The start-up ecosystem in Bangladesh is experiencing a period of exciting growth, driven largely by a youthful, entrepreneurial population eager to make their mark. Yet, despite the energy and ambition coursing through the community, a myriad of challenges continues to obstruct its full potential.

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One of the most pressing challenges that entrepreneurs face is securing adequate funding. In 2024, total start-up funding in Bangladesh saw a significant decline, falling by 41 percent year-on-year to $41 million. This drop highlights a growing problem: local investor participation shrank by an alarming 95 percent, leaving start-ups heavily dependent on international backers, who accounted for 98 percent of the total funding. The situation underscores the need for a more favourable legal framework to encourage local investments and alternative financing options, such as Islamic bonds or Sukuk. By creating an environment that nurtures local investment, start-ups can reduce their reliance on foreign capital and build a more resilient financial foundation.

Another significant hurdle is the regulatory environment, where complex procedures and bureaucratic inefficiencies can deter even the most enthusiastic entrepreneurs from pursuing their ventures. Many find themselves bogged down in paperwork and compliance issues rather than focusing on innovation and growth. Streamlining registration processes and simplifying compliance requirements can lower entry barriers. Moreover, fostering transparency within the regulatory framework can boost investor confidence, paving the way for both local and foreign investments. Bangladesh can adopt best practices from other start-up-friendly nations to build a more accommodating business climate.

Simultaneously, workforce development is crucial for the sustainable growth of start-ups. A recent report revealed that 73 percent of start-ups in Bangladesh struggle to recruit qualified talent. This talent gap is partly due to educational institutions not aligning their curricula with the practical needs of the industry. Graduates often lack the hands-on experience and critical skills that employers seek. Addressing this gap requires a coordinated effort to integrate more practical training, internships, and mentorship programmes into educational institutions. When the next generation of workers enters the job market with skills honed through real-world experiences, Bangladeshi start-ups will be better positioned to thrive.

However, inadequate infrastructure significantly hampers the growth of start-ups in many parts of Bangladesh, particularly outside major urban centres. Poor logistics, unreliable internet connectivity, and a lack of essential services increase operational costs and hinder efficiency, especially for start-ups that depend on timely product delivery and seamless online services. Investing in improved infrastructure, especially in rural areas, would not only benefit start-ups but also support broader economic development by improving connectivity and logistics and boosting local economies.

Equally important to the success of start-ups is access to mentorship and strong support networks. In a landscape where many entrepreneurs lack experience, guidance from seasoned mentors can make a significant difference. Organisations such as the Founder Institute provide invaluable mentorship by connecting emerging entrepreneurs with industry veterans, thus helping new businesses navigate early challenges and fostering a culture of innovation through collaboration and knowledge sharing. Building and maintaining these support networks can help bridge the gap between great ideas and successful businesses, nurturing a more resilient start-up ecosystem.

One issue that often gets overlooked is the weak protection of intellectual property (IP) rights. Many entrepreneurs hesitate to innovate because they fear their ideas might be copied without any legal recourse. Despite the existence of regulations like the Trademark Act of 2009 and the Trademark Rules of 2015, enforcement remains lax, leaving innovators vulnerable. Strengthening IP laws and integrating IP education into academic curricula can encourage more creativity and safeguard the hard work of entrepreneurs.

Often, traditional banking practices, too, create roadblocks for start-ups. Most start-ups cannot meet conservative lending criteria, such as providing substantial collateral and established credit histories, leaving many without the necessary financial backing. Recently, the central bank has encouraged commercial banks to collaborate with venture capital firms by allocating a portion of their operating profit to start-up funding. Such initiatives could open new avenues for financing, making it possible for more start-ups to secure the funds they need to grow.

Attracting foreign investment is another daunting challenge, primarily due to bureaucratic inefficiencies and occasional political instability. Although Bangladesh has made progress, its position in the World Bank's "Ease of Doing Business" index still reflects areas that need improvement. Simplifying foreign investment procedures and strengthening infrastructure can help create a more welcoming environment for international investors.

For start-ups in competitive sectors like FinTech, the race to scale rapidly while maintaining sustainable practices presents a unique dilemma. On one hand, the demand for innovation pushes start-ups to expand quickly, but on the other, the regulatory ambiguities surrounding new technologies like cryptocurrency pose risks. Creating a regulatory sandbox where start-ups can test innovations without facing legal repercussions could foster a more dynamic FinTech ecosystem.

Moreover, tax incentives, while crucial for encouraging entrepreneurship, often remain underutilised due to their complexity. Navigating the application process for incentives, such as corporate income tax exemptions, can be daunting. Simplifying these procedures and making information more accessible would help start-ups capitalise on available support, boosting their chances of success.

In parallel, fostering an entrepreneurial mindset from a young age is vital. Initiatives like BRAC's hands-on entrepreneurship training show how practical skills and business acumen can be developed early on. Entrepreneurship in the school curricula can help students think critically, innovate, and take calculated risks—skills essential for thriving in a competitive start-up environment.

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Scaling a start-up is no small feat, especially when balancing growth with sustainable practices. Often, start-ups prioritise short-term gains to meet investor expectations, risking long-term sustainability. Incorporating strategies that align business expansion with environmental responsibility can help start-ups maintain a positive reputation while growing. By adopting comprehensive growth models that emphasise sustainable operations, start-ups can mitigate the risks of rapid scaling.

One aspect that can significantly boost a start-up's growth potential is global exposure. Start-ups often find it challenging to attract international investors due to limited visibility. Forming strategic partnerships and participating in global tech conferences can increase their profile and open doors to new markets. Building a strong international presence not only enhances credibility but also attracts diverse investment opportunities.

Lastly, logistical challenges, particularly in the e-commerce sector, continue to hinder start-ups. High shipping costs, delayed deliveries, and inadequate access to rural areas affect customer satisfaction and business viability. Addressing these issues through technological innovation and partnerships with local logistics providers can make operations more efficient, fostering consumer trust and loyalty.

Mamun Rashid is the chairman at Financial Excellence Ltd and founding managing partner of PwC Bangladesh.

Views expressed in this article are the author's own.

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