TBS: According to Lightcastle Partners, Bangladeshi startups received around $165 million in funding in 2021. This was the highest funding in a year that Bangladeshi startups received. How do you evaluate Bangladeshi startups' progress so far? Is there scope to do better?
Tina Jabeen: An investment of around $165 million is extremely encouraging for the ecosystem. Startup Bangladesh Ltd. – the first and only government backed VC fund in Bangladesh, also invested in seven startups last year. This sends a strong positive message to the startup ecosystem and to the local and international investors, even though the amount invested is not large.
There are only a handful of government-owned VC funds in the world. Startup Bangladesh Ltd. invested within the first eight months of its emergence. So, the government's stance to support funding the startups strengthened the emerging startup ecosystem of Bangladesh. In the future, we aspire to see more investments coming in – locally and globally.
Our startup ecosystem is considered an "emerging ecosystem" – as such there are tremendous opportunities to grow and scale-up. I see 2022 as a defining year from an investment perspective = globally and in emerging economies such as Bangladesh. A lot of the investors are looking into Bangladesh as a place for impact investments – in areas such as gender lens investment, SME and climate change.
The tech and climate sectors are going to be very big from this decade onward as companies – local or global – need to be more environmentally and socially responsible to sustain growth. By 2050, one in every seven people in Bangladesh will be displaced by climate change. Almost 18 million people may have to move because of the rising sea level. Investments need to be made to mitigate these risks and startups can provide tech-based solutions that can be scalable and sustainable.
TBS: Of the $165 million invested last year, more than 98% was foreign investment. Is there a scope to increase local investment? If so, how?
Tina Jabeen: First, you need some big exits. The recycling of money, where startups invest in new startups, is happening in Bangladesh but on a smaller scale. This is happening in Silicon Valley on a larger scale because of thousands of exits.
So, once an angel investor becomes very successful, they create another startup and invest in others. For example, Reid Hoffman, the co-founder of LinkedIn, is now a partner at Greylock Partners! And he is investing in game-changing startups such as Facebook and Workday.
Bangladesh's ecosystem is less than a decade old and compared to neighbouring ecosystems it is still quite small. India alone had 85+ unicorns in 2021. When a startup's founders make large exits, as was the case in LinkedIn, they recycle the money in more startups and that is how the ecosystem grows from a series of successful exits.
Take a look at the investors in Silicon Valley. It is the institutional investors! If you look at the investor base of successful VC funds such as Kleiner Perkins, there are endowment funds from Harvard, MIT, UC Berkeley, pension funds and family offices etc. Collectively trillions of dollars have been invested and churned over decades and as a result, we see the Silicon Valley we see today.
Now let's look at India. India is a comparatively mature ecosystem in South Asia. 25+ years ago, successful technopreneurs from Silicon Valley invested in India in its most promising technology companies. The founder of Infosys – Narayan Murthy launched a VC fund to incubate and fund startups in India. So you can see that private stakeholders play a key role in building the ecosystem, whereas the government plays the role of an enabler.
We need patient capital and a strong private-public partnership to continue to build a robust and strong startup ecosystem in Bangladesh. And eventually, we hope to see a number of unicorns and possible exits in the next few years. It takes time but it will happen.
TBS: Generally, if we consider sector-wise investment, Fintech covers almost 50% of the total investment. What about health, education or agro? How can we increase investment in necessary sectors like these?
Tina Jabeen: Agriculture is a huge area in Bangladesh. We don't have enough agri-tech startups. We don't have enough startups in health-tech and education either. Some edutech startups, however, are doing a little better thanks to the education ministry engaging with some of the startups.
Since it is an emerging ecosystem, the government should plug them wherever they fit in. How the ministry of education, ICT and a2i approach the relevant startups for the tasks in their niches could be an example. I think health is an untapped ministry where health-tech startups can play a very big role.
In general, there need to be policies, tax policies for example, or policies in the private companies, that will engage the startups. For example, you need to develop an ERP system, why don't you approach a startup that specialises in ERP?
We should also prioritise the woman founders. Maybe a woman-led startup is not that advanced in her particular area. But if we evaluate them with others in the same metrics, it won't work. We need to prioritise them because they are already fighting various biases in getting here.
Most importantly, for both startups and SMEs, we should set up a one-stop service, like the one BIDA set up for foreign investors in general. The one-step service that I am talking about should be where a startup can get their trade license, template for incorporation, where they will get instructions on how to make financials etc.
TBS: Is the idea of a startup really clear among our founders? Sometimes it feels like the difference between an SME and startup is not clear. It seems some startups function more like SMEs than focusing on innovation and creating value. Do you feel our start-ups come up with solutions that are innovative enough or are they prone to copying international models that have worked elsewhere?
Tina Jabeen: We have an emerging startup ecosystem. A startup is about bringing in an innovative solution that is scalable, commercially sustainable while also being a gamechanger.
Uber, for example, or Airbnb, is an innovation. But Pathao piggybacked on Uber model with the innovation of introducing the "bike model". Innovation does not have to be from the scratch. If you can introduce an existing solution customized for the target market in an innovative manner, why not?
TBS: The Bangladesh Securities and Exchange Commission has initiated a move to allow the listing of loss-making startups having high growth potentials on the stock market. How do you evaluate this move?
Tina Jabeen: This is actually a good move. There are many examples of startups going IPO but still in the red. Investors are looking at the long-term potential and market disruption. We need to educate the public market investors on investing in startup IPOs so that they can make informed investment decisions.
TBS: Are our local regulations foreign investment-friendly? What should be done to attract more foreign investment in startups? What else can the government do to improve the local startup ecosystem?
You have to give incentives to the investors, both local and foreign, to make it easy for them to bring in the money. Important key government agencies/ministries such as Finance, Commerce, NBR, ICT Ministry etc need to fine-tune the existing policies so they become more startup friendly.
The vat, tax and other service duties should be relaxed. However, the government is an enabler. We have billion-dollar private companies, they can also contribute by engaging the startups in their business processes, such as in procurement, etc.
Also, we have hundreds of thousands of expats all over the world, especially those who work in technology. They can be engaged by contributing knowledge, money and network – there are many ways to give back to the country. This investment may come in two ways- they can be real investors with money, or they can do in-kind investment, which is technology transfer.
In Silicon Valley, there is a large expat tech diaspora. We have informally launched Bangladesh - Adviser in Residence (BD AIR), which would be working with startups in Bangladesh as mentors and investors.
In BD AiR, we have already enlisted expats who are engaged in global technology firms such as Google, Facebook, ThermoFisher etc. in various capacities. These mentors are passionate to be engaged with the startup ecosystem and be a part of the New Bangladesh – The Royal Bengal Tiger.