Sri Lanka Startup Eco System & Its Progress
Startup Sri Lanka
Being an island that is strategically located among the most important sea lanes of communication, Sri Lanka has always been recognized as a key naval link between West Asia and South East Asia. Sri Lanka is a Lower Middle-Income country with a GDP per capita of USD 4,102 (2018) and a total population of 21.6 million.
In 2009, after the end a 30-year civil war, Sri Lanka’s economy showed signs of a promising development with an average growth of 5.8% during 2010-2017, although in the past few years the growth rate has slowed down.
The country’s GDP reached USD 88.9 bn in 2018 while the economy grew by 3.3% in 2017 and 3.2% in 2018 according to the Central Bank of Sri Lanka. Services sector continued to grow by 4.7% in 2018 compared to a 3.6% growth rate in 2017.
Financial Service activities and IT programming consultancy & related activities were major growth catalysts in the services sector with a growth rate of 11.8% and 10.8% in 2018.
Doing Business in Sri Lanka
Sri Lanka has bilateral Free Trade Agreements (FTAs) with India, Pakistan, and Singapore which aim to lower trade barriers and support cross-region relations.
Sri Lanka is also a part of the SAARC, of which a key benefit was the duty-free trade on selected goods. Exports grew in 2018 by 4.67%, reaching USD 11.8 bn. Since the reinstatement of the EU GSP+ scheme in May 2017, exports to the EU grew notably.
E-commerce in Sri Lanka is supported by the low cost of data, as affordability is one of the top three factors affecting a customer’s decision to get online and stay online.
Sri Lanka is ranked 21 out of 181 countries for prices of mobile broadband based on price in USD as a percentage of GNI per capita, which is considered to be one of the lowest prices in the world.
Lower prices lead to greater adoption and use, which supports the growth of online business as more people use the services of the internet.
What is Startup
As per Steve Blank, who is considered the “Father of Innovation” in Silicon Valley, “a start-up is a temporary organization designed to search for a repeatable and scalable business model.”
Startups are known to disrupt markets with new products and services, or come up with radical changes to existing products. Most startups are technology driven, and are not restricted by geography as they aim for rapid growth.
According to Forbes, a key attribute of a startup is its ability to grow, and is designed to scale very quickly.
It is this focus on growth (usually with the help of technology) unconstrained by geography which differentiates startups from small businesses, as many small business owners are happy to maintain their businesses as they are.
Startup Founders – What backgrounds are
Founders are educated, with 73% of respon- dents having a bachelor’s degree or above. It was interesting to note that while 40% of founders come from a Computer Science Background, 31% identified their area of expertise as Business Management.
Reasons for embarking on a Startup:
Sri Lanka’s Startup arena is predominantly male, however in 2019, we noted that 13% of founders were female, in comparison to 4% in 2016. However, an interesting observation is that while male to female ratio between found- ers in Colombo is around 60/40, it shifts to 40/60 for teams who are from out of Colombo
Sources of Funding:
For sources of future funding, 38% of respondents expected internal cash flow to be sufficient to grow the business. While 28% expected to be funded by Private Equity or Venture Capital, 28% expected individual investors to invest in their startup.
For 36% of Startups that responded, their long term financing goal was to stay private, while 14% expected to go to market with an Initial Public Offering (IPO) and 23% expected to be acquired by a larger Company
Factors that enable startups to succeed
Investors Psychology of Sri Lanka
The shortage of risk-taking investors stifles innovation, due to major investors being unwilling to lose money.
Most investors only invest in products that have gained traction and end up doing what is safe, avoiding investing in potentially high-risk projects.
The typical investor mindset of always requiring a return needs to be addressed and investors need to be educated by providing global data surrounding investors who have realized successful investments only after moving through a multitude of failed investments.
The cultural stigma in Sri Lanka that is attached to failed investments fuels the reluctance to take a chance on new businesses.
Additionally, our systems do not allow for investors to write off losses; if a Company closes down, Directors are held liable. This also deters investors from funding startups.
It is important that investors understand that the capital provided is ultimately what the investor can afford to or is willing to lose thereby reducing their risk-averse mindset.
That is, one should invest only that portion of money in risky investments that they are willing to lose.
The Way Forward of Startup Eco-System in Sri Lank
At present, Sri Lanka does not have a one stop shop in place for startups to gather information on how to register a business, what events are going on in the startup space, how to connect to other startups, accel- erators, incubators and investors etc.
One website that anyone could get all information regarding the startup ecosystem would save time and ease connec- tivity between ecosystem players.
Currently, one issue is that most founders are not aware of who the most prominent investors are, and investors do not know what startups to invest in.
