Despite the uncertainty created by the coronavirus crisis, founders of digital logistics platform Loop Freight were certain that their ongoing deal with Anchorless Bangladesh - a USA based venture capital (VC) firm – would come through. Just like Loop Freight, Anchorless were not in it for the quick money.
" We are trying to solve a problem we strongly care about, and creating an impact in the long run, something which resonates with the vision of Anchorless in Bangladesh as well," the Co-Founder and Managing Director of Loop Freight, Rajib Das said.
Anchorless Bangladesh provided Loop Freight with an initial seed fund of $600,000 in May this year. This was the second investment made by Anchorless since its inception in 2019. The VC firm started its journey by investing $830,000 in Gaze AI – a Singapore-Bangladesh based artificial intelligence start-up.
Anchorless's approach with both Gaze and Loop and all the investments to follow, is that they will not just provide capital to early-stage startups, but also actively guide them on their journey to scale their business for an eventual sale or public listing.
Partners at Anchorless believe that operational support, technical assistance, access to global resources, and mentorship are more important for a start-up than just financial aid.
"As an ex-founder, I can empathize with founders. Money in and of itself isn't often enough to support founders who could benefit from a feedback loop or introductions to potential clients and advisors. The right investor can create more value for a company, even with less money," said Rahat Ahmed, founding partner and CEO of Anchorless Bangladesh, in an interview with The Business Standard.
Prior to the inception of Anchorless, Rahat covered emerging markets equities with a focus on frontier markets at Prince Street Capital, the hedge fund he later brought in to help seed Pathao.
"We do not like investing in founders who just want the money. We expect these to be long-term relationships, often over five years. It is as much about the people and their ability to work with us in building the right teams and partnerships, and wanting to work towards a bigger vision."
In 2016, the late Fahim Saleh, co-founder of Pathao who was tragically murdered earlier this year, told him that the logistics start-up was raising funds.
"Back then, venture capital was not exactly common in Bangladesh. When I read an email from Elius describing his plans for Pathao, I was blown away and pinged my ex-boss at Prince Street," said Rahat. Soon after, they came to Dhaka and made an investment in Pathao.
Rahat's connection to Bangladesh has been consistent throughout his career, starting from 2004, and being heavily active in the Dhaka Stock Exchange thereafter. According to him, a country with a dense consumer market and a population where the majority are under 30, brings about great opportunities for start-ups to grow and investors to build their portfolios by empowering young, exciting talent.
Now, Bangladesh's start-up ecosystem is growing steadily. There are more enablers in the form of accelerators and incubators, and there are more founders. While there is still a significant funding gap compared to India and Indonesia, foreign investment continues to increase.
According to Light Castle Partners, over $200 million has been invested in start-ups in the form of international venture capital till now. Rahat believes that with the right guidance and access to resources, founders can become regionally competitive; as local start-ups gain traction and common misconceptions about Bangladesh are dispelled, investments from foreign firms will also increase.
Money being invested in start-ups in Bangladesh by foreign investors can help to strengthen the country's economy. According to industry experts, the start-up ecosystem can contribute 2 percent to the GDP by 2025.
However, there are some start-ups that seek investment just for the money, mistaking investors to be a silent, inactive source of funding used to sustain immediate gaps in cash flow. This is a poor strategy as money will eventually run out—and investors can often identify founders without a greater purpose.
Referring to this red-flag, Rahat said, "We do not like investing in founders who just want the money. We expect these to be long-term relationships, often over five years. It is as much about the people and their ability to work with us in building the right teams and partnerships, and wanting to work towards a bigger vision."
While it varies from firm to firm, VC firms assess potential investments on pre-set criteria. In the case of Anchorless, the firm is searching for startups that are at the seed round or "Series A" round or approaching "Series B". These companies also need to have shown a clear pathway in how they are using technology to scale the business.
Along with that, startups should have a clear plan on how to utilize the initial round of investment, how those plans set the stage for the next round of growth and expand into future revenue and market opportunities. They should also aim for regional expansion and be open to collaborating with Anchorless's existing portfolio companies to maximize potential.
Rahat also mentioned that young entrepreneurs often fail to distinguish between start-ups and small-medium enterprises (SME). Most of the start-ups that he has come across at Anchorless operate on SMEs business model, generating profit while offering a consistent long-term value. On the other hand, a start-up should be dominating its market with the expectation of raising future funding to drive that growth.
"There is a lot of money out there in the world, and Bangladesh has barely started tapping into it. We need to show a grander vision from our founders to bring that type of capital into the country."
Despite significant improvements and changes in the local startup culture since the early 2010s, driven by organizations such as Startup Dhaka and on the back of local successes of companies like Pathao and Sheba, there are still long ways to go and a lot of continuous effort required to maintain momentum.
Like in any other country, the success rate of start-ups in Bangladesh is very low. Out of 100 start-ups, around 90 end up failing. This low percentage of success, however, does not stop investors from funding start-ups. According to Rahat, even if 80-90 percent of the start-ups fail, the success rate of the remainders can lure in a promising return on investments.
Asked about the impact of the Covid-19 pandemic on start-ups and the start-up ecosystem, especially when many start-ups have shut down, Rahat said times like these can also be a great opportunity to innovate.
"While many start-ups had to seize operations, a bunch of start-ups saw opportunities, came up with products and services, and started gaining traction during the Covid-19 pandemic. The situation has had a huge impact on some start-ups and has created space for certain start-ups to expand as well, and we are looking forward to work with such ventures," he said.
Alongside providing investments to potential startups, Anchorless Bangladesh also prioritizes helping any sincere and active stakeholder in the startup world.
On that note, Rahat said, "We are always here to support startups on their path. Even if we do not fund a company, we want founders to send us updates and reach out for feedback. We know that ultimately, the success of our portfolio is connected to the success of the ecosystem as a whole, which is why we will support it at every step possible."