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This article on Angel Investing was written by our guest contributor Late Cal Jahan.
The talk of the town is WhatsApp getting bought by Facebook for $19 billion. This is big news in the budding startup ecosystem in Dhaka. It plays on the imagination of many a would-be Aladdins dreaming of one day finding his magic lamp. All the trials and tribulations, the long hours, the lawsuits, and the history of woes are all brushed neatly under the multibillion-dollar buyout. What’s missing are the lessons we need to learn, the steps we have yet to take, and the promises we may never fulfill.
The current startup movement in Dhaka grew organically out of the online freelancing/outsourcing movement. The now famous saying of Mahmud Hasan Sohag, Chairman of Onnorokom Group, that later became a slogan, “Chakri Khujbo Na, Chakri Debo” (Instead of looking for a job, will give a job) is the tagline for “Uddokta” that started it’s journey now more than three years ago. After that was Startup Weekend making a significant splash on the scene in early 2013. Fast forward a year, and we have a whole slew of wonderful startup initiatives like Startup Bangladesh, StartupBash BD, Startup Dhaka, Hub Dhaka, and Bangladesh StartUp Cup.
Facebook bought Instagram for $1.1 billion in 2012. Yahoo bought Tumblr for $1.1 billion in 2013. But what does that mean to us? Not much. We were not on either side of those buy-and-sell equations. However, these numbers, now topped by $19 billion, set expectations. And expectations of the wrong kind.
It is not likely that a billion-dollar valuation “idea” is waiting to be discovered on some kid’s laptop. Well, perhaps there is, but that’s not the point. The companies mentioned above all provided services. Services that attract the eyeballs and fingertips of millions of people. And this is where the current startup ecosystem in Dhaka falls short. There seems to be too much attention on the short-term goals, too many “investor type” questions before the starting gate, and too much emphasis on non-service related “training” that underscores solving theoretical business problems rather than product development.
In reality, a lot of people on the business side are attempting to hire technical innovators to do their research. It went to the extent of putting teams of BBA students with coders who may not have a healthy working relationship. The end effect was the reassertion of ego, with everyone vying to become the CEO of a business that doesn’t have a functional product.
Additionally, such practices are indicative of not having learned from the US startup cycle. Every technology company was led by technical people who learned business later, rather than the other way around. Business after all is a soft skill that doesn’t require the focused attention of hundreds of hours of coding. And ultimately, wealth is generated from labor, not ideas. Our belief system seems to be too much in love with ideas, and not enough with work.
If you’re new to Bangladesh, to get from point A to point B where Google Maps has yet to fill in the blanks, you literally have to get out the door. Similarly in the startup ecosystem, “Uddokta” has a great tagline to this, “Pothe Namlei Poth Chena Jay” (As you walk on the way, the way appears). It’s a very Bangladeshi, very entrepreneurial mindset. Hence a mindset is more important than any kind of knowledge.
The successes we underscore, while mostly technology companies are more business successes than technological breakthroughs. We tend to forget that no matter how innovative a company or its founders, ultimately an innovation-friendly, sophisticated ecosystem makes that company mature and prosper.
Design, user interface, legal expertise, capital markets, and the sophistication of the investor pool in the US are at least a couple of decades ahead of Bangladesh. To expect results from 20-year-olds in Dhaka to their counterparts in the US is not only unfair but is quite ludicrous. The resources, wealth of knowledge, and experience a 20-year-old has in the US is nothing compared to a 20-year-old in Bangladesh. A Jobs, a Gates, or even a Zuckerberg cannot be expected to appear out of thin air. They are grown and nurtured in the ecosystem. But do we have that ecosystem? How far behind are we? What Do We Need Now?
Firstly, successful businesses will come from founders who are closer to or above 30 years old. The reason is, they have some experience in the professional culture of their local ecosystem and have developed a personal network where their university peers are now working in diverse sectors in the marketplace.
Secondly, we need a special category of investors. They are often called “Angel Investors”. And just because someone has money and may have done some investing doesn’t qualify that person as an Angel. Angels are a special breed of investors whose focus has gone beyond money to doing interesting things, in an interesting way with interesting people.
Typically, a local Angel is a very mature and successful business person in the Bangladeshi private sector. She or he might be young but more likely closer to or above 50 years old. His main intention is to share knowledge with a younger generation that he may not have gotten when he was starting out. His second intention is to help navigate the pitfalls from his experience, give access to his network and boost confidence in the founders of a fledgling company. And his third intention, of course, is to make money. Any investor whose main intention is to make money, or not lose money, hasn’t earned his wings.
Thirdly, we need a network of such Angel investors. But the network needs to be a very transparent one so that it can be trusted by potential founders of a startup. For instance, a clear profile of the investor that may include the business(es) he is in, the business(es) he has invested in, and/or advising. This way a founder can evaluate the options she has before sharing her idea with a total stranger and not have to worry about it making its way to a competitor. Or worse, have the said investor himself become her competitor. Because even the Devil was once an Angel.
The Buy and Sell of the go-go 80s evolved into Mergers and Acquisitions in the 90s. That eventually led to the IPO tech bubble that burst of its own accord. No one wanted to make things anymore. Why go through the headaches and heartaches of the creative process, when you can simply merge with or acquire your competitor? Not to mention the capital burn rate in Research and Development, this is sleek and perhaps better. Better yet, invest in an IPO with your eyes closed. It’s a nice payday for the founders and a handsome reward for the initial investors for taking the risk. And the long-term investors? They counted their lucky stars by getting on- board in mid-flight. Everyone is happy.
However, even after the bursting of the dot com bubble, all the cautionary tales of “Wall Street” or even “Wolf of Wall Street”, big dollar signs get everyone talking around the campfire. What we don’t talk about is learning to deal with failure. To some extent, competition in the startup ecosystem represents an institutionalized forced failure of many good ideas. Except for the top three who get a bit of funding and a pat on the back, have we seen any of the failed ideas come to fruition? Not yet. But that’s not the worst of it. What has become of those promising first, second, and third-place winners of a dozen or so startup competitions? Sadly, not much.
Making is a difficult process. It takes discipline, patience, and perseverance. Also, it’s more of an art than an exact science. It’s the art of our passions. Surely competition is one way to evaluate such passions. However, we must also keep in mind how to handle those youthful failures. We must encourage them to keep on trying, give support in the parts where they were lacking, and introduce them to new opportunities for collaboration.
In the Bangladesh startup ecosystem, there are many interesting ideas, and many brilliant would-be founders and diligent organizers, but is it enough? Take a look at the ecosystem as a whole, and evaluate all the players in it. We must encourage a more mature, innovation-friendly, and risk-taking ecosystem. We need risk-takers, we need transparency, and above all, we need angels.
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