IDLC will contribute Tk10 crore to the fund and the remaining amount will be raised from other sources
IDLC, a non-bank financial institution, has introduced a venture capital fund worth Tk45 crore to invest in technology-based startup projects for promoting youth entrepreneurship.
The fund titled "IDLC Venture Capital Fund 1" will be raised through individual and institutional sources.
A venture capital fund is an innovative financial solution where investors make equity investments by taking the shares of the company. If the company fails, investors will be losers, but if it gains, investors will take a share of the profit. There is an exit policy to come out of the company after a certain period.
IDLC will contribute Tk10 crore to the fund and the remaining amount will be raised from other sources.
An individual can invest a minimum Tk50 lakh while an institutional investor can put in at least Tk2 crore.
The tenure of the fund will be seven years.
Arif Khan, managing director of IDLC came up with the announcement at a press conference held on Tuesday at the InterContinental Dhaka.
The fund will be invested in early-stage companies which are providing technology-enabled solutions to consumers and businesses, said Arif.
Bank and non-bank financial institutions are not interested to invest in venture capital fund due to high failure rate between 70 and 80 percent of the startup projects, he said.
IDLC is the first financial institutions which initiated to invest in startups to create young entrepreneurs, he said.
Khan said despite the high risk, IDLC decided to go for such investments seeing the strong growth of technology-based startups with government support. Moreover, the returns from some startups have already provided attractive returns to their investors.
Presiding over the conference, State Minister of the Information and Technology Division Zunaid Ahmed Palak said startups are becoming lucrative investment platforms to foreign investors.
In the last four years, around $200 million in foreign investment entered into such projects, he added.
"Access to finance is the main problem for the startups and the government is funding in a small scale to promote such projects," Palak said.
He added it is good that now private sector institutions like IDLC are coming forward to take the risk of this investment.
There is a huge opportunity to invest in technology-based startups because Bangladesh has around 5 crore consumers who have annual earnings above $5,000.
This segment of consumers wants to avail modern technology-based services. Homegrown solutions can fill up their needs, Palak said.
IDLC analysis shows that some lesser-known startups in Bangladesh are performing well by giving high returns to their investors.
For instance, Magnito Digital – one of the largest digital marketing agencies which manages digital profiles of the country's leading brands and digital products – grew at 58 percent annually in the last four years.
The company paid back initial investment of Tk40 lakh in the first two years and continues to pay out shareholders. It started its journey in 2013 and earned Tk10.4 crore within the first three years.
Bongo, the Netflix of Bangladesh, draws 450 million monthly views. Valuation of the company increased from Tk124 crore in 2016 to Tk370 crore in 2018.
Chaldal is the leading online grocery delivery service of Bangladesh, which started its journey through foreign investment in 2017. The company has seen user numbers and monthly orders double in the last 12 months. The company now operates out of eight warehouses in Dhaka, serving over 50,000 orders every month.