Startups not getting local investment due to valuation complications

Complications regarding the valuation of startup companies – which usually have almost no physical assets – create problems for them when they want to raise funds through the stock market, resulting in low local investment in such ventures, industry insiders have said.

Around $800 million have been invested in the country's startups in the last decade, 98% of which came from abroad, said Pathao CEO Fahim Ahmed in the keynote paper presented at the seminar, titled "Journey of CMSMEs from startup to scale up: prospects and challenges," organised by the Dhaka Chamber of Commerce and Industry (DCCI) Saturday (29 October).

Currently, there are over 1,200 startups in the country, some of which are failures while some others are success stories. For example bKash, Shopup, Pathao, Chaldal and Shohoz are doing well as startups, said Fahim Ahmed.

At the seminar, Ambareen Reza, CEO and managing director of Foodpanda Bangladesh Limited, said, "We need investment in the fintech and logistic area."

Nirjhor Rahman, CEO of Bangladesh Angels, said, "Liquidity is the key thing in this sector. We have to ensure investment and working capital for new startups."

Tanveer Rashid, director of finance of Chaldal Limited, said, "The government organisation Startup Bangladesh Limited is a good initiative. If the valuation process is simplified, more investment will come."

He also said, "Because of the risks involved in startup companies, banks are reluctant to finance them. Most of the startups make losses at the early stages, which is a barrier to getting finance."

Regarding complications in companies' valuations, Dr Shaikh Shamsuddin Ahmed, commissioner of the Bangladesh Securities and Exchange Commission, said, "A startup company, which did well in its three-year business history, applied to be allowed to raise funds by issuing shares in the capital market, but we could not give it permission as it lacked physical assets.

"Then I advised the company to convert its funds into assets and submit the valuation report. We gave them permission when they acted accordingly. The company has been doing great of late and declaring large amounts of dividends to its shareholders."

Dr Shaikh Shamsuddin Ahmed also said, "We need to enhance the regulatory collaboration among all the agencies at the operational level. We have established an IT framework, now we need to implement it.

"For that we, the regulators, need to be more helpful to startups and new ventures. To mitigate financing problems, private equity, venture capital and angel investors can play a vital role if the risks can be rationalized in this sector." 

DCCI President Rizwan Rahman said startups can be a great economic enabler for Bangladesh but a startup-friendly ecosystem in the country has not been substantially equipped.

Bangladesh ranks 93 out of 100 countries in the Global Startup Ecosystem Index 2022. The Startup Index said financing and dearth of policy support are root causes behind a weak startup growth in developing economies, including Bangladesh, he added.

The chief guest on the occasion, Senior Secretary of ICT Division Zeaul Alam, said, "There is a remarkable failure rate in the startups but they are actually not making any loss. Rather, they are learning for the next efforts to come from them. It is true that we have many challenges but we need to overcome them.

"The government has taken an initiative to formulate a draft startup policy already. A payment gateway platform named 'Binimoy' under the initiative of the government will be launched soon. Data protection is also an important element for an effective ecosystem of startups."