Should 100% foreign ownership be allowed in local start-ups?

There are two ways to view to view the acquisition of Bangladesh’s first on-demand food delivery company HungryNaki by Daraz, Alibaba’s e-commerce subsidiary: the growing interest of foreign parties in Bangladeshi start-ups or a local start-up picked apart by the financial might of a global competitor.

Whichever way one views the development, one thing is for certain: the government needs to start thinking of ways to nurture and safeguard the local start-ups, following the lead of neighbouring India, which has checks in place to prevent 100 per cent foreign ownership of start-ups.

Daraz's recent acquisition provides market validation for the emerging consumer technology sector in the country, said Fahim Ahmed, president of Pathao, one of the success stories of Bangladesh’s start-up scene.

In 2013, AD Ahmad and Tausif Ahmad and two others started HungryNaki, introducing the concept of enjoying restaurant food from the comforts of one’s homes to Bangladesh.

Soon after came Foodpanda, another on-demand food delivery company that was backed by the deep pockets of German start-up incubator Rocket Internet, and the going just got tougher for HungryNaki.

There were local competitors too and Uber Eats -- which also had to bow out for the fierce competition, led by Foodpanda.

The acquisition illustrates how the lack of an enabling policy environment cedes the market towards colonisation, said Ahmed of Pathao, which also has its own food delivery platform.

“To build a truly digital Bangladesh, we need to allow local champions to emerge, grow, thrive and build the critical digital infrastructure of the country,” he told Dhaka Tribune on Thursday.

Maliha Qadir, founder and managing director of Shohoz.com, another flourishing homegrown start-up, echoed the same as Ahmed.

“Foreign funding is a blessing for local start-ups, but there should be a policy and guideline on how many shares they can acquire.”

If foreign companies are allowed 100 per cent ownership, then the local start-up scene will vanish in five years.

“All will be discouraged. Our local start-ups can’t survive by fighting with global companies due to lack of funds.”

Start-ups backed by global firms can advertise aggressively and also burn cash to provide discounts to lure in customers to their platforms, which the homegrown ones are unable to, she added.

Syed Almas Kabir, president of the Bangladesh Association of Software and Information Services (BASIS), views foreign funding as a welcome development.

As much as 94.3 per cent of the funding managed by Bangladeshi start-ups over the past decade came from abroad, according to a recent study by LightCastle Partners.

Typically, investment in start-ups is risky, so funding from banks is hard to come by.

“There is knowledge transfer and we learn new techniques, ideas and discipline from them. But I am not in favour of foreign companies acquiring 100 per cent shares in a local start-up.”

If a start-up can develop a business model that attracts foreign investors and also commands a big price tag, it should be encouraged by all means.

“But if a local company sells at a low price to a foreign player, it is not good at all.”

He went on to call for a ceiling of shareholding by foreign companies.

Previously, there was a guideline by BASIS for local start-ups that stated that no foreign party can hold more than 49 per cent shares in a local company. 

But that is no longer applicable.

Currently, the laws of the land allow foreign companies to acquire 100 per cent shares from locals. 

“We will work on this issue again,” said an industry stakeholder requesting anonymity to speak candidly on the matter. 

The e-Commerce Association of Bangladesh (e-CAB) also called for a strong policy to save both the local start-up scene and also to attract investment from abroad.

A culture of foreign investment is being created, which is a positive development, said Md Abdul Wahed Tomal, general secretary of e-CAB.

“We want the local start-ups to thrive. They should be given exemption from VAT, tax, technology transfer and other issues. These strong issues should be there in a policy.”

The e-CAB is doing advocacy for such a policy, Tomal added.