Hit by pandemic, start ups now recovering

Most start-ups – formed in the last two years or so – had started running out of business for their weaker foundation even before the Covid-19 hit early last year.

The pandemic came as a fresh blow to the fledgling business, leaving many in the red or forcing many others to close.

A few of them, however, performed well and attracted investments from abroad, raising hopes that Bangladesh's start-up ecosystem may gain momentum in the months ahead.

More than 1,000 start-ups currently operating in Bangladesh have created employment for over 15 lakh people. These start-ups managed to attract $200 million in foreign investment until coronavirus hit Bangladesh.

Some start-ups raised funds even amid the pandemic – ShopUp $22.5 million, SOLshare $1.1 million, Gaze $0.83 million, and Loop Freight $0.6 million, to name a few.

However, 63% of start-ups were left with a runway of fewer than three months, says a survey report published by LightCastle Partners in April this year.

Moreover, around 24% of start-ups had to shut down completely while 32% witnessed a 50% decrease in business.

While all are in peril, three essential sectors – grocery, logistics and digital financial services – have witnessed revenue growth in Bangladesh.

Another survey, conducted by the Venture Capital and Private Equity Association of Bangladesh (VCPEAB), says the Covid-19 pandemic has led start-ups to face a decline of around $54 million in revenue for 2020.

Although the majority of start-ups have been badly affected by the pandemic, a dynamic shift in nature has benefitted some.

Loop Freight, a technology-enabled logistics management platform, saw a staggering 650% growth in revenue in 2020. This boom has led the start-up to rapidly scale up and double its sales.

An Ed-tech start-up, ANTT Robotics Ltd, witnessed a 20% growth in revenue. Without going for any cost-cutting measures, the start-up managed to cut 40% of its expenses by hiring remote engineers.

"Being a research-based tech start-up, we need to work with highly-skilled engineers who charge a lot to work full-time at an office. But the Covid-19 has brought about the concept of remote work and now, we can afford remote engineers at a much competitive rate," Thajid Ibna Rouf Uday, founder and director of ANTT Robotics Ltd, said during an interview with The Business Standard.

The start-up provides STEM (science, technology, engineering and mathematics) education to children. Its model is designed to teach technological skills using virtual platforms. Thus, ANTT Robotics Ltd did not need to pivot. However, a part of their curriculum includes robots which were being imported from China.

"Since we have to import all the electronic components to develop our robots, we had to slow down our production and hardware research. We are unable to import required products as frequently as we could prior to the pandemic," said Uday.

Though ANTT Robotics Ltd was marked safe from the impact of Covid-19, Uday believes investment and mentorship can help the start-up to be more resilient.

Kaalk, an HR-tech start-up, saw a 40% growth in revenue amid the pandemic. When the majority of companies were letting employees go, the start-up retained potential candidates by filtering for the best.

While some start-ups are making the most out of 2020, many trying to hold on to their businesses are barely surviving this pandemic.

On-demand maid service provider, HelloTask, had to fully shut down its operations in March-August 2020, leading to an 80% decline in its revenue. The HelloTask had to downsize its core 30-member team to 12 employees in order to minimise the impact.

According to Mahmudul Hasan Likhon, chief executive officer (CEO) of HelloTask, the start-up is now left with a runway of one-three months and without funding, it will be very challenging to adapt to the new normal.

Health in Action (previously known as PlexusD), a health-tech start-up, also witnessed an 80% decline in revenue amid the shutdown. The start-up was on the verge of expansion when the Covid-19 wave hit Bangladesh.

"We could only execute 50% of our hiring, marketing, and business expansion plan. And to reduce the impact of Covid-19, we cut our employees' salaries by 50% for the first four months," said Nazim Mahmud, managing director and CEO of Health in Action.

Health in Action is now left with a runway of one-three months and its founders are raising pre-seed funding that can help the company pull through the crisis and operate smoothly for 2021.

An Out-of-home ad-tech platform, Sticker Driver, posted a 60% decline in sales since most of its clients tightened the purse strings for advertisements. Although the start-up did not downsize, it halted recruitment, salary increment, and market expansion.

"During the pandemic, our sales dropped, and work orders got cancelled but we managed to pivot by introducing low-cost packages for our clients, and now our operations are perfectly running, and we have an estimated runway for more than a year," said Binoy Barman, founder, and CEO of Sticker Driver.

Bangladesh's start-up ecosystem prospects for 2021

The Business Standard reached out to experts of the start-up ecosystem to know how this year looks from their point of view.

Nirjhor Rahman, CEO of the country's first angel investment network – Bangladesh Angels Network, said, "I think this year will see continued momentum in the ecosystem when it comes to fundraising, including through international VCs and syndicates as we saw at the end of 2020. In addition, the local venture funds, including Start-up Bangladesh are becoming more active, which creates more opportunities for entrepreneurs."

When asked whether stakeholders of the start-up ecosystem are raising any concerns, Nirjhor said, "Long term structural issues persist, be it at a pandemic time or not. We need more start-up-friendly forms of capital and instruments to be implemented in Bangladesh, and concerns of foreign investors and NRBs should be addressed in terms of governance and capital flows."

Mehad ul Haque, project Manager and senior business consultant at LightCastle Partners, said, "Start-ups are now doing better than during the shutdown. However, the situation has changed a bit. It is a lot harder to get investments now."

"Investors have now become more concerned about profit-making. They are focusing more on essential start-ups – ones that are providing services important to us with or without the pandemic," he added.

Given all these facts and situations, it is going to get a bit harder for young start-ups to find investments because investors are going to be a bit sceptic and they would expect start-ups to focus on businesses that have valid products or business models.

When asked if it is essential to attract more local investors to the start-up ecosystem, Nirjhor said, "We need both. Foreign investors bring best practices and local investors provide context."

Mehad added, "There are multiple types of investors who come in at different phases. When you start, you will need angel investors who will give you seed money. When you are growing your company and looking for investment above $1 million, you would need to reach out to VCs or corporates. They are the ones who will be giving you the money to scale up your company."

"Apparently, in Bangladesh, the VC culture is yet to pick up. There is not enough local VC company operating in Bangladesh. The ones that we have do not have much track record of investing above $1 million," he also said.

Since there is the absence of the VC ecosystem in Bangladesh, most companies are raising funds outside Bangladesh.

"Overall, if we take bKash into account, over the past decade, we have had around $300 million investment in Bangladesh's start-up ecosystem out of which, almost $275 million has been raised from the global investors," Mehad said adding, "We definitely need more local investors."

Bangladesh ranked 98th among 100 countries in the Global Start-up Ecosystem, while it scored 23.31 points out of 100 in the Global Innovation Index.

Only one out of 12 start-ups succeed in Bangladesh. The primary reason why start-ups fail is that their inner dimensions get ahead of their outer dimensions, which are called premature scaling.

The lack of financing is another reason for the failure of start-ups in Bangladesh.

The size of start-up funding is only $120 million in Bangladesh, which is 0.04% of the GDP.

Size of start-up funding is $3 billion in Indonesia, which is 0.30% of the country's GDP; $13.80 billion in India, which is 0.51% of its GDP; and $100 billion in the US, which is 0.74% of the GDP.