_{The Bangladesh Startup Investments Report 2023 is a comprehensive overview of the investment landscape within the country’s rapidly growing startup ecosystem. The report is prepared by LightCastle Partners in partnership with Startup Bangladesh Limited, Anchorless Bangladesh, ExitStack, and BD Startup Founders Group.}

Summary 

• Despite global economic challenges, Bangladesh's startup ecosystem showed resilience in 2023, attracting US$72Mn in investments across 45 deals.
• Sectors like financial services, garments & textiles, and education attracted significant investment, highlighting their growth potential.
• The government played a crucial role in supporting the ecosystem through various initiatives, aiming to foster innovation and attract more investments.
• The presence of both local and global investors, along with a focus on sectors poised for growth, indicates a promising future for Bangladesh's startup landscape.

‍Introduction

In 2023, Bangladesh faced several macroeconomic challenges. Inflation levels reached the highest point in a decade, foreign exchange reserves were depleting, and there were import restrictions. Despite these difficulties, the economy demonstrated remarkable resilience, rebounding with a growth rate of 6% by the end of the fourth quarter. Furthermore, geopolitical tensions added to the existing structural instabilities. Nevertheless, 2023 emerged as a critical year for Bangladesh's startup ecosystem, which displayed adaptability and resilience in the face of global economic pressures and local challenges.

Economic Challenges & Investment Landscape 

Global startup funding experienced a downturn, with a 38% decrease from 2022, totaling US$285Bn. Despite a 42% reduction in funding from the year prior, Bangladesh's startup scene secured US$72Mn in investments across 45 deals. This reduction reflects broader global trends but also highlights the strategic shifts within the local startup ecosystem to navigate these challenges, even in a climate of declining investment trends. Notably, early-stage deals witnessed a surge in the fourth quarter, while late-stage investments constituted 65% of the total funding raised in 2023, amounting to US$47Mn. This underscores the maturity and resilience of startups despite the global funding downturn. In terms of sector, garments and textiles emerged as the top recipients of venture capital funding in 2023, followed by the education and healthcare sectors. 

Bangladesh continues to attract attention as a rising economic power, buoyed by a burgeoning consumer market, a young workforce, and preferential trade advantages. These factors contribute to its economic resilience and promise, highlighting a future of growth and innovation opportunities within its startup landscape. 

‍Opportunities in the Bangladeshi Startup Ecosystem 

Emerging Sectors

‍Specific sectors, namely financial services, garments & textiles, and education, attracted notable investments and secured US$49Mn across 14 deals in 2023. This investment pattern highlights the sectors' strengths and potential for growth. The financial services sector was the standout, receiving US$32Mn through 6 deals, which reflects the increasing demand for fintech solutions and digital financial services. Some noteworthy deals included ShopUp, 10 Minute School, Arogga, and Jatri, which collectively secured US$53Mn.

Bangladesh's strategic location between China and India, combined with its participation in the Belt Road Initiative (BRI), makes it an attractive destination for investment, offering access to the vast Asian consumer market of 2.2 billion people. This geographical advantage, along with the nation's economic progress and the expansion of the middle class, creates a favorable environment for investments, especially in the context of a growing digital economy. According to HSBC’s “Asia’s Shoppers in 2030” report, Bangladesh is predicted to become the ninth-largest consumer market globally by 2030, with its digital consumer market also expected to grow significantly. This growth is fueled by factors such as urbanization, improved internet access, and a population inclined toward digital adoption. This outlook suggests a promising future for Bangladesh's startup ecosystem, with particular sectors poised for further development.

Local and Global Investor Interest

Local investors were involved in the highest number of deals, showing a 1.1x increase from the previous year, 2022. The ecosystem demonstrated signs of robustness, particularly in Q4, with significant deals and an uptick in global investment interest, supporting 99% of startup investments and marking a shift away from the previous quarter’s local-centric trend. Moreover, global investments accounted for 63% of total funding, which signifies continued interest from foreign investors. 

Venture Capital firms have continued to play a major role in the startup landscape, accounting for half of the overall investments, which amounted to US$36Mn. An interesting development in the investor pool is the participation of local conglomerates like BSRM. Their US$22.2Mn investment in Sheba further diversified the funding sources and created new capital opportunities for Bangladeshi startups.

The central themes of the startup ecosystem have been a decrease in global funding and strategic shifts toward sustainability and unit economics.  However, the startups have shown resilience by adapting to and navigating through economic uncertainties with the help of a combination of local and international investment interests.  Rapid digitalization has empowered financial access and opened up new markets, as evidenced by the growth in digital payments and the registration of 220 million Mobile Financial Services (MFS) accounts. The adaptability of the local startup scene and the strategic shifts in investment trends have been crucial in maintaining momentum amidst global and local challenges.

‍Government Support and Future Outlook

The government of Bangladesh has played a significant role in nurturing the country's startup ecosystem. They have made efforts to streamline customs procedures, improve the road network, and invest in digital infrastructure, which has helped create a conducive environment for startups to thrive and innovate.  Initiatives like the Fund of Funds and the Startup Summit demonstrate the government’s commitment to fostering innovation and entrepreneurship. The anticipated National Startup Policy in 2024 is expected to further enhance the ecosystem's foundation, boost logistics performance, and make Bangladesh more appealing to foreign investors. The government's support, along with private sector initiatives, has been instrumental in revitalizing the startup ecosystem. Tax exemptions, subsidies, and funding opportunities are crucial for startups, and the government has been providing them to create a supportive environment for entrepreneurs. The 'Digital Bangladesh' vision also underscores the government's proactive approach to integrating technology into the country's economic and social spheres. This approach has further boosted the confidence of startups and provided them with more opportunities to flourish. 

Conclusion

Despite facing a challenging year, Bangladesh's startup ecosystem has displayed resilience and adaptability. The strategic shifts, government support, and sectoral strengths indicate a solid foundation for future growth. With a young and ambitious population, a thriving tech sector, and a commitment to digital transformation, Bangladesh is poised to leverage its unique advantages to drive innovation and economic progress. Both the government and private sector players have proactively supported startups, and the increasing influx of investments and global recognition highlights the dynamic and evolving nature of Bangladesh's startup ecosystem. 

To learn more, read the Bangladesh Startup Investment Report 2023 here.