Startups a big solution to bigger opportunities

A small business is an amazing way to serve and leave an impact on the world you live in, said American author Nicole Snow.

Small is beautiful and can make great things together. A series of small businesses in Bangladesh have been doing such great things over the last decade.

These start-ups have brought solutions to many challenges in our everyday lives, including home service, logistics delivery, e-commerce, education, and software and communication technology.

Not only have they made our lives easier but also fetched investments of $823 million both from abroad and domestic sources ---between 2010 and 2022, according to data from LightCastle Partners, a Bangladeshi management consulting firm.

The data also shows there are more than 1,200 active startups in the country. The foreign funding came through 264 deals made with 127 local startups. The startups have created huge employment opportunities for the youth in Bangladesh.

The top five companies that received funding in 2022 were ShopUp ($63 million), Paperfly ($13 million), GoZayaan ($4.6 million), Shikho ($4 million), and 10 Minute School ($3.8 million).

Impacts on everyday living

Sheba.xyz, a service marketplace, is providing different types of home services, such as cleaning appliances and moving from one location to another. It has eased the lives of city dwellers, most of whom do not have the manpower to handle these types of work.

“It was a cold winter night, and I along with my young daughter was all set to go to bed in my Mohammadpur residence. All of a sudden, a pipe burst in the kitchen, and the water started flooding it,” Rebeka Begum told The Business Post.

Rebeka, a single mother, was hesitant about going out to look for a plumber leaving her daughter at home at that hour. An idea then popped into her head and she ordered plumbing services on Sheba.xyz.

“Within 15 minutes, a trained plumber named Abdul Barek came over and fixed the problem for a reasonable charge,” she said.

Barek said he used to earn Tk 200-300 per day on average five years ago and it was difficult for him to bear family expenses. “Now I earn Tk 800-1,000 per day by offering my service on Sheba.xyz. It has given me a relief.”

Sheba.xyz has a database of over 20,000 such workmen to solve the problems of over 10 lakh customers. It has executed more than two lakh orders so far.

Startups are having multi-dimensional impacts on people’s lives and the economy, explained Shahadat Khan, chief executive officer of SureCash.

“For example, bKash was once a start-up. Now it is a huge company, which has taken our financial services a long way from where it started. It has increased transaction efficiency and the velocity of money, which created a huge impact on economic activities,” he said.

“Now a 1 per cent investment in technology in any startup impacts 50 per cent of economic activities, which creates huge leverage. Technology has tremendous power to create leverage,” he added.

Employment opportunity

Finance Minister AHM Mustafa Kamal in the last budget speech said the startup ecosystem is gradually developing across the country.

“At present, there are more than 2,500 startups in the country. About 1.5 million people have been directly and indirectly employed in this sector,” he said.

Official data on the number of jobs created by startups is not available. But there is data from individual companies. Launched in 2011, mobile financial services provider bKash has generated 2,400 direct jobs so far. It now has three lakh merchants and three lakh agents who are also earning their livelihoods.

In nine years, restaurant aggregator and food delivery startup foodpanda Bangladesh digitally transformed more than 35,000 businesses that are selling food, groceries, and home-cooked meals across the country. It has around 1,200 full-time employees and created more than one lakh income opportunities for the youth. It has created a way for home-based entrepreneurs to earn money.

iFarmer, a technology-based agriculture startup, has connected more than 82,000 farmers by providing them with capital to buy cattle. Through it, 8,000 retailers are delivering agriculture products countrywide.

Shahadat said startups have the amazing power to create skill-based employment if the right plans and policies are in place.

“For example, 20 start-ups were launched in Canada with 20 people in each. Of these, four succeeded and the rest failed. But successful entities hired all those involved in the failed startups as they had the relevant skills,” he said.

Startups train people and work like an extension of universities, he said. “It creates new services, which ultimately creates economic dynamism.”

Challenges

Citing the LightCastle data, Bdjobs founder and chief executive officer AKM Fahim Mashroor said a couple of companies received over 75 per cent of venture capital (VC) investments in 2022 while 70 per cent of that went to just one company.

Many start-ups in India and Indonesia got similar investments, he said.

“Start-up funding is drying up globally, including in Bangladesh. Most of the startups here are in Dhaka and Chattogram. Startups are much more focused on growth rather than profit. When funding decreases, they are compelled to shut operations,” he said.

“I think the spread of VC investment is very important for the Bangladesh startup ecosystem,” Fahim added.

The active presence of global players here is also having an impact on local start-ups, he said. “A lack of funding and policy support from the government makes it hard for them to compete with foreign companies. Besides, internet penetration is low here, which is even lower in villages.” Shahadat said, “Markets like ours have huge prospects, but we could not utilise that compared to even countries like Pakistan when it comes to getting global funding.”

“Our expatriates working in venture capital firms in countries like the US and the UK often help us get more investments. They themselves are investing in our country too, but the number of such people is low.”

He said Bangladesh needs to perform better on indices like the ease of doing business to grab more funding, which will help the country improve its branding as well.

The scale of venture capitalism in Bangladesh is very small and incentives can be given for its expansion, he said.

“For example, banks have been asked to invest from a portion of their profits, but they are unable to efficiently evaluate start-ups due to a lack of experience,” Shahadat noted.

If banks provide funds for venture capitalists and if the latter can invest that on easy terms and conditions, the situation would be better, he said.

“We have a lot of freelancers, and they are serving foreign companies. Their efficiency is proven. They can form groups and launch startups, doing bigger things.”

Funding status

According to the LightCastle data, of the $823 million funding in 12 years, $777 million came from foreign investment and the rest from local sources.

More than 95 per cent of investments in startups is from foreign sources. In 2021, 99.07 per cent of the funding was foreign, which was the highest till then.

Investment in 2020 was $40 million, which jumped to $415 million in 2021. Of the 2021 figure, bKash secured $250 million from Softbank. In 2022, investment dipped to $100 million.

More than 69.59 per cent of investments in startups went to fintech in the last 12 years, followed by 11.44 per cent to logistics and mobility, 7.08 per cent to e-commerce and retail, 2.53 per cent to healthcare, 2.21 per cent to consumer services, and 1.88 per cent to software and technology.