% this year.
But the country’s strong economic fundamentals haven’t convinced investors. “We’ve had to introduce Bangladesh over and over again. In most cases, the VCs that we approach, they operate close to us – maybe in India – but they don’t have Bangladesh in their portfolio,” Rashid says.
Bangladesh has to vie with India and Southeast Asia for investor attention. “There’s so much action and so much happening” in these two markets, says Smita Aggarwal, global investment advisor at Flourish Ventures. “If you wind up focusing on these two, you don’t have to look anywhere else.”
The fintech-focused VC, which spun out of Omidyar Network, has 17 portfolio companies across Asia, but only one of them is a Bangladeshi startup. Speaking to Tech in Asia from Mumbai, Aggarwal says the firm wasn’t actively looking to invest in the country when it first wrote a cheque to business-to-business platform ShopUp in 2018.
It had chanced upon the opportunity because of ShopUp’s insistence on meeting the team, she recalls. Flourish Ventures eventually became the first institutional investor in ShopUp’s seed round and has done three follow-on rounds with the startup since then.
“It’s all about finding the right founder, business model, that fits into the macro environment in the country,” she says. And with one Bangladeshi startup now under its belt, “we want to do more.”
With limited avenues available, many founders rely on local angel investors, many of whom high net worth individuals who “wouldn’t think twice about cutting a US$100,000 check,” says Nirjhor Rahman, CEO of angel investing platform Bangladesh Angels.
The network, which launched in 2018, hopes to bridge the gap between entrepreneurs and investors in the country, especially since the concept of a startup is still poorly understood in general.
As many local investors hail from traditional sectors like manufacturing, garments, fast-moving consumer goods (FMCG) or finance, they often expect startups to perform like a small to medium-sized enterprise, offering low risks, a quick path to monetization and profitability, and stable returns.
Another hurdle is the lack of skills among local investors to properly vet tech companies as well as conduct due diligence and structure deals, Rahman notes. This could lead to unfavorable deal terms, which have implications for startups looking to raise series A or B rounds from regional venture capital firms down the line.
“I have seen term sheets requesting 50% ownership and dividends… But that’s not realistic – the cap tables [will] go awry,” says Anchorless’ Ahmed. Follow-on capital is also uncommon in the market, with many investors simply “dropping cash and walking out,” he adds.
With Bangladesh Angels, Rahman hopes to bring structured, syndicated angel investing to Bangladesh through partnerships with regional angel investor networks. The network currently brings in a slate of 5 to 6 exclusive deals to angel investors within the network every quarter, says the CEO, who splits his time between Dhaka and Dallas, Texas.
It typically invests in deals between the range of 80 lakh to 5 crore taka (US$95,000 to US$592,000). “We want to be the first professional check into these startups, beyond self-funding, friends, and families,” Rahman adds.
The next Indonesia?
Bangladesh’s growth story – a soaring GDP, a burgeoning middle class, and changing consumer behavior and habits due to increasing smartphone usage – bears resemblance to regional peers like Indonesia and Vietnam.
But that growth is still years, if not decades, away. Assuming the country continues to climb at a steady 7% on average per annum, it would take Bangladesh two decades to grow from last year’s current real GDP levels of US$302.6 billion to Indonesia’s levels last year. That’s a long way off for investors looking to realize similar returns.
The good news is that Bangladesh’s GDP (in current dollars) has already surpassed Vietnam’s, which has one tech unicorn and a handful of firms with valuations in the hundreds of millions in US dollars.
At the same time, Bangladesh could use its “late entry” to its advantage. “You can leapfrog several generations of innovations, benefit from the learnings from other markets, and jump straight into the latest and best in innovation,” explains Aggarwal of Flourish Ventures. For instance, the country could bypass card-based payments altogether and move straight into QR code or app-based payments, since most local banks are not digitalized.
While Indonesia may have a far larger population than Bangladesh, the latter has a bigger total addressable market because its population isn’t spread across different islands, points out Aggarwal.
At the same time, Bangladesh stands to gain from supply chain disruptions arising from the pandemic and trade tensions between the US and China, as companies seek alternative manufacturing destinations in the short term.
If this trend is sustained, logistics startups like Truck Lagbe will benefit from a continued wave of industrialization in the country, where “trucks are used for all purposes,” company CEO Rashid says. Bangladesh’s trucking market in the country is expected to grow from US$10 billion today to US$40 billion by 2040, putting it on par with the size of Indonesia’s current trucking market, estimates CFO Chowdhury.
A digital Bangladesh
A combination of factors, such as improvements in telecom infrastructure as part of a broader “Digital Bangladesh” effort, have helped to reduce the cost and boost internet access, setting the stage for mobile-oriented companies.
Almost everyone has a smartphone on their hands,” says Fayaz Taher, chief operating officer at video streaming platform Bongo. ”That’s largely because of local brands like Walton and Symphony, which have made their own smartphones, assembled them locally, and sold them at a very cheap price.”
Today, many Bangladeshis consume content predominantly via their phones rather than televisions, relying on video content on Facebook and YouTube as well as platforms like Bongo, Taher says. Bongo claims to reach 2 million active users on its main platform a month.
Still, significant challenges persist. While 4G mobile data services in Bangladesh rolled out in 2018, the country’s mobile telecom market remains dominated by 2G cellular networks, a GSMA report found.
“We remain in the past in lots of parameters, though the country has a huge opportunity and the government has a very clear vision,” Mahtab Uddin Ahmed, chief executive officer of Robi, the country’s second largest mobile network operator, said in a July interview with local media. Only around 21% of Bangladeshis were 4G users as of June, the CEO added.
“Multilayered licences” that prohibit telecom players from building their own infrastructure, high spectrum costs, and high taxes, were some of the reasons Ahmed cited for the low rates of 4G adoption in the country.
The high taxes – which can shave off as much as 50% of profits for mobile operators – are likely to persist, says Fitch Solutions analyst Kenny Liew. “The telecom sector has long been seen as a cash cow by the Bangladeshi government […] This source of revenue is even more important in the current fiscal year, given that the government has already spent heavily for Covid-19-related fiscal stimulus,” Liew explains.
In the absence of regulatory changes, Bangladesh is unlikely to see its own Reliance Jio, India’s largest telecom operator. The company holds a unified licence across India and was able to offer 4G access to over 350 million customers by offering mobile plans at unparalleled speeds and coverage.
But other initiatives to nurture startups are afoot. The country offers a tax exemption of up to 15 years for foreign investors. A micro-capital stock exchange, slated to launch later this year by the Dhaka Stock Exchange, will provide much-needed liquidity for SMEs – even those with little or no profitability – through the capital market.
Despite these strides made, realizing returns on local private equity and angel investments at the moment is “still a grey area,” says Rahman of Bangladesh Angels. This will require addressing. Until then, startups will need to pursue a slow and steady path of funding growth with profits.
The Covid-19 pandemic has given digital adoption in Bangladesh a boost, like many other countries worldwide. But the right incentives also have to be in place to sustain this wave.
Some believe that educating people about Bangladesh will be a first step to putting the country on the world map. “Exporting culture – whether food, film, or music – these are simple things that we need to allocate resources to because it’s not just about GDP,” Ahmed says.