Whatever happened to Bangladeshi startups?

Illustration: TBS

For much of the past decade, Bangladesh's startup ecosystem was hailed as one of South Asia's quiet success stories. Rapid smartphone penetration, growing internet usage, a young population, and a surge of tech-enabled services fueled optimism that Dhaka could emerge as a regional innovation hub.

However, today that optimistic narrative is facing a sobering reality check. The flow of capital has slowed dramatically, local investment has nearly evaporated, and founders are grappling with an environment that feels far more challenging than it did just a few years ago.

While the ecosystem is not collapsing outright, the signs point to a prolonged slowdown. This raises an uncomfortable question: was Bangladesh's startup boom built on fragile foundations? It also prompts another: will the upcoming national elections bring any changes to the startup scene?

Why startup funding dried up

After several years of steady growth, startup funding in Bangladesh took a sharp downturn in 2024. Total investment fell to around $41 million, a drop of roughly 41% from the previous year, marking the lowest level in nearly six years. Even more striking was the collapse of local capital: domestic investors contributed only a tiny fraction of total funding, amounting to an estimated 95% decline compared to earlier years.

Global investors are increasingly prioritising profitability, capital efficiency, and emerging technologies such as artificial intelligence and deep tech — areas where Bangladesh has limited exposure and relatively few investable startups. Capital that once flowed into emerging markets is now concentrated in more mature ecosystems.

Many local investors still expect quick returns, despite venture capital typically requiring a three- to seven-year horizon before meaningful exits. This mismatch between startup realities and investor expectations has made long-term commitments increasingly rare.

Tanveer Fahad, a young entrepreneur, explained from his experience, "It's been very difficult trying to secure funding for my startup, which was focused on innovating community experiences. Investors are far more risk-averse now compared to several years ago. They aren't drawn to businesses that aren't already cash flow positive." 

He added, "In my experience, foreign investors only invest if they know the founders personally. Generally, they look at a startup ecosystem more broadly — whether other investors are participating or not."

Elections will help as investors respond to stability and predictability. But the deeper issue is whether Bangladesh projects itself as genuinely ready for business. That depends on rule of law, corporate governance, transparency, and the quality of institutions. Without these, even generous funding will struggle to find productive homes.

Sajid Amit, Financial expert and academic

One of the ecosystem's most persistent vulnerabilities is its heavy reliance on foreign funding. Even during its strongest years, more than 90% of startup capital in Bangladesh came from international investors. While foreign capital helped accelerate early growth, it also left the ecosystem highly exposed to global market cycles.

As international investors pull back or redirect funds elsewhere, there is little domestic capital ready to fill the gap. Local venture capital firms, corporate investors and family offices have largely remained cautious, a trend that has continued into 2025. This stands in contrast to markets such as India or Vietnam, where domestic capital plays a stabilising role during downturns and helps sustain startups through lean periods.

Will the election change the equation?

With national elections around the corner, many entrepreneurs and business experts are hopeful that political clarity could restore confidence in the business environment. A stable government can signal policy continuity, encourage long-term investments, and reduce perceived risks for both domestic and foreign investors.

However, experts also warn that elections alone are unlikely to resolve the deeper structural challenges the startup ecosystem faces. Without deliberate efforts to develop local capital markets, improve access to talent, simplify regulations, and establish clear exit pathways, any post-election funding surge may be short-lived. 

The real test will be whether policymakers, financial institutions, and the private sector can coordinate to strengthen the ecosystem's fundamentals — rather than relying solely on political optimism.

Financial expert and academic Sajid Amit believes that elections will help as investors respond to stability and predictability. 

"But the deeper issue is whether Bangladesh projects itself as genuinely ready for business. That depends on rule of law, corporate governance, transparency, and the quality of institutions. Without these, even generous funding will struggle to find productive homes," he added.

Challenges at the core

Beyond funding, deeper structural challenges have further slowed the startup ecosystem. One key issue is the shortage of the right kind of founders who combine the right mix of technical, managerial, and market skills. Many appear more focused on achieving a quick exit than on building sustainable, long-term businesses. 

Bangladesh has yet to see a significant number of high-profile IPOs or major acquisitions that return capital to investors and validate the venture model. Without these successful exits, investor confidence wanes, and the cycle of reinvesting capital into new startups becomes nearly impossible.

"Investors (both local and NRBs) are not taking enough bets on talents who have the potential but need strong guidance and mentorship. This leads to founders eventually giving up on building startups altogether in Bangladesh and move on to building other kinds of businesses or moving to other countries to build there," noted Fahad.

Market limitations also pose challenges. Despite a large population, high internet costs and fragmented consumer purchasing power restrict scalability for many digital products. Regulatory friction adds another layer of uncertainty, with complex bureaucratic processes and unclear rules for emerging sectors discouraging both founders and investors.

Talent remains a further constraint. While Bangladesh produces a growing number of graduates, professionals with deep technical expertise, global business exposure or scale-up experience are still scarce. This talent gap makes it harder for startups to expand beyond the domestic market and compete internationally.

On top of that, societal expectations and deep-rooted norms also play a role. Many entrepreneurs feel pressure to prioritise short-term gains over bold, long-term thinking, which can limit ambition and risk-taking.

What needs to be done

Policymakers have acknowledged these challenges and introduced measures such as Bangladesh Bank's Tk9 billion startup financing fund. While such initiatives are welcome, many ecosystem observers argue that funding facilities alone are insufficient. 

Without reforms in tax policy, equity regulations, and ease of doing business particularly around startup exits, investor confidence is unlikely to return.

"It would make a lot of difference. Since, startups are high-risk but high-reward, it helps if governments have a stake in this game through policies that encourage local angel investments and then in turn FDIs. Without strong involvement of the government, investors are apprehensive and their risk appetite suffers," Fahad said.

Sajid Amit said, "The startup ecosystem cannot be built only through government grants or corporate branding exercises. We need structured collaboration between government, universities, and the private sector."

"Universities, in particular, must play a stronger role. The job market is tougher than most people realize. Our surveys show that even strong graduates may submit close to a hundred applications, attend interviews, and still receive no offers. This reality demands a national focus on self-employment skills," he added.

So, is Bangladesh's startup bubble bursting? Not entirely. What Bangladesh appears to be experiencing is less a collapse and more a hard lesson. The era of easy money and inflated expectations is over, replaced by a tougher environment that demands stronger fundamentals.

For the ecosystem to regain momentum, it will need patient local capital, modernised policies aligned with venture realities, targeted talent development, and — perhaps most importantly — a clear pathway to exit. Without these, the current startup winter may last far longer than many had anticipated.