A small domestic market, weak venture capital, regulatory hurdles and limited exit opportunities are making the start-up sector—one of the country’s most promising growth areas—increasingly unattractive to foreign investors.
Although the 2026–27 budget offers a series of VAT exemptions for startups, entrepreneurs and investors say tax incentives alone will do little to address the deep-rooted structural challenges holding the sector back.
Industry leaders argue that the prolonged decline in startup funding reflects far more than the global venture capital slowdown.
According to consultancy LightCastle Partners, Bangladesh’s startup ecosystem has attracted about $1 billion in investment over the past decade, with 92% coming from foreign investors. Domestic investment totalled just Tk9.87 billion, leaving the sector heavily reliant on overseas capital.
That dependence has become increasingly exposed. Startup funding plunged to $45 million in 2024, the lowest level since 2018.
The decline stands in sharp contrast to Bangladesh’s broader investment performance. Foreign direct investment (FDI) rose nearly 40% year on year to $1.77 billion in 2025, yet the startup ecosystem saw little of that momentum.
“Foreign investors are looking for investable opportunities,” said Fahim Ahmed, chief executive officer of Pathao.
“Many Bangladeshi startups are still not attractive enough because they lack scale. Most operate only in the domestic market, limiting their potential to generate global returns,” he told Times of Bangladesh.
Pathao itself illustrates what foreign investors seek. Indonesia’s Go-Jek first invested in the company during its Series A round in 2017 before leading its pre-Series B round the following year alongside Openspace Ventures, Osiris Group and Battery Road Digital Holdings. Most recently, in 2024, Pathao secured $12 million in funding led by VentureSouq.
Ahmed said startups focused solely on the domestic market rarely attract significant international capital because venture investors typically back businesses with regional or global growth potential.
He added that many startups also fall short of international expectations in product quality, management capability and corporate governance.
The government has sought to revive the sector through fiscal support.
The proposed FY27 budget exempts startups from the 15% VAT on locally procured services, imported services and office rentals until June 2035. The revised FY26 budget also allocated Tk2 billion to the Startup Fund.
Industry leaders, however, argue that the measures fail to tackle the ecosystem’s underlying weaknesses.
Around 85% of startup investment in Bangladesh remains concentrated in the early stage, while only 5% reaches companies beyond Series A. Startup investment per capita stands at just $0.20.
Fahim Mashroor, chief executive officer of Bdjobs.com, said the country’s limited market size remains the biggest obstacle to attracting global investors.
Bangladesh still lacks enough high-growth, technology-driven companies capable of generating the returns venture capital firms expect, he said.
“The government’s biggest role should be expanding the market, and that starts with increasing internet usage.”
While welcoming the new tax incentives as a way to reduce operating costs, Mashroor argued that expanding the digital economy—not tax breaks—would ultimately determine whether investment returns improve.
“If the market doesn’t grow, why would investors come?” he said.
Ahmed identified another critical gap: the absence of strong domestic institutional investors.
Foreign venture capital firms generally prefer to invest alongside credible local partners. However, Bangladesh has yet to develop institutional venture capital funds capable of supporting startups through successive funding rounds. Without local investors sharing the risk, foreign funds remain reluctant to invest independently.
Shawkat Hossain, chief executive officer of Bangladesh Venture Capital Limited, said broader reforms are essential to retain startups and attract long-term foreign investment.
While welcoming the proposed tax incentives, he said they would do little to discourage entrepreneurs from incorporating their companies overseas.
Instead, Bangladesh needs reforms to company law, investor-friendly financing instruments and stronger exit mechanisms that allow venture capital firms to realise returns, he said.
Hossain added that the newly established Bangladesh Startup Investment Company (BSIC) could strengthen the ecosystem if managed professionally.
Meanwhile, Ashik Chowdhury, executive chairman of the Bangladesh Investment Development Authority, has unveiled a 180-day action plan to improve the investment climate, citing global uncertainty and structural bottlenecks.
