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FINANCING: A TOUGH NUT TO CRACK FOR BANGLADESHI STARTUPS

When Wasim Habib, Chaldal co-founder and CEO travelled to China for funding in 2016, it seemed liked he was going the wrong way. At the time, fundraising journeys almost always pointed the entrepreneurs West – he headed East.

“The decision took many by surprise,” recalled Habib, who himself has long experience of working in the Silicon Valley.

Less than three years later, the landscape is markedly different. Habib has raised a significant amount in investments from China, and no longer needs to defend his sense of direction.

“Now, everybody is aware of Chinese investors, and more and more start-ups from different parts of the world have gone to China,” Habib said. “That has become a norm.”

“You never know where the money of tech startups would come from. You just have to look for options because investors across the world have started to realize that investing on ideas pay of big times,” said Habib.

“It also tries your patience some times,” said the successful tech entrepreneur who himself has become a serial investor.

A GROWING YET SMALL-SCALE SCENARIO IN BANGLADESH

Words like serial investor, angel investor, venture capitalists so and so forth are no longer alien terms in Bangladesh. Yet those are not something you hear in every nook and crannies.

“Yes, the start-up scenario in Bangladesh has started to grow. But the amount and the scale of success stories so far is not something with which you can say it [Bangladesh] has become a startup destination,” said Mustafiz Khan, the CEO of Startup Dhaka (SD) Asia.

Khan has co-founded story of SD Asia with Fayaz Taher back in January 2013. He just came back from Singapore in where he met Taher and thought of starting a platform which would guide, finance and arrange financing for the tech startups in Bangladesh.

“Before that I was sort of an alien to what was actually going on in Bangladesh as I was in abroad for long for my study and jobs. After that I attended two other startup events in the next few months and I decided to travel around the region to get a proper understanding of the startup scenario.”

He traveled in Singapore, Malaysia, and Indonesia and tried to get some perspective of what was happening in the startup arena in those countries. “I found that the startup culture has already picked up in those regions. Bangladesh was little late in joining the bandwagon but it of course was on the way of hopping into the startup juggernaut.”

About five years down the line, Khan now believes that Bangladesh now has been able to jumped on to that bandwagon but the pace of the “wagon is still a bit slow.”

He said there are few reasons behind it but the main reason is still “lack of available funding.”

“For a country like ours, funding is always an issue for a startup. The organization or people with money still have a trust issue about a new startup. They always want to safeguard their investment by investing on safe companies,” he said.

According to him, one common mistake that startups in Bangladesh made that they don’t think about the monetization aspect because of the way the market is designed. “Through SD Asia, we kind of push them to think about the monetization aspect and how get successful in terms of revenue.”

Besides, he said, the Bangladeshi startups also have problem finding out business-viable ideas.

“When people come up with the idea, very few of them actually think about its viability, especially its business viability. They just fall in love with idea without thinking about its market potential and that becomes their Achilles heel.”

Another problem is market reach, he said. “Most of them [aspiring entrepreneurs] really don’t try to think about the problem they are trying to solve-whether there is an actual demand for it or not. People will not pay for something which will not give them the solutions to their real problems. Very few startups actually try to get the pulse of the market and come up with a solution that can solve real problems of people.”

WHAT TO DO WHEN LOOK FOR A FINANCIER? 

Mohammad Abdul Matin Emon, Founder, CEO of Doctorola said, Bangladeshi investors consider few things that are unique to our context and different from those of international investors.

“After talking to VCs from both Bangladesh and outside of Bangladesh, I have come to realize that there is a fundamental difference in how these two operates” said Emon.

He said Bangladeshi VCs ask some questions that international VCs probably don’t worry that much. For instance, local VCs are concerned about the copycat culture that we have and essentially ask the question that, “If someone else starts the same business tomorrow how you would tackle that?”

This is a common worry in Bangladesh. Especially for internet based businesses because there are too many copycats, he said.

According to Emon, investors want the assurance that you understand this challenge and that there is something in your business that can’t be replicated easily and that can outperform any copycat that might appear on the market.

