Interviewed By Mahedi Hasan Omi on behalf of MBR Team

MBR: Bangladesh Angel Network (BAN) is doing an amazing job aggregating passionate angel investors to invest money in startups. Could you provide us with some context on BAN investment criteria in a startup? Could you specify some of the things a startup must have for it to get funded by BAN?

Nirjhor Rahman: We are the first-ever angel investment network in Bangladesh. We find, vet, showcase, help syndicate, and monitor investments with high-growth, technology-driven companies that have the potential to become the next business success stories from the country. We are backed by a board leading and representing organizations such as Aavishkaar, a major impact investor in the region as well as BetterStories and Startup Dhaka, pioneering incubation and acceleration platforms in Bangladesh. At Bangladesh Angels, our preference is equity investments for startups, as they have the highest potential of creating outsized returns and effects on the economy. Startups are defined by, among other features, an aim to win over a large part of a rapidly-growing market segment that is often emerging, being created through demographic, policy, and technology changes in society, as well as the search for a repeatable and scalable business model to serve that market, underpinned by a related tech solution, be it software or hardware. For us, a startup needs to be able to articulate the exact nature and scale of the problem in which it is trying to solve, and that problem must be an “attractive” problem in that it affects a large segment of society, is unavoidable, or must be urgently solved and is expensive to solve for the target users, whether upfront or over time. When it comes to the solution, we like to ask questions such as how much have the founders thought about user needs and preferences at its core, how simple is it to use, how much uptake but also retention is it seeing by target users, does it represent a 5-10 times quantifiable improvement in user experience, whether by being cheaper, faster or more durable or reliable compared to existing solutions, etc.? The solutions most likely to take off tend to become integral and “must-have” to the lives of its users. Finally, we are interested in the unfair advantages that the startup is using in order to not only grow but grow quickly, such as economies of scale, network effects, low cost of customer acquisition, intellectual property and brand, and a founding team that is clearly in the top 1% of the market when it comes to subject matter expertise, past professional successes and technical skills. We look for startups that are typically in the “preseed” stage: 1-2 years of operations, some kind of product or service in the market, full-time founders and are looking for anywhere between 50 lakhs to 5 crores of capital. We are sector agnostic. But we are also increasingly looking at private debt and quasi-equity opportunities for novel SMEs that are operating within a strong niche beyond just a hyper-local geographic focus. This means they should have strong brand value and proprietary knowledge/processes, ideally augmented by the adoption of digital technology, and a recurring and growing customer base. They are also struggling for capital in Bangladesh. 

MBR: What are some common barriers, from a regulatory point of view, that you see typically? Thoughts on any particular policy that needs attention in order to unlock access to more quality capital.

Nirjhor Rahman: Bangladesh is still behind when it comes to global best practices for early-stage deals. One is instruments. Most deals in the early stage nowadays are being done through convertible notes and SAFE notes, in order to avoid making valuation the key sticking point, among other advantages. Convertible notes and SAFE notes are not recognized instruments in Bangladesh, though there might be de facto ways to structure arrangements that mimic elements of such structures. As a result, most investments are being done through equity, which can often mean lengthy back and forth on valuations. This is one of the reasons companies are re-domiciling to jurisdictions like Singapore, in addition to the fact that there are greater pools of startup-friendly capital. 

Another international best practice is bundling smaller investors into special purpose vehicles (SPVs) to come onto the cap table as one single entity. This is advantageous for multiple reasons. One, these investors can designate a lead or nominee to serve as a conduit for communications with the entrepreneur and decision-making, which means the entrepreneur does not have to manage dozens and potentially many more small investors. Second, it helps keep the cap table more organized and “clean,” which later-stage investors prefer. Third, this helps lower the minimum ticket size to invest, which is good for investors from a risk management standpoint. But once again, in Bangladesh, the idea and mechanism of a “pass-through” entity that exists solely for the purpose of investing are not yet in place.

The last challenge I will talk about is the repatriation post-liquidity event. This is the number one question I get asked by investors both from the diaspora and the international angel community. While it is easy enough to put capital into Bangladeshi companies, it is not a straightforward process to take it out in the event of an exit. Any large transfers of capital require the permission of the Central Bank, and even established businesses, let alone individual investors, struggle to obtain these waivers. This is once again a reason for re-domiciling companies abroad or avoiding the hassle by starting with international entities and creating local operating subsidiaries. But not every founder has the ability to raise foreign funds from the get-go. Our regulators need to recognize this bottleneck and make it easier for cross-linking international and local entities of startups, in order to raise capital from abroad but also make it easier to repatriate international investments.

MBR: How to be an angel investor in BAN? How does it benefit an individual to invest alongside BAN? Any particular resource you would suggest that an angel investor should go through?

Nirjhor Rahman: One can sign up via our website and start participating in events and pitches that BAN organizes. As an individual investor, BAN provides members-only deal briefs, webinars, and data on the startup ecosystem in Bangladesh. We also work hand-in-hand with investors to walk them through the entire process of investment, from initial screening to due diligence, to structuring, to documentation and disbursement, and even provide ongoing support post-investment, by liaising between the investors and entrepreneurs, creating business development and follow on funding opportunities for the startups, which helps to create opportunities for capital appreciation for the investors. We actually have 130+ hours of content from our weekend seminars on angel investing, led by experienced founders, investors, and tech executives from around the world, that members have access to as soon as they join.

MBR: How do you view Bangladesh’s startup investment landscape as opposed to regional peers?

Nirjhor Rahman: We have a lot going for us: The 9th largest mobile user market in the world, the largest registered population of online freelancers, one of the fastest-growing economies, and a middle class that is now in the tens of millions. In addition, we benefit from being sandwiched between major consumer internet markets of India and Indonesia, the former with which we share cultural ties and the latter with which we share the distinction as being the two largest Muslim majority countries in the world. As international investors look for new locales where the consumer internet can take off, it only makes sense to look at Bangladesh given our geography and population. We can also be a regional and eventually global hub for internationally competitive software-as-a-service companies, given our technology talent pool and cost competitiveness. The government is also doing great things including launching the Startup Bangladesh Fund to invest in startups - many regional investors are excited about developments like this and tell me so. Where we lag are our laws and regulations governing startups, as mentioned earlier, as well as a lack of sufficient “Idea-to-IPO” or buyout exits for companies and founders, which creates a generation of financially successful founders who in turn invest in and nurture the next generation. But I’m sure we will see this in the next 3-5 years, if not sooner.

MBR: What are the industries and segments which excite you more than the others, while you look at the startups, you come across?

Nirjhor Rahman: Major industries such as finance, education, healthcare, and agriculture are ripe for digital transformation in Bangladesh, and I’m excited to meet more companies in this space. Our two biggest economic drivers, garments and remittances, can also benefit from digital transformation. In addition, we have a huge opportunity to create content for not just those in Bangladesh but the more than 260 million people around the world who speak Bengali. Finally, I’m meeting more and more Bangladeshi-diaspora entrepreneurs in places like North America and Europe who are creating startups. I’m excited about investing in them and connecting their companies to Bangladesh