Beruflich Dokumente
Kultur Dokumente
Report on
Venture Capital Financing in Bangladesh
Course Title: Financial Institutions & Markets
Course Code: Fin603
SUBMITTED TO:
Professor
BRAC University
SUBMITTED BY:
This study has been conducted to analyze the “Venture Capital Financing in Bangladesh.”
The report in this form is the result of their inspiring and invaluable guidance and supervision. We
express our gratitude to supervisor and the lecturer Dr.Salehuddin Ahmed for his guidance and
his timely advice and continuous encouragement.
We also would like to give appreciation to all our friends who have always supported us in our
work and gave us courage throughout the preparation of this research.
Finally we would like to sincerely acknowledge our parents who have always been a support for
us. Without their love and care this work would have not been completed.
LETTER OF TRANSMITTAL
Name ID Signature
MD Nazmul Huda 18364066
EXECUTIVE SUMMARY
This report is prepared as requirement of the Financial Institutions & Markets subjects. This report
focus on current situation of Bangladesh Venture Capital Industry. We tried our best effort to
provide a clear idea about current situation of Venture Capital industry.
In Bangladesh new entrepreneurs do not often have the entrance to the capital to materialize their
ideas or bring high growth prospects into their innovations especially at their early stages. An
enough flow of risky capital in our economy could play a leveraging role to upward entrepreneurial
operation. Generally the angel investors and venture capital firms build this portion of risky capital
for the new companies.
The report is divided into many parts which include: The introduction, objectives, literature
review, data analyzing, recommendation and conclusion. Firstly, introductory part of the study,
the second part is focus on Venture Capital industry history and area, features of venture capital
Companies. After that we describes about the Bangladeshi scenario of venture capital &
investment process of venture capital, Next is the problem and prospects of venture capital in
Bangladesh. At last, findings and recommendations all over the venture capital industry.
Introduction:
In any business capital and human resources are most important factors. People creates innovative
ideas and carry out the duties and responsibilities to attain goals with the help of capital. Capital
actually is the core part of any business to succeed. Hence, business people's main concern is to
collect the requisite amount of capital for the growth and development of the business along with
innovative business ideas with skilled manpower. Now, in the era of modern world, capital
collection for a business now becomes comparatively easier than in the past. Now, any established
well known business firms can collect their required amount of capital from different ways -issuing
shares in the stock market, issuing debt from the bank and other non-bank financial institutions
and selling marketable securities in the money market. But, it is difficult for a new business to
collect capital for the business by issuing debt or share in the market because of having risk of
uncertainty of the success of the business and ability to repay the loan or share when claimers want
it. For this type of business that has a higher possibility of growth in future , venture capitalists
organizations has come forward to help the firms with venture capital financing. Though venture
capitalists know that there is a huge risk for getting their investment in new entrepreneur business
or new startup companies or middle stage companies which needs funds to develop their business
to grow, they take high risks in the expectation of high return comparatively to their investment.
As venture capital financing helps investors to become one of the owners of the new firms, they
try to invest and secure their funds in such a new start up business which has a high probability for
growth like Information technology based firms or agro processing firms. Thus, financing capital
for the new firms, startup companies for the hope of high return create a revolutionary change in
the economy of any county. Venture capital financing has played an important role in the
establishment of many well-known companies in the world-like Google, Microsoft, and Facebook
etc. Venture capital concept is being more popular around the globe after the 2000 year, though its
positions in Bangladesh is not as strong comparative to other countries of the world. No doubt, it
is needed for the growth of the economy by allowing new innovative business firms to come and
contribute to the economy through venture capital financing. Now, in Bangladesh, some venture
capital financing firms are trying their best to help the new entrepreneur opening their new business
by providing financial support and technical support. Now, it is a matter of hope that some business
Venture capital financing. Manny local and international organization now are coming forward to
venture capital financing to the innovative ideas of new young generation, Pathao is one
remarkable example of successful venture capital financing in Bangladesh. It is hoped that the
future of an economy will he more strongly by creating and making more venture capital financing
The Descendants of modern venture capital in the United States developed in the late 19th and
20th century. The first impetus to organize investing from wealthy Americans. The first modern
venture capital was formed in 1946 mainly involved with top university Authority. Doriot started
American Research & Development (ARD). The company's goal was to finance the development
of commercial applications of technology during World War 2. Doriot was the heart & soul of
ARD and is logically called the “father of venture capital”. Doriot's focus is on adding value to
the business, not just providing money. In Northeast, both in New York and Boston, the earliest
venture capital was organized. West Coast's venture capital did not come into being in 1957. By
1992, venture capital on the west coast had become one of the nation's entrepreneurial activities.