“Investors want to know that your business has something that is future proof and can sustain competition. For Bangladesh market, this is a very valid fear.”

So, he said, a founder must think about core competence of his/her business that can’t be replicated and communicate it with the investor. Something that is difficult to replicate. You have to show the maturity and convince the investor that you have already thought through few ideas to outperform any competition that might come.

“The second one is applicable for everyone but particularly important for Bangladesh market. After talking to many investors I have come to realize that investors fear the lack of long-term commitment from the founders.”

A startup is challenging journey and incredibly hard to build, he said, so pursuing it for a longer term is a big thing. “It is important for founders to have a long-term commitment to pursue startup challenge. Startup founders should really possess this level of commitment and at the same time communicate that commitment.”

He said building a startup is often hard and people give up when days become difficult but that’s not how you build a company.

“You get to stick to the idea and work hard. Investors want to see how do you plan to tackle difficult time and how committed you are to pursue a difficult idea for a longer period of time.

These two things should be addressed in pitch deck so that you address all the worries of a local investor.”

EXAMPLE FROM INDIA

SD Asia CEO Khan said certain patterns are universal in the lifecycle of a typical startup, and specific traits differ based on cultural and local norms. India and the US, two leading nations in tech innovation, are excellent subjects for examining universal elements of international startups, as well as differences.

“When raising funds in India, it helps a great deal to have a ‘name’ attached to your business – meaning, a high-profile industry insider with a successful track record. Investors want to see that a well-regarded VC or angel has already put their money into a venture before reaching into their own pockets.”

Take for example, he said, the early executives and founders of some of India’s leading startups, such as Flipkart and Snapdeal, who are now investing in many newer companies, and their endorsements are considered just as valuable as a top-notch PowerPoint pitch.

This trend is reminiscent of the “PayPal Mafia” days of Silicon Valley, when the payment company’s early investors and founders achieved royalty status for later ventures. As then, a successful reputation doesn’t just open doors in today’s investor scene in India – it writes checks, too, he said.

Meanwhile a report in TechNAsia says, Chinese angel investors and venture capitalists are lining up to invest in India and in South Asia. Once known as the source of “dumb money” – investments that could hurt, instead of help, tech start-ups in the long-run – Chinese investors now have found many happy recipients.

In India, start-ups from fintech to e-commerce to transport have all rolled out the red carpet for Chinese investors, not only for their capital but also for their successful track records in similar markets.

The same trend can be seen in Southeast Asia, a region with twice the population of the United States and one of the world’s fastest-growing economies. High-profile investments include Alibaba pouring US$1 billion in 2016 for Singapore-based online retailer Lazada Group. Didi Chuxing – together with Japan’s SoftBank – tied the knot with car-hailing peer Grab at a price of US$2 billion last year.

Those newly formed partnerships have indicated Chinese investors have reached the point that they are able to compete head by head with Western venture capitalists hunting for the next Facebook or Google in emerging economies.

While Western venture capital firms still dominate the investment of India’s tech world, statistics show the influence of Chinese money is on the rise. Last year, at least 23 deals signed by Indian tech start-ups involved Chinese investors, according to market research firm Venture Intelligence. By contrast, the figure was only eight in 2015.

Among the list of Chinese investees are India’s most valuable tech companies. Flipkart, Amazon’s chief competitor in the country, has accepted investment from Chinese social media giant Tencent, as has Ola, India’s answer to Uber. And Paytm, a leading digital wallet and online retail platform in India, has welcomed Alibaba on board, receiving US$45 million last week as the latest in a series of investments from the Chinese internet heavyweight. Alibaba is also owner of the South China Morning Post.

This is in sharp contrast to Silicon Valley, where Chinese venture capitalists have often received a cold shoulder.

Chaldal CEO Habib said, Bangladeshi asipiring start-ups should prepare themselves to pitch their ideas to the Chinese investors. “They are up there for investing on the ideas, You just to need to get your ideas straight and implementable,” he said.

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