Angels’ funds flow in for beginners

Dhaka,  Sat,  23 September 2017
Published : 04 Aug 2017, 22:41:52 | Updated : 05 Aug 2017, 09:47:18

Angels’ funds flow in for beginners

Startups get small, median capital from such neo-investors
Jasim Uddin Haroon

New-generation investors called 'angels' are now pouring funds into startups, turning Bangladesh's investment scene interesting, despite lack of adequate policy supports.

According to people familiar with this latest development on the front of finance capital, business angels or angel investors are affluent and wealthy individuals who invest their personal or their groups' capital in startup companies in return for an equity stake.

The entrepreneurs under such circumstances are typically early-stage and ignored by banks for accessing to the institutional loans.

Some of those who have emerged as angel investors told the FE that there are around 20 angel investors in the country alongside some international funds.

The average or median size of investment in a startup is around Tk 5.0 million with some exceptions of much higher investments being poured in.

Business angels are able to offer cash injection for relatively small amounts that would not otherwise be available through venture capital.

However, the central bank of Bangladesh is now showing keen interest about how to expand the angel investment to accelerate economic activities of the country, now striving for higher status in development rankings.

Bangladesh Bank Governor Fazle Kabir at a recent programme said the central bank wants to work in the new arena of investment as coordinator.

"The venture capitals are not showing interest about the startups, so we want expansion of the angel investment in the country," he said.

The angel investors expect to see a return on their investment within three to eight years and some will take an active role in the business they invest in.

They stake out money mainly into consumer internet and mobile, e-commerce and food-tech startups as well as some others with high potential.

Currently, business angels are operating independently in the country but they also work as a syndicate or network. There are a number of angel networks even in India where its growth is too high.

However, a local investor of this new breed, Fayaz Taher, told the FE that the biggest challenge for fast expansion of angel investment is lack of policy support and exit strategy.

"If we invest in tech ventures, we don't get any tax credit even though it's a high-risk one," he said.

He also said: "We have to handhold and spend more time. Also what will be the exit?"

He noted that there are very few venture capitals for next round of funding and little activity so the survival of a startup gets even more difficult.

There is no small-cap stock market either and very few corporates who are buying other companies out, said the 'angel' investor.

He, however, cited a successful example of funding in startup named Magnito Digital. They are one of the largest digital agencies in Bangladesh managing multiple brands in what is known as knowledge economy.

"In terms of financial return, we get dividends every year," he added

Echoing his views another angel investor, who wished not to be named, said to increase investments by angels there has to be some sort of policy supports like getting tax credit and exit policy.

"People will increase investment which will increase business activity and reduce the reliance on seeking debt from banks," he said highlighting angel investment in a country like Bangladesh.

"It will also mean more opportunities for startups who struggle."

To access capital from institutions such as banks is difficult for not having collateral or knowing the right people.

He said in the US there is something called accredited investors which Bangladesh can do through a training programme and certification so that angel investors have basic knowledge. "Allow creating an official angel network association so that angels can invest as a group," he said.

Maruf Hossain, business-development manager at an international fund-SEAF Bangladesh Ventures (SEAF BV)-told the FE that they had also invested in many startups with a high number of success stories.

Their most successful angel investments were a flour mill in Sirajganj and an oil-tanker company. "We found them having talent and potential and they are now successful entrepreneurs and giving us dividend each year," said Mr Hossain.

Bangladesh's startup-investment scene is becoming increasingly interesting in recent years with the advent of the angel businesses from beyond the known business horizons.

The government enacted a law for the alternative investment in the country. Rules on the alternative investment were introduced by the BSEC (Bangladesh Securities and Exchange Commission) sometime in June 2015 to pave the way for such endowments.
Editor : A.H.M Moazzem Hossain
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