While the country's other area continues to be underrepresented, venture capital is expanding
rapidly from the Midwest and Southwest. ARD's dramatic success led individuals in the 1970s to
launch new, private venture capital firms. Some of the earliest imitators were in fact former
members of the ARD team, including Bill CongeRon, the DEC investment initiator of the ARD
associate. This spawning created private venture capital companies that introduced Doriot's spirit
to new firms. The goal was always the "home run" while the "hands-on" management was
always the modus operandi. The "new" venture capitalist (as opposed to the SBIC manager)
provided the entrepreneur with numerous services including access to investment bankers,
Literature Review:
Venture capital is now becoming an alternative source of financing for startup companies and
small business. To realize its importance in the economy a number of researchers has expressed
their research results through different research articles. Venture capitalist invests in stat-up
companies to get high return on the investment. Venture capitalist usually wants to exit i.e. return
back their investment from the portfolio companies after some certain period 4-7 years. So, to meet
the funds of venture capitalists, portfolio companies or entrepreneur has exit option to choose-
trade sale/acquisition or initial public offering (IPO). As IPO gives the entrepreneur the control of
management of their components and run independently, mostly entrepreneurs choose initial
The rapid growth of venture capital in developing countries is noticeable. But, in Bangladesh
venture capital industry doesn’t grow in so much yet. The other southern countries are far more
ahead than us. Bangladesh’s venture capital firms are operating about 10 years, in that sense, our
country’s venture capital is now in an infant stage. Due to having different innovative ideas
generated by young entrepreneurs, Bangladesh has great opportunity to enhance its strength in
venture capital industry that will bring a good impact in the economy [2].
As financial institutions especially banks and non-bank financial institutions don’t provide loans
in uncertain projects like projects undertaken by startup companies or small business. Hence,
entrepreneur faces problems to raise their required amount of money to start their project. In that
scenario, venture capitalists come forward and invest in startup companies after evaluating its
probable growth opportunity in future so that they can return back to their invested funds. Usually,
venture capitalists encourages technology based startup companies through financing, guiding and
monitoring [3].
Different companies that needs venture capitals have different degree of risk. Higher income
generating companies and lower income generating companies both have to pay income taxes.
Govt. tax policies often becomes an obstacle to sustain in present, though it may grow in the future.
Due to the tax policy, not friendly to the ventures, many venture capitalists sometimes avoid risky
venture ideas in spite of having high growth possibility and prefer less risky venture ideas [4].
Venture capital:
Venture capital is one type of private equity that firms invest in startup companies or small
businesses which have a high growth potential in future. Venture capital firms invest in exchange
of equity or ownership stake. Venture capital firms or venture capitalists usually undertake high
risk investment with a view to getting high return when the contract will end between them and
the portfolio companies. Usually the venture capitalists invest those innovative business and can
provide more return in future than the traditional business gives. The business that usually attracts
the Venture Capitalists are technology based IT (Information technology) Firms, Agro based food
processing firms, biotechnology based firms etc. As there is always risk exists in venture capital
financing, it is sometimes called risk investment or patient investment. The funds of venture capital
comes from individual investors, institutional investors and sometimes foreign investors/firms.
Venture capitalists:
As the name suggests, venture capitalists are those persons or institutions that provide funds as
investment to the business venture either for setup the business or expansion it further. Practically,
venture capital comes from different venture capital firms who raise funds from various sources
and invest in those business that has a high probability to grow and capability to provide the
required amount of return to them after the contractual period. Venture capitalists obviously ask
for high return than the usual loan, share market due to taking high risk of return i.e. the funds can
be recovered if portfolio firms become successful or it will be unrecovered if the portfolio firms
Venture capital are provided in different stages. The main six stages of venture capital financing
are as follows:
Seed stage: In this stage, the startup companies just have only the idea, may don’t have
commercially salable products or services. Hence, based on the prospective idea alone, the
startup companies tries to convince investors about the attractive future of their project
idea. The amount of funds provided by the investors are comparatively small and mostly
the funds are used for the market research, development of product, expansion of business
for creating a prototype of the business for attracting investors later in their business and
Startup stage: When a company reaches this stage, typically the companies have
completed their required research and development and constructed a business plan. Now
they are ready to start their product’s or service’s advertising and marketing to attract
trouble customers. In this stage, the company has a perfect prototype and don’t sell their
products or services in the market yet. In this stage the startup companies requires a big
amount of cash for fine-tuning their products and services, expanding their manpower and
First stage: This is the stage when the companies now start to making profit. Sometimes
this stage is called emerging stage. In this stage, company starts selling their products in
the market. Hence, the funds come from investor in this stage goes directly to product
manufacturing to increase sales. The funds from investors come in that stage is typically
significantly higher than the earlier stages. The companies, at this stage, tries to give more
attention on marketing and advertising to reach more customers to increase sales and earn
more revenues.
