Summary: 

Bangladeshi startups who were denied the chance to go public because their business strategy called for expansion before profitability will now be able to raise funds from the stock market according to modifications of the Public Issue Rules that the securities regulator is planning. However, even when a startup had losses in the previous fiscal year, it was still eligible to apply for a book-building technique if it did not have cumulative losses. Only 10% of the initial shares will be retained by the regulator for the general public, as startups are high-risk, high-reward investments. 

Context:

Underpinned by strong economic fundamentals, Bangladesh’s startup ecosystem is navigating through a period of unprecedented development and innovation. An important milestone in this journey has been reached in 2023, which has demonstrated the dynamism and resilience of Bangladeshi startups in the face of uncertainty in the global economy. With a remarkable growth rate of 7.1%, Bangladesh’s GDP has demonstrated not just its economic strength but also it’s potential as a startup hub. According to the latest update from the officials of the Bangladesh Securities and Exchange Commission (BSEC), Bangladeshi startups who were denied the chance to go public because their business strategy called for expansion before profitability will now be able to raise funds from the stock market according to modifications to the Public Issue Rules that the securities regulator is planning. Shaikh Shamsuddin Ahmed, a commissioner for the BSEC, stated that “the public issue rules 2015 needs modernization as business models and dynamics have evolved a lot in the past decade.” He also stated that “we aim to democratize the capital market for all types of businesses that need capital, including potential tech-based companies and startups”. As per the main proposals, firms with losses up to 200% of their paid-up capital are limited to fixed-priced initial public offerings (IPOs). IPOs with fixed prices may be priced at face value or up to the share’s net asset value. However, even when a startup had losses in the previous fiscal year, it was still eligible to apply for a book-building technique if it had no cumulative losses. Only 10% of the initial shares will be retained by the regulator for the general public, as startups are high-risk, high-reward investments. Additionally, the shares of qualified investors may be locked in for three years, although foreign investors and alternative investment funds that participated in the pre-IPO may only have a one-year lock-in term. Even though unicorns like bKash and Nagad have already emerged and dozens of homegrown startups like Pathao, ShopUp, Chaldal, 10 Minute School, Shikho, Praava, and Truck Lagbe have attracted international venture capital investors, the Bangladeshi stock market is one of the few that still prohibits startup IPOs. For investors in startups, exit opportunities are also crucial, and Bangladeshi entrepreneurs have been losing out on a lot of possible funding due to the absence of IPOs. Waseem Alim, the CEO of Chaldal, told The Business Standard that creating a stock market channel that facilitates early-stage exits and price discovery would entice domestic and international investors to fund promising firms that are visible in other marketplaces. Fixed-priced initial public offerings (IPOs) may be priced at face value or up to their net asset value per share, exclusive of revaluation reserves, as per the BSEC presentation at the stakeholder consultation conference. If the rate of regulation reform keeps up, two BSEC officials told The Business Standard that they anticipate at least one startup initial public offering (IPO) this year.

Article and Picture Sources: The Business Standard and The Daily Star