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Startup ecosystem: challenges and agenda to scale up

Startup ecosystem: challenges and agenda to scale up

The world’s economic landscape is changing, shifting influence from the West to the East. In this transformation, Bangladesh, marked by a tech-savvy youth population is on the path of emerging as a promising hub for startups.
Startups, offering quick growth, learning chances, fairness, talent recognition, high reciprocity, and empowering culture, appeal to bright graduates instead of traditional corporate routes.
Bangladeshi startups encounter a significant hurdle due to a lack of guidance, impeding early-stage funding and sustainable growth. Many face challenges in obtaining initial funding and struggle to scale up, resulting in only one unicorn in the country.
Incorporating debt at these early stages not only diminishes the runway for startups but also acts as a hindrance to their scalability, given the uniform payment cycles and higher cost of capital.
Several startups faced setbacks as key foreign investors withdrew investments, leading some companies to squeeze their operations. The e-commerce sector, despite its vast potential, has faced challenges due to financial malpractices, leading to diminished investor trust.
To attract more investment, startups need to craft a clear growth plan, share past results for risk assessment, and develop a robust financial model with a balance of aggressiveness and defensibility. Notably, there is a tendency among Bangladeshi startups to replicate successful global models, indicating a need for more authentic innovation. Sharing a unique business story can help investors assess performance benchmarks and build a strong case for the startup’s value.
The hesitancy among Bangladeshis to invest in startups stems from a lack of visible success stories. Bridging this gap requires showcasing successful case studies and emphasising potential returns. Crowdfunding initiatives play a vital role in democratising capital access, empowering a diverse range of entrepreneurs and fostering innovation.
Startups find it hard to get regular funds like bank loans due to higher risks. There aren’t many angel investors or venture capitalists around. Foreign investors stay away because of problems like not enough support for businesses, too much bureaucracy, complicated taxes, and corruption.
International private equity and venture capitalists also face challenges in withdrawing funds after investing in Bangladeshi companies. Securing permission from the central bank for substantial capital transfers during exits is a complex process.
In Bangladesh, convertible notes and SAFE (Simple Agreement for Future Equity) notes aren’t officially recognised for deals. Most investments happen through equity, resulting in lengthy negotiations on valuations.
Offering an IPO to raise capital is one of the popular approaches in the international market. But due to the turbulence in the capital market, startups don’t want to go public, making the exit process harder for private investors. Streamlining these procedures would simplify access to foreign funds and enhance the smooth repatriation of international investments.
To scale rapidly, securing suitable investors and cultivating strong relationships is vital. A strong alignment between the business’s goals and the investor strategy is essential for successful collaboration and growth.
Innovation is fundamental for staying attuned to customer needs and business scalability. Startups aiming to scale must prioritise corporate governance, ensuring transparency, accountability, and effective decision-making.
As a startup expands its customer base, it must ensure its operational model supports growth, with adequate resources and sound financial foundations. Managing cash flows is crucial.
Diversifying a startup’s business is crucial to avoid dependency on a single large portfolio, reducing the risk of a business failure if that sole relationship ends. Therefore, strategically fostering self-sufficiency can bestow a significant advantage.
The author is an economic analyst. This write-up is based on a recent discussion on “Scale-up challenges for the startup ecosystem in Bangladesh” at EMK Centre.
The author is an economist

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