Expansion stage: Expansion stage is also known as second stage or third stage. In this stage,
the company has high opportunity to extend their business to meet the increased demand
exponential rate. Hence, in this stage venture capital funds helps to extend the business of
the companies (portfolio companies) through product diversification and expanding market
Bridge stage: It is the final stage of venture capital financing. In this stage, it assumes that
a company are now in a mature stage. The funding in this stage company obtained is used
to perform activities like acquisitions, mergers or IPOs (initial public offering).The bridge
stage is very important for a company to become viable business entity and to run it
independently without sufficient support from venture capitalists. So, in this stage, some
investors like to sell their shares and end officially close their relationship with the
Venture capital financing from the venture capitalists can be done in one of the following forms:
Equity Financing: Every venture capitalist give equity financing. It becomes beneficial to
the startup companies as they need funds to grow but usually cannot give return to the
investors. In equity financing, the venture capital firms provides at most 49% of the funds
needed as equity capital. Usually, startup companies' entrepreneurs possesses the actual
control and major portion of ownership of the business. Venture capitalist owns the shares
of the portfolio firm’s profit as well as its losses. If the business becomes successful, then
Conditional loan: Conditional loan is another form of venture capital financing which
doesn’t follow the characteristics of regular loan from bank or financial institutions. In
conditional loan, interest and repayment don’t need to pay but a royalty rate is fixed on the
portfolio firms’ future sales of products or services. At a certain percent of royalty from
the sales amount is needed to pay the Venture capital investors. External risk and cash flow
Income notes: Income notes is another type of financing provided by venture capitalist. It
possesses the characteristics of conditional loan and traditional loan hence the startup
companies need to pay a fixed low rate of interest and a royalty percentage on sales. The
financing which offers three different interest rate on three different stages of the company.
If the portfolio company are in a startup stage, then there is no interest. If it was in
initial operation stage, then there is a low rate of interest. If it already has done particular
level of operations, then venture capital firms ask for high interest rate form the company.
Generally venture firms prefer different types of investments. Some of them focus on early
expansion or seed capital while some others may emphasize on exit financing. Venture firms
usually finance in start-up businesses & medical services, electronic components and companies,
communications receiving the most financing. In order to maintain the balance between risk &
profitability firms may finance early & later stages investment. Majority of the investment in
Bangladesh takes place in Information Technology sector & some other areas of investment are
Participation in management:-
Besides money Venture firms can provide managerial expertise to entrepreneur whereas traditional
As risk are associated with the management, products & operation, their aim is to get high return
Lack of liquidity:-
Liquidity would be a major problem as the project is expected to run at the start-up stage for several
years.
Venture firms finance their money in terms of equity. Capital gain take place if the project is
successful, which is their main benefit otherwise they don’t look for any dividend.
In order to liquid the investment in securities, venture capital takes a long term period.
Economy oriented:-
Venture capital helps to develop the entrepreneur skills as well as it generates more employment.
It also helps the industrialization in the country as well as the technological development in the
country.
Investor oriented:-
Venture capital helps in order to employ firm’s idle funds into productive avenues. Besides
investors are also benefited because they are invited only when the company starts earning profit.
Entrepreneur oriented:-
Venture capitalist is a business partners as they share risk & reward. They inspire in long term
equity financing that gives a solid capital base for future growth.
Mentoring:-
In many areas venture capitalists have a network of contacts that may add value to the company.
The scenario of Venture Capital in Bangladesh is becoming more and more interesting. In
Bangladesh, there was previously no regulation on private equity and venture capital funding. A
regulation was introduced by the Bangladesh Securities and Exchange Commission (BSEC) by a
notification on 22 June 2015. The rules called the 2015 Rules of the Bangladesh Securities and
Exchange Commission (Alternative Investment )Rules, 2015 (the Rules) became effective from
June 22, 2015. In Bangladesh, venture capital is growing as 16 firms are licensed to operate. Some
asset management firms, some private firms, as well as those involved in venture capital have
obtained their licenses for a long time. The venture capital market in Bangladesh, however, is not
really noticeable yet in terms of activity. Some regional start-ups, such as Aavishkaar and Osiris,
are being funded by foreign companies. To create and maintain the funds for equity financing,
private equity and venture capital firms will have to follow the Alternative Investment Rules The
fund managers, who must be registered with the BSEC, must raise capital from qualifying
investors, who may be companies, high-net-worth individuals, and managers of foreign funds.
provide financing the new companies and businesses. To start-up businesses, they create a
financial ecosystem. In general, they want to support such organizations that have creative and
future ideas. They provide various types of financing such as seed, early and growth stage
entrepreneurs and enterprise to support their business expansion through investment facilitation.
