Fund crunch, inflation force startups to downsize

As per the advisory firm LightCastle Partners, disclosed investment in Bangladeshi startups dropped to $72 million in 2023 from $125 million in 2022, while in 2021 it surged to a record high of $432 million, including the $250 million Softbank investment in bKash. High inflation, hovering at nearly 10% since March this year, has forced consumers to tighten their belts, making volume retention a tough job for businesses.

Struggling with funding shortages and high inflation, startups in Bangladesh have resorted to aggressive cost-cutting and downsizing for over a year, decreasing the headcount on startup payrolls by nearly one-third since mid-2022, industry insiders say.

The number of employees has dropped from around 50,000 to some 35,000 in just over a year, excluding freelancers, according to them.

Two years ago, grocery delivery pioneer Chaldal expanded into second-tier cities but had to cease operations in certain locations due to a significant rise in commodity and energy prices. Consumers, burdened with unmaintainable living costs, were not placing substantial orders. As a result, the company incurred financial losses leading to suspension of services in those regions.

Before the crisis, Chaldal employed around 3,200 individuals, and, according to its co-founder and CEO Waseem Alim, the downsizing has since reduced its workforce to less than 2,300.

Even the fastest-growing startups, which had been recruiting almost every month, began firing people at regular intervals in phases to reduce their payroll costs.

Before the funding crisis emerged in the middle of last year, over 2,000 Bangladeshi startups, including those in e-commerce and mobile financial services, collectively employed around 50,000 people, said Mohammad Shahab Uddin, vice president of the E-commerce Association of Bangladesh (e-Cab), a testament to their substantial growth that quadrupled job opportunities in just two to three years.

As per the advisory firm LightCastle Partners, disclosed investment in Bangladeshi startups dropped to $72 million in 2023 from $125 million in 2022, while in 2021 it surged to a record high of $432 million, including the $250 million Softbank investment in bKash.

High inflation, hovering at nearly 10% since March this year, has forced consumers to tighten their belts, making volume retention a tough job for businesses.

Over the past one and a half years, funding emerged as the most significant challenge for startups, with global venture capital abstaining from funding, even in cases where startups demonstrated robust growth and substantial potential, said Shameem Ahsan, chairman of the Venture Capital and Private Equity Association of Bangladesh (VCPEAB).

As a consequence, growing startups, except for a very few, had to either halt their expansion or downsize to survive by reducing costs, all due to a lack of expected funding.

When the global money market entered a tightening cycle and startup investors went conservative in 2022, the tech industry’s employment scenario reversed, said venture capital expert Shawkat Hossain, a director of the VCPEAB.

He estimates that the workforce in the startup sector’s payroll has already contracted by a third, reaching around 35,000, excluding freelancers.

For instance, Sheba Platforms, the pioneering and largest technical services ordering platform in the country, had to put on hold its expansion plan last year as a foreign investor shied away at the eleventh hour.

Facing a severe funding shortage, Sheba had to reduce its team size to less than a hundred from over 500. However, this year, with support from a local investor, Sheba has made a comeback and is planning significant expansions with its SME solutions package app, thereby recruiting over 250 new employees.

Adnan Imtiaz Halim, founder and CEO of Sheba, told TBS that the company currently employs around 330 people, and it aims to add some 50 more to its payroll next year.

Technology entrepreneur AKM Fahim Mashroor, founder and CEO of the country’s top job portal Bdjobs, said, unlike most other countries, firms are rarely comfortable with publicly communicating their job cuts and most follow tricky approaches to reduce headcounts.

In lieu of transparent communication, many tech firms implemented their downsizing plans in stages, citing various reasons. Also, some companies consistently create confusion by combining the figures for their employees and freelancers when communicating workforce numbers.

Industry insiders noted a recurring trend throughout this year where employers receive a substantial number of job applications from executives departing from prominent growth-oriented startups including Shopup and Foodpanda, which served as lucrative workplaces for several thousands of individuals during the pandemic.

More than a dozen current and former employees, speaking on the condition of anonymity and citing their non-disclosure agreements, told TBS that the two startups have reduced a substantial number of their direct jobs in the last 15-17 months, in frequent tranches.

According to regulatory filings from their parent firms abroad, both startups reported accumulated losses exceeding Tk650 crore in 2022.

While Foodpanda declined to comment, Shopup contested the information provided by insiders, disputing the claim of a significant reduction in jobs.

Shopup, rather, claimed a six-fold increase in revenue to around Tk4,000 crore in 2023, riding on bulk commodity businesses in the B-2-B segment. It said all its business segments are already profitable before taxes, depreciation, and amortisation.

However, the significant reduction in office floor spaces, more than halved already, seems to align with the alleged job cuts. Both Foodpanda and Shopup have been consolidating into a single-floor office from their previous locations spanning five to seven floors in the capital since mid-2022.

Also, in April this year, Shopup announced a freelancer model based on direct employment for the delivery workers of its third-party logistics arm, Redx, while insiders told TBS it was a team of over 2,000 people.

Third-party logistics firm Paperfly, having missed the second tranche of an announced Tk100 crore investment from its Indian investor last year, had to shut operations amid an acute fund crisis in September when it had a workforce of around 700 people. Later, in November, it resumed operations on a reduced scale.

In the altered funding landscape, each startup had to prioritise enduring challenging business conditions, transitioning away from the pre-Ukraine war emphasis on rapid growth, said Shameem Ahsan.

“Reducing office and salary expenses is a significant component of cost optimisation in tough periods,” he said.

In 2023, only a handful of the prevailing startups emerged as net job creators, with Sheba Platforms leading the list alongside others like the courier-to-food delivery and ride-sharing startup Pathao and the self-grown smart logistics firm SteadFast.

According to Shahab Uddin from e-Cab, around 200 new startups hired personnel this year, helping to mitigate the impact on the startup job landscape; otherwise, the downturn in 2023 could have been more substantial.

The government grabbed the funding baton during the crisis when foreign investors held back. Startup Bangladesh, the state-owned venture capital firm, was keeping alive several dozen home-grown, potential startups.

“The funding needs to be much bigger, especially for the growth-stage startups that have the potential to significantly scale up in the fast-growing economy of Bangladesh”, said venture capital expert Shawkat Hossain.

The government is chasing a “Smart Bangladesh by 2041” vision, with a view to helping build 50 home-grown unicorn startups in the next two decades that would help generate one crore jobs.

The government recognises MFS players bKash and Nagad as the two unicorn startups in the country that have a market value of over $1 billion.

Startups have already created earning opportunities for 15 lakh people in Bangladesh, according to Startup Bangladesh.

Neighbouring India, with nearly a lakh recognised startups, including over a hundred unicorns, has emerged as one of the most vibrant and fastest-growing startup ecosystems in the world and the country has been seriously counting on technology-leveraging, scalable businesses to reach its goal of being a $5 trillion economy.

Due to the ongoing funding winter, however, investment in Indian startups dropped by 60% year-on-year, reaching a seven-year low of over $10 billion in 2023, according to Inc42.

Bangladesh, eying $5 billion in foreign investments in startups every year, would need to have more startup success stories alongside removing the barriers being faced by investors, said venture capital investors and startup entrepreneurs.


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