Startups defied economic downturn in 2023: study

The startup ecosystem in Bangladesh showcased a notable degree of resilience and adaptability in 2023, when economic uncertainty stemming from geopolitical tensions spread worldwide.

In essence, domestic business activities were significantly impacted last year due to the long-reaching implications of the Russia-Ukraine war, rising global inflation and economic strain.

But at the same time, the country's startup sector witnessed pivotal shifts in the realms of investment and strategic planning.

ECONOMIC BACKGROUND AND GLOBAL CONTEXT

The global scenario for startup funding had seen a substantial downturn in 2023, with investments falling 38 percent year-on-year to $285 billion, as per the Bangladesh Startup Investment Report 2023.

The study was conducted by Lightcastle Partners, a local research and business consultancy.

Despite the country's relatively swift recovery from the Covid-19 pandemic, it faced amplified structural challenges due to the ongoing Russia-Ukraine war.

This included a sharp rise in inflation, sluggish growth in exports, remittance bottlenecks and a significant depreciation of the local currency against the US dollar.

Furthermore, the depletion of foreign exchange reserves and the imposition of stringent import restrictions added to the economic pressures.

However, the startup ecosystem in Bangladesh managed to navigate this turbulent environment with some success.

INVESTMENT TRENDS IN BANGLADESH'S STARTUP ECOSYSTEM

As per the report by Lightcastle Partners, local startups managed to raise $72 million across 45 deals, marking a 42 percent decrease in funding compared to the previous year.

The year commenced with a robust first quarter, witnessing the highest funding at $37 million.

However, the investment landscape fluctuated throughout the year before seeing considerable quarter-on-quarter growth in the October-December period to reach $22 million.

Venture capital firms were central to these investments, contributing 50 percent of the total startup investments.

A key development was the entry of local conglomerates in the startup arena, as exemplified by BSRM's $2.2 million investment in Sheba.

This indicates an increasing interest from traditional business sectors in the startup domain.

SECTORAL PERFORMANCE AND TOP STARTUPS

The report highlighted that the financial services, garments and education sectors were at the forefront in 2023, securing $49 million across 14 deals.

And despite the overall downturn, sectors such as healthcare saw considerable hikes in investment, reflecting maturity and resilience in the face of funding challenges.

Notable startups, including ShopUp, Nitex, 10 Minute School, Arogga and Jatri, collectively secured $53 million, highlighting the attractiveness and potential of local startups to investors.

GOVERNMENT INITIATIVES AND LOCAL INVESTOR CONFIDENCE

The government's commitment to fostering the startup ecosystem was apparent through initiatives like the Fund of Funds and Startup Summit.

The increasing involvement of local investors suggests a rising confidence in the resilience and potential of domestic startups.

This local support is vital in an environment where global investor sentiment remains cautious due to wider economic uncertainties.

PROSPECTS AND STRATEGIC FOCUS FOR 2024

As the ecosystem looks towards 2024, expectations lean towards a gradual recovery.

The focus is likely to remain on strategic resilience, with startups emphasising on unit economics, effective burn rate management, and thorough risk assessments.

Also, collaborative efforts from both within the local investment community and backed by government support are anticipated to be crucial in maintaining the ecosystem's growth trajectory.