Though the Bangladeshi startup ecosystem is not as strong as in most advanced countries, the ecosystem has expanded greatly in the last few years. The country’s top startups have acquired a large sum of investment, but mostly from global players – venture capital firms and angel investors. Experts and analysts are forecasting that we are only a few years behind to have our first unicorn — a startup with a $1B valuation, which is the much-coveted number for any tech startup.
Bangladeshi startups are getting increasing traction due to the market size and untapped potential. According to DATABD.CO, startups in the country have raised more than $800 million since 2013, where 96% of them were from international sources.
A sector-wise breakdown of investment amount reveals us about the investment scenario. The clear triumphant is the Fintech sector, garnering about 70% of the total financing. The Fintech sector is followed by Logistics & Mobility and E-commerce & Retail, with respectively about 13% and 6% of total financing.
The first thing that springs to mind when most Gen X and some millennials think of “tech” is a computer, robot, or some kind of machine and hardware. At least, it has long been the norm. Nowadays, in the minds of Gen Z (and most people in the field of tech), tech means applications, software, and other tools.
Very crudely and very broadly, startups can be divided into two sections: software-based and hardware-based startups. However, it should be mentioned here, so as not to create any confusion, that many startups integrate both functions. And this distinction or categorisation is mostly made-up or solely for analytical purposes. But pitting them against each other is not superficial when one finds that some forms of pattern emerge in startup funding.
Looking at the global perspective, software startups get ten times more investments than hardware ones, claimed an opinion piece published by London Business School’s Private Equity and Venture Capital Club. The Pitchbook VC data for 2021 corroborates this claim. Earlier in 2014, this same VC firm, noted the bias towards software-based startups and said in a scathing remark, “venture capital has ignored the future, and what price the industry—and the general public—will pay down the road, nobody knows.”
To clarify, a truly great — revolutionary, and transformative — technology involves both hardware and software. Solving many problems of humanity requires building better technology dealing with the sectors like climate change, biotechnology, etc. Only making software — applications and consumer solutions — don’t mark any real progress in terms of technology.
Bangladesh has not seen any notable hardware startups in recent years, while the ecosystem has expanded greatly due to both internal and external factors.
The most common type of startup we see all over the world is what we call, in short, SaaS (software as a service). These kinds of startups are less capital intensive, meaning they require less money to operate, as in these startups, the money is mostly spent on employers’ salaries. This is mostly because creating “software” can be done only using a personal computer. Here the final product is an application built on codes – thousands of lines of them.
On the flip side, hardware-based startups perform slightly differently. Here the final product is a device, a machine. Notedly, running the device or the hardware requires an application too. Putting aside this fact, the machine needs to be manufactured. It costs manpower and additional resources.
A comparison between these models of startups and the state of Bangladesh’s startup ecosystem may put some light on the question in the headline.
In Bangladesh, there are not many hardware startups, to begin with.
Considering how the startup ecosystem works all over the world, the scenario in Bangladesh is not a fundamental aberration.
But there is a persistent problem here in our country. Most of the investments in our country are coming from foreign investors. Looking at the DATABD.CO report of “Bangladesh Startup Ecosystem 2021-22: Coming of Age,” published on September 15, 2022, the top 13 startups that have got financial backings are all software-based startups. We don’t have specific data on the startups that are working with machines, robotics, and “engineering” buildups.
One of the reasons for this could be the tendency to avoid risks. By definition – or market model – most startups are bound to fail. It is often said that 99% of startups eventually fail.
Software startups, as they are less expensive to find and keep floating, are safer bets. In such cases, initial expenditure – before any substantial and concrete outcome from the part of the startup – is not much. In contrast, hardware startups demand money for machines and equipment from the onset.
There are a plethora of certain types of startups. For example, edtech, ride-sharing, digital marketing, home delivery, and e-commerce. For such types, the market even appears saturated.
The sectors of startups that are gaining a foothold in Bangladesh are mostly SaaS, health tech, Edutech, e-commerce, logistics, etc. – basically providing services to customers. Some notable names, such as ShopUp, Sheba, bKash, Pathao, etc., are on being profitable companies. And all of them are software-based startups.
In software as services, subscription models are the most common way of earning revenue. It is much easier for them to hold existing customers as well as get new ones rapidly. It’s also easier to roll out a new feature within a short period of time. This fact gives SaaS flexibility and versatility in terms of providing services. Furthermore, as with software, the financial stake is not higher.
With hardware, add maintenance costs to manufacturing costs. And when you have a 99% chance of failure, it doesn’t appear lucrative to invest in a hardware startup.
This article is one of perception and market analysis from a personal observation over the years. Necessarily I do not contend that my hypothesis is correct, mostly because there have been no studies on this particular idea that I have forwarded here.
But the point of this piece is to pose a problem that might intrigue some readers to look at the market a little differently and experts to inquire whether any substantial patterns exist or not. The purpose, admittedly, is to initiate a floor for further discussion and research.
Author- Sabyasachi Karmaker