Funding squeeze leaves startups, e

Bangladesh is increasing public funding for startups, but a shortage of domestic growth capital, banks' reluctance to take credit risks and regulatory constraints are leaving many technology and e-commerce companies vulnerable when they move beyond the early-stage funding cycle.

The problem is becoming increasingly visible as established digital businesses, particularly e-commerce companies, struggle to raise relatively modest amounts of working capital needed to weather funding squeezes, restructure operations or bridge strategic investments.

Chaldal's current liquidity crisis offers a stark example, but the underlying problem is much broader.

The online grocery pioneer has suspended operations amid a funding crunch, with about 2,200 employees reporting salary arrears as the company seeks emergency financing.

Chaldal Chief Executive Waseem Alim said the crisis stemmed from a shortage of funding for startups at its scale, compounded by a sharp decline in foreign investment.

"The crisis is lack of funding for startups at our scale, which has been compounded by foreign investments declining sharply," Mr Alim said.

The company initially sought Tk400 million in bridge financing from Startup Bangladesh, but its funding requirement has since increased.

Yet existing public and banking mechanisms are not designed to provide capital of that scale quickly.

Bangladesh Bank operates a Tk 5-billion refinancing scheme for startups, under which eligible businesses can obtain loans at a maximum interest rate of 4 per cent. The loan ceiling ranges from Tk 20 million to Tk 80 million, depending on the stage of the business.

Banks, however, retain the underlying credit risk, making them reluctant to lend to asset-light technology businesses without conventional collateral.

The Tk 80-million ceiling also limits the facility's usefulness for established companies that need substantially larger amounts of working capital.

This has created a financing gap between startup capital and growth-stage funding.

Bangladesh's startups raised only $6 million in the first half of 2026, down 95 per cent from $120 million in the same period a year earlier, according to industry data.

All reported funding in the first half came from foreign investors. Over the past decade, Bangladeshi startups have attracted about $1.2 billion, but local investors accounted for only around 7 per cent of the total.

The funding contraction follows a period of rapid expansion in the country's digital economy.

A global venture-capital slowdown following interest-rate increases, greater investor risk aversion and a shift in technology investment towards artificial intelligence have made it particularly difficult for conventional e-commerce and digital-service companies to secure follow-on funding.

Fahim Mashroor, founder of Bdjobs, said some of the difficulties were rooted in how startups were built during periods of abundant capital.

"The issue with these startup-funded companies lies in their initial cost structure, their culture, and their highly-paid personnel. Their expenses are exceptionally high. When this funding dries up, they find themselves in a predicament because they cannot simply revert to a low-cost operation even if they want to," he said.

Mr Mashroor also cautioned against assuming that Bangladesh's large population automatically translates into a huge digital consumer market. Actual demand remains constrained by relatively low internet penetration and limited consumer purchasing power, he said.

Bangladesh's e-commerce sector has already gone through a severe wave of failures, with hundreds of platforms shutting down or becoming inactive during 2021-24.

The failures ranged from high-profile platforms facing allegations of fraud and insolvency to conventional venture-backed businesses that could not sustain cash-intensive operations.

The collapse of platforms such as Evaly and E-Orange severely dented consumer confidence in online commerce, while tighter escrow and digital-commerce rules reduced platforms' ability to use customer prepayments as working capital.

At the same time, inflation, currency depreciation, rising digital advertising costs and weaker consumer purchasing power squeezed already-thin margins.

The sector has since consolidated around a smaller group of businesses, including Daraz, Foodpanda, Pathao and Chaldal. Investor interest has also shifted increasingly towards business-to-business commerce and supply-chain technology, where transaction flows can be more predictable.

Government builds new financing channels

The government has responded by creating new financing channels for startups and technology companies.

Startup Bangladesh has invested about Tk 1.09 billion in 36 technology-driven startups and is developing a Tk4-billion Fund of Funds alongside a Tk 3-billion

The Fund of Funds is designed to invest through venture-capital managers and strengthen the domestic investment ecosystem rather than provide immediate liquidity directly to distressed companies.

Another major initiative is the Bangladesh Startup Investment Company (BSIC), established with the participation of 39 commercial banks and committed capital of about Tk 4.25 billion. Its Ankur Bangladesh Fund 1 targets seed, late-seed and Series A investments.

Industry insiders, however, say simply creating funds will not solve the growth-stage financing problem.

Asif Khan, co-founder and chairman of EDGE Asset Management, said Bangladesh had failed to develop a strong institutional investor base not only for startups but also across asset classes, including stocks, bonds and real estate.

In developed markets, pension funds, insurers, endowments, foundations, asset managers, private-equity firms and family offices provide significant pools of institutional capital, he said. Bangladesh lacks comparable sources of long-term investment capital.

Incentives are needed to channel private capital into venture-capital funds, alongside broader improvements in the investment climate, including deregulation and easier licensing, Mr Khan said.

Mustafizur Rahman Khan, partner at IDLC Venture Capital Fund, said Bangladesh needed to move beyond an equity-led startup model and develop a deeper domestic pool of growth capital.

"Creating the pool of capital is only the first step," he said, calling for greater risk appetite among domestic institutional investors, stronger follow-on funding capacity and a broader financing toolkit, including venture debt, convertible notes, bridge financing and revenue-based financing.

Chaldal caught between two financing models

The shortage of capital reflects a wider weakness in Bangladesh's financial system, with Chaldal's predicament illustrating the problem particularly clearly.

The company is no longer a small startup seeking its first institutional investment. It has built a large-scale digital commerce operation, employs around 2,200 people and has reached a stage where its financing needs are significantly larger than the amounts typically available under early-stage startup programmes.

At the same time, as an asset-light technology company, it does not fit easily into the banking sector's traditional collateral-based lending model.

Companies such as Chaldal are therefore caught between two financing systems -- too large for conventional startup funding but lacking the assets or financing structures normally required to secure large-scale bank credit.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the solution may require banks to change how they assess established technology and e-commerce companies.

"The key issue is to move progressively from traditional collateral-based lending towards cash-flow and business-model-based credit assessment," said Mr Rahman, also chairman of Association of Bankers, Bangladesh.

He said established companies with predictable revenues and collections could be assessed differently from early-stage businesses with uncertain cash flows, while mechanisms such as verified receivables, stronger cash-flow monitoring and risk-sharing could allow banks to provide larger facilities without compromising prudent lending standards.