BD Venture generally works with a large pool of guarantees and funds. It gives the shareholder
companies full commitment. Institutions such as Mutual Trust Bank Limited, National Bank
Limited, Green Delta Insurance Company Limited, Bangladesh General Insurance Company
Limited, Lanka Bangla Finance Limited, Data Edge Limited holds 80 percent of their shares.BD
Venture has been started to invest in innovative business concepts in emerging and high-growth
IPE Capital: One of the most active VCs in Dhaka having investment in Genex, Cogent
Bangladesh Venture Capital Limited (BVCL) is provide beginning stage funds for the new
business. BVCL wants to make an investment eco-system for the start-up firms in Bangladesh. It
also wants to create a healthy economic culture for all stakeholders. BVCL wants to inspire
entrepreneurs to come up with innovation and creation so that they contribute to the national
economy. BVCL desires to make an investment eco-system for the start-up firms in Bangladesh.
Maslin Capital Limited: MASLIN Capital Ltd is one of Bangladesh's fastest growing alternative
companies. MASLIN Capital Company was born to reverse the economic situation and excellence.
They invest in the newly born yet growing business. Some major projects of MASLIN Capital
Ltd- Maslin Health, Maslin Satellite City, Maslin Firms and Fruits ltd.
Venture Investment Partners Bangladesh Ltd: Venture Investment Partners Ltd, in particular
SEAF Bangladesh Ventures is an investment company. They actually invest medium sized
business and small business in Bangladesh. SEAF Bangladesh Ventures is managed by SEAF
ventures management LLC, Which is a part of SEAF family. They construct partnership with
entrepreneurs to provide financial solution. They also provide business help to growing small and
medium enterprises in Bangladesh. They provide financing to those firms who face difficulty to
get financing from banks and other institutions. Some investment companies in SEAF Bangladesh
GP Accelerator: Country's first early stage start-up acceleration project. The program provides
BDT 10 lakh seed investment for 10 percent equity and has already invested in 5 startups that took
CoderTrust: Co-founder Hideki Fujita is quite active in Bangladesh startups space, often attends
Fenox: Fenox has an investment in Priyo.com, Handymama, shohoj.com and its formal operations
in Dhaka have also recently started. Mind Initiative: SSD Tech's investment wing Mind Initiative
is one of Dhaka's most active investors with Chorki and eCourier investments.
Financial institutions invest their money to the company but venture Capital investment is different
❖ Deal Organization
❖ Screening
❖ Evolution
❖ Deal structuring
Deal Organization-
The company which has a proper management & unique idea, venture Capital search those. They
deal with that Organization which is their first stage financing. First stage is financing of venture
capital they contact a deal with that organization. Deal can be raised in different ways such as
active search system, intermediaries, referral system and among them referral system is a major
source of deal.
Screening-
After dealing with the organization, venture capital screening out the organization based on some
criteria like innovation idea, management team, product, profitability of the market expansion
Capacity which is the second stage of financing process. They also think about the size of
Evolution-
After screening the organization venture capital look the company's position relative to other which
is the third stage of financing. Venture capitalists see the market plan of that company about their
effectiveness in this stage. They also evaluate the characteristics of the market, product, and
technology.
Deal structuring-
Deal structuring is important for both the venture capitalist & the company because here both the
party's bargain about the terms and conditions of the agreement which concern the amount, form
and value of the investment also the right of the venture capitalist to control the enterprise. If
needed, the agreement is to change its purchase arrangements, acquisition, initial public offerings
(IPOs), Management.
