UCB announces Tk700 crore alternative investment funds

United Commercial Bank (UCB) as the first local commercial bank has announced plans to launch a venture capital fund and a private equity fund, with a target size of Tk350 crore each, to add to the momentum in the alternative investment ecosystem of Bangladesh.

The publicly listed commercial bank in a disclosure on Tuesday said it would invest Tk100 crore in each of the funds as the sponsor and the rest of the amount would be raised from local and foreign investors.

The two funds, dedicated to providing equity and funding support to talented young entrepreneurs, will be managed by a planned alternative investment subsidiary of UCB named UCB Alternative Investments.

Despite the fact that Bangladesh lags behind in the alternative investment arena, it is going to take off in the coming days, said UCB Deputy Managing Director ATM Tahmiduzzaman.

He believes their initiative will be a catalyst for adding momentum due to the fund size as well as UCB's reputation, expertise, and governance standards.

Alternative investment includes venture capital funding in the early stage of startups, which are scalable, tech-enabled companies.

Private equity, another form of alternative investments, then comes at the next stage of the recipient companies' growth path.  

Investors get their exits through the stock market listing of the invested firms or acquisition by another firm or selling shares to other investors.

Fund managers are responsible for choosing and nursing the recipient firms to help them grow and also creating returns for alternative investors.

Bangladeshi startups have received around $290 million in venture capital investments over the 2016-20 period, which was nearly $50 billion in India during the same period.

Over 90% of the $290 million came from foreign venture capital firms.

bKash, Pathao, Chaldal, and Shohoz are examples of Bangladeshi firms that proved their worth to the world after securing alternative investment funding mainly from foreign investors. 

On the other hand, Sheba, Doctorola, and Eon Foods are among the companies that grew with the support of local venture capital or private equity investments.

Alongside several Bangladeshi specialised venture capital firms, such as BD Venture and Bangladesh Venture, the country has already got around a dozen expert teams under the securities regulator's licence to handle alternative investment funds as fund managers.

Anchorless Bangladesh, Pegasus Tech Ventures, Osiris Group  are among the many foreign firms which invested here in  promising local startups.  

Brummer and Partners Bangladesh is the largest private equity investor, which manages foreign funds in Bangladesh and invested in many renowned businesses including Runner Automobiles, Agora, Popular Pharmaceuticals.    

Bangladesh government's venture capital firm Startup Bangladesh Limited emerged as a boost to the startup funding ecosystem here and the firm announced its plan to invest Tk100 crore in 2021 alone.

From the local financial sector, LankaBangla Securities, the top brokerage firm in the country, launched the first local private equity fund with a target size of Tk25 crore while IDLC Finance, the top non-bank financial institution, formed a venture capital fund with a target size of Tk45 crore last year. 

Like those, UCB Venture Capital Fund-one and UCB Private Equity Fund-one are also going to be floated for a decade, after which the fund manager will pay back to investors.

Tahmiduzzaman said dozens of Bangladeshi startups had uplifted the sector before the eyes of international investors while hundreds more are trying to do so with their business ideas and they need capital support.

"Funding initiatives for them by the local industry are still inadequate and we believe the sheer size of our funds will be a breakthrough," said the UCB deputy managing director.

Moreover, investors will have better confidence in the two funds that are the largest ever local ones, he said.

He explained that investors' awareness is a key factor behind the poor funding scenario despite the fact that the country has got more than enough rich individuals and corporates to opt in as alternative investors.

UCB would work hard to bridge the gap between investors and young firms, said Tahmiduzzaman, who is very optimistic about the IT-enabled business sector.

Bangladesh, which began the alternative investment journey in early 2010s, at least a decade later than its peers, got the pertinent regulations made by Bangladesh Securities and Exchange Commission in 2015.

Also, the Bangladesh Bank is now inspiring and advocating for a strong alternative investment ecosystem here.

According to the Venture Capital and Private Equity Association of Bangladesh, startups have already created eight lakh employment opportunities in the country.  

The local bourses have already prepared their alternative trading boards to list the startups for capital accumulation and price discovery of the firms.

Half a dozen startups recently held a meeting with the securities regulator on how they can make their way to the bourses.

There are over 1,000 startups in Bangladesh now. 

Mohammed Rahmat Pasha, who heads the capital market subsidiaries of UCB, told The Business Standard, "Of them, there must be many that can ignite a revolutionary change in our ways of life the way Facebook, Uber, and bKash did."

"Initially, these firms, with their main strength being their ideas, may be risky investments for mass investors. That is why the job of deciding investments is ideally held by experts among alternative investment fund managers."

He further said, "When investments prove successful, the grown-up firms may get listed on our bourses and can offer mass investors diversified fields to put their money into."