Covid-19 has shuttered 1 in 4 Bangladeshi startups: Study

The Covid-19 pandemic has forced 24 percent of Bangladeshi startups to cease their operations, according to a study conducted by business consultancy firm LightCastle Partners.

It found that 56 percent of startups had seen at least a 50 percent drop in revenue generation, while 52 percent of seed-stage startups saw a decline in business.

On the other hand, 12 percent of startups have seen some growth in business, while 10 percent saw no impact.

Findings of study titled "Bangladesh Startup Ecosystem – The Untapped Digital Goldmine of Asia" were disclosed recently.

The study said 54 percent of startups reduced their variable costs, and cut or froze salaries, as the first measure in the face of the pandemic.

Only two percent did not take any action while 18 percent of the respondents said they had to resort to employee layoffs.

Also, 59 percent of the startups sought loans and bond-type leverage during the crisis, and 63 percent had less than three months of runway.

All but 3 sectors in peril

Covid-19 has had a large impact on sectoral revenue in Bangladesh, the study said. Important earning sectors – such as apparel, e-commerce, automotive, ridesharing, real estate, and travel – have seen a more than 80 percent revenue impact.

However, grocery, logistics, and digital financial services are the three essential sectors that have seen a positive impact on business.

Startups growing in Bangladesh

Bangladesh has more than 1,000 active startups and the number has been growing every year. Dhaka, Chattogram, and Sylhet are the major active cities in the startup ecosystem.

The government created a Tk100 crore seed investment fund this year. Twenty-eight high-tech parks have already been launched and 2,650 unions have broadband connectivity.

The startup ecosystem has so far created 15 lakh jobs.

How are Bangladeshi startups doing?

Startups – entities working towards innovation, development, deployment, and commercialisation of new products, processes, or services driven by technology or intellectual property – are not doing well in Bangladesh, according to LightCastle Partners.  

The business consultancy firm pointed out that the country's startup ecosystem ranks near the bottom of the global startup ecosystem, which ranked Bangladesh 98th out of 100.

On the Global Innovation Index 2019, Bangladesh ranked 116th out of 129 countries.

Finding the right talent and access to financing remain the key challenges for emerging startups, according to the LightCastle Startup Index 2019.

It said finding the right co-founder, a good team, and access to finance are more difficult in Bangladesh than attracting clients, access to mentorship, and office setup.

The difficulty level for finding the right co-founder and a good team is more than 65 percent, whereas it is about 50 percent for access to funding.

LightCastle Partners analysis shows funding for startups in Bangladesh as a percentage of GDP is significantly low compared to other Southeast Asian countries, and the already low Startup Funding State of Bangladesh is at stake due to Covid-19.

Startups all over the world are already facing a lot of trouble when it comes to funding. Due to the recession sparked by Covid-19, the number of startup investment deals worldwide per month has dropped by more than half (55 percent) since the pre-coronavirus era (November 2019).

Why startups succeed or fail

Building a successful business is every entrepreneur's goal but only one in 12 succeeds in doing so.

Startup Genome, a San Francisco-based data-driven research and policy advisory organisation, said balance is one of the most important principles a successful company has. Creating a successful startup is a balancing act amongst many variables simultaneously, often amidst environments of extreme uncertainty and volatility.

Over the years, Startup Genome gathered and analysed a comprehensive data set on over 34,000 companies and discovered that the primary reason startups fail is that their inner dimensions get ahead of their outer dimensions, which the company describes as premature scaling.

LightCastle Partners thinks that an enabling policy can promote the growth of startups and the ecosystem, attracting foreign investment in the ecosystem, thus benefiting the country's growth and employment rate.

Fund for funds, investment-friendly environment, ease of doing business, and industry-academia collaboration can boost Bangladeshi startups, it said. 

The business consultancy firm also thinks that the ICT ministry can establish a Tk150 crore startup support fund programme in the form of grants, quasi-equity, or matching funds to support 150 startups for a runway of more than 12 months.