Bangladesh Startup Investment Company (BSIC) has been established with a fund of Tk 6.0 billion (600 crore) contributed by 39 banks to strengthen the country's startup ecosystem. It aims to address the long-standing financing gap for the "missing middle" segment, businesses too large for microfinance but not suited for traditional bank loans. The initiative responds to a widely recognized need for a dedicated investment platform. BSIC will provide tailored funding to promising ventures to help them grow and innovate. Its goal is to unlock entrepreneurial potential and support sustainable business development. Ultimately, BSIC seeks to accelerate economic growth and foster a vibrant startup ecosystem in Bangladesh.
Despite this promising development, venture capital investment in Bangladesh continues to face several structural and operational challenges. Accordingly, BSIC must carefully consider and address the following challenges in the course of its operations:
Regulatory Framework: BSIC is expected to be incorporated by participating banks under the guidance of the central bank, as reported. However, venture capital investment-being fundamentally equity-based financing for high-potential startups-should be governed in accordance with 'Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015' issued by the Bangladesh Securities and Exchange Commission (BSEC). Accordingly, the guiding principles provided by Bangladesh Bank should be harmonized with the provisions of these rules to ensure regulatory consistency, transparency, and effective operational oversight.
Investment Model: In Bangladesh, many startups operate as proprietorships or partnerships, where traditional equity-based venture capital investment is not feasible due to the absence of a corporate share structure. Under the BSEC Alternative Investment Rules, 2015, investment by Alternative Investment Funds is primarily made in companies with a legal corporate structure, enabling issuance of equity or equity-linked instruments. The Rules recognize "equity-linked instruments," including convertible securities such as convertible bonds or preference shares, which combine features of debt and equity and may convert into equity upon pre-agreed conditions. To address this structural limitation, investee enterprises typically need to be incorporated as companies with the Registrar of Joint Stock Companies and Firms (RJSC) to facilitate equity or equity-linked financing. Additionally, BSIC could develop a comprehensive framework for equity-linked instruments, ensuring that all terms and conditions are clearly defined within a robust legal structure.
VC Financing Professionals: Venture capital financing is a specialized form of investment that requires dedicated expertise. Investment officers must possess a strong understanding of venture capital methodologies, including deal structuring, valuation, portfolio management, and exit strategies. Given that venture capital remains relatively new in Bangladesh, it is essential to build capacity through extensive training and exposure, including engagement with experienced international professionals. Strengthening human capital in this area will be critical to ensuring the effective and efficient operation of VC initiatives such as BSIC.
Accounting and Governance Cost: Given the generally weak state of corporate governance and financial reporting practices among startups, BSIC as a venture capital investor may need to incur additional costs for strengthening financial record-keeping systems and improving governance standards within investee companies. These expenses, including training, compliance support, and capacity building, are essential for ensuring effective equity management and operational efficiency. Such costs are ultimately expected to be offset by long-term returns in the form of dividends and capital gains realized through successful exit strategies.
Formation of Fund: In many international contexts, development partners and foreign agencies channel resources through well-structured and compliant venture capital funds managed by experienced institutions. In this regard, BSIC should actively explore opportunities to attract foreign capital to establish a dedicated fund for the development of Small and Medium Enterprises (SMEs). Such fund formation typically follows a strategic framework aligned with sectoral priorities and includes provisions for compliance and operational costs as stated above, ensuring efficient and transparent fund management.
Awareness raising among entrepreneurs: Many entrepreneurs in Bangladesh are not fully aware of the venture capital financing model and often perceive it as a mechanism that leads to loss of ownership, which is a misconception. In reality, venture capital investors such as BSIC provide financing to support the startup and its subsequent growth, with a structured exit strategy that allows investors to realize returns through trade sales, mergers, acquisitions, or public listing in the capital market. Globally, successful companies such as Google, Yahoo, Apple, and Facebook were initially supported by venture capital, and investors achieved profitable exits through stock market listings or strategic sales. Therefore, it is essential to undertake targeted awareness-building initiatives to educate entrepreneurs about the venture capital model, including its benefits, ownership structure, and exit mechanisms.
Weak Support Ecosystem: The venture capital environment in Bangladesh is constrained by a relatively underdeveloped supporting ecosystem. Key professional services such as specialized legal advisory, auditing, valuation, accounting, and investment consultancy (investment strategy - either at startup or at growth stage, due diligence process, portfolio management and exit mechanism, etc.) tailored to startup and venture capital needs remain limited. In addition, the availability of experienced incubators, accelerators, and structured mentorship programmes is still inadequate to effectively guide early-stage enterprises. This gap in institutional and professional support increases operational complexity, raises transaction and monitoring costs, and reduces the overall efficiency of venture capital activities. Strengthening this broader ecosystem is therefore essential to ensure the sustainable development and effectiveness of the venture capital sector.
Market Liquidity and Exit Constraints: One of the most critical challenges in Bangladesh's venture capital ecosystem is the limited availability of viable exit opportunities. The capital market is relatively shallow, and mechanisms such as IPOs, mergers, and acquisitions are not yet sufficiently developed or startup-friendly. As a result, venture capital investors often face difficulties in realizing timely and profitable exits, which reduces the attractiveness of early-stage investments. However, given the relatively small size of the capital market as regulated by the BSEC, exit opportunities through public listing may still be the most viable option in the long run. In this context, BSIC should also actively explore and develop pathways to ensure effective and successful exit strategies within the existing market structure.
Macroeconomic and Currency Risk: Venture capital investment is highly sensitive to macroeconomic stability. In Bangladesh, factors such as inflation volatility, exchange rate fluctuations, and overall economic uncertainty can significantly impact startup valuations and investor confidence. Additionally, restrictions on foreign currency movement may discourage international investors from participating in local venture capital funds.
Limited Quality Deal Flow: Although Bangladesh has a large number of small businesses and aspiring entrepreneurs, the pipeline of investment-ready, scalable startups remains limited. Many early-stage ventures lack strong business models, innovation depth, and market readiness, making it challenging for venture capital firms to identify high-quality investment opportunities.
The establishment of BSIC is a timely and strategic initiative to strengthen venture capital financing and support Bangladesh's emerging startup ecosystem, particularly for the "missing middle" segment. However, its success will depend on effectively addressing key structural, regulatory, and market-related challenges, including governance gaps, skill shortages, weak support systems, and limited exit opportunities. A coordinated approach involving regulatory alignment, ecosystem development, and capacity building is essential. If these challenges are properly managed, BSIC can play a pivotal role in mobilizing investment, fostering innovation, and accelerating sustainable economic growth in Bangladesh.
Dipok Kumar Roy FCA is a Fellow Member of ICAB and Partner at Basu Banerjee Nath & Co., Chartered Accountants
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