Post Investment Activities-
When the Agreement has been finalized, the capitalist assumes the role of a collaborator and a
Exit-
In the exit stage venture capital see how they exit or complete the deal besides they play a positive
role to regulate the company towards exit routes. Some exit routes are like as Initial Public Offering
(IPO), Re-purchase of venture capitalist share, Purchase of venture capitalist share by third party,
Many investments are coming every year for the start-up business. Venture capital is needed for
start-up lunch, early development. Investment in a start-up is a challenging task as here have a
high amount of risk for this reason in Bangladesh venture capital is not available as required. We
have many problems in this sector. We have to solve these problems. Venture capital concept is
In Bangladesh, venture capital investment has problems from both sides and haven’t enough
investors in Bangladesh for a start-up. On the other hand, who are interested in venture capital
investment, they are not getting a perfect start-up platform for investment. Let's see some problems
Problems:
1. High risk
2. Management problem
3. Equity participation
5. Lack of liquidity
8. Loan problem
1. High risk:
Investment in a start-up has a high risk for venture capital finance as a start-up project has a huge
risk factor. There can be high profit or loss. Thinking about the risk factor many financers of
2. Management problem:
In a start-up project, most of the person or company feel management problem because of
experience and proper knowledge. Because of weak management skills, most investors feel
Equity participation is another big problem. Shareholders should be a faithful and trustworthy
person for any type of share venture business. In most cases, we can see that there was some
collusion among shareholders. The shareholders should be honest in their words and agreement.
For a start-up project, investors have to invest for a long time. Both sides have to work with the
patient for a long time as starts up projects need a long time to see a profit. For a start-up project
5.Lack of liquidity:
Lack of liquidity is a common problem for a start-up company and investors as a start-up company
starts from a basic level so that any time there can be a lack of liquidity problem. Most of the case
Marketing is the main problem for start-up companies. If anyone wants to run a project heir
marketing knowledge should be good enough. Without marketing no company can go a long way.
Most of the start-up company owners don't know much about marketing skills. As a start-up
company hasn't strong marketing knowledge most of the case so that most of the cases investors
feel that start-up projects are not secure for investment. We should focus on marketing more to
financial safety as they are starting their project. On the other hand, both sides cannot trust others
though investors and start-up owners both can be benefitted from this type of start-up project. In
the first stage start-up owners cannot give safety it's an almost general thing but from the investor's
side if we want to see the matter we must say they need some security.
8.Loan problem:
A new entrepreneur need lots of documents and paper for Loan and the loan processing time is
Recommendations
Though there have high risks in starting up the project at the same time we can say that there have
a huge opportunity to get profit as well. Venture capital financer should invest carefully thinking
about the start-up company and its future. Bangladesh's government should help start-up the
company and financer to build a better Bangladesh. All companies in the world started from the
zero stage so in this sense we can say that the start-up company is the future big company. patho,
Alibaba, Amazon and many other companies were a start-up company in their 1st stage but now
they are a giant company. Nowadays every investor will be agreeing to invest in those companies.
So we can say that if we want to be the owner of a company we have to take a risk as we don't
know what the future of a start-up company is. But all investors should be careful when they will
go for any investments. We identify many problems but all have a solution. I am giving my
proposed solution.
Solution:
5. Make liquidity
Every work has some risk. In business, we have to take a risk. Investors have to think that they
have a huge opportunity in a start-up of the project if they can take a proper project. They have to
Management skills are very important for a start-up company. Gradually all start-up companies
should create good management skills so that venture shareholders will feel safe for their project.
To gain management skills we have to study a lot at the same time we have to focus on the practical
sector.
Both sides have to be honest in their work as they are working together for a bright future. They
have to maintain equity participation for better business. Honesty and equity will make their
A start-up business needs a huge time but they have some huge profit as almost a start-up company
is building based on the present situation and thinking about the future. So all most idea is modern.
5. Make Liquidity:
From the 1st stage, the company owner has to think about the liquidity thinking about the
company's future. Liquidity is more important to build a permanent future of a company. Both
business. So the Start-up company should focus on marketing skills. They have to hire a good
marker or they have to learn from the book and real field so that investors will feel more attraction.
Investors want safety from the owners .so tries to give safety as much as possible. Both sides have
to trust each other so that their projects will be able to go a long way.
8. Loan system:
Bangladesh bank need to ensure a loan system for new entrepreneur and make sure the interest is
Need to start course curriculum for Entrepreneurship development. And arranges number of
professional training for starting a new business and how to get proper loan and fund.
Need to establish a good communication between venture capitalist and entrepreneur so that
Reference:
[1] Schwienbacher, A. (2008). Innovation and Venture Capital Exits. The Economic Journal,
[2] Khan, M. Z. H., Chen, S., Khan, M. J. U., & Chowdhury, M. (2017). “Haste Makes Waste”
or “Slow is Smooth, Smooth is Fast”? A Study of Venture Capital’s Future Growth in Bangladesh.
[3] Khan, M. Z. H., & Song Chen. (2015). Rain is the best blessing during severe drought: A
Engineering and Technology (PICMET). Presented at the 2015 Portland International Conference
[4] Emil Schram. (1949). Taxation and Venture Capital. The Annals of the American Academy of