Supporting startups

The International Finance Corporation (IFC) has decided to make a $ 2.5 million venture capital investment in PickMe, a Sri Lanka-based tech-started that started a ride-hailing business. The move could well be a stepping stone to other local startups that have been changing everyday business models with significant levels of success. Could PickMe be a milestone moment in Sri Lanka’s startup sphere?  

Sri Lanka’s venture ecosystem is growing, but funding options are still limited. According to IFC only 5% of the startups that get seed funding manage to raise funds in later rounds and hopes its entry to the sector would lead to more capital, domestic and international, for the country’s technology startups.          

Sri Lanka possesses many of the building blocks for a thriving digital startup ecosystem, but has been held back by a lack of global expertise and funding. Experts also believe that Sri Lanka’s startups are hampered by low investment in Research and Development, low coordination between universities and the private sector as well as traditional laws of bankruptcy and employment. 

The Sri Lanka Association of Software and Service Companies (SLASSCOM) launched ‘Start-up Sri Lanka,’ last year, with plans to launch 1,000 Sri Lankan start-ups by the year 2020. SLASSCOM ran a survey in 2015 among 215 aspiring or existing local entrepreneurs to analyse their demographics, as well as the barriers for growth for start-ups.

Lack of affordable workspace, missing online payment solutions, poor access to capital - most of the start-ups are internally funded - and unreliable and expensive Internet access represent the biggest obstacles. Numerous banks are currently working or introducing payment solutions, which will take away one of the worries but Sri Lanka still remains outside the realm of platforms such as Paypal despite repeated efforts to correct the oversight. 

There will always be organic support in Sri Lanka for startups as IT and entrepreneurship continues to grow across all sectors. However while cities like Singapore, Bangkok, Beijing or Ho Chi Minh City are regulars on lists as attractive start-up destinations, Colombo is harder to find. 

However, most industry experts agree that Sri Lanka has an abundance of talent. It is therefore evident that Sri Lanka has some structural, financial and legal obstacles that need to be tackled in order to be mentioned with the likes of Singapore and Hong Kong.

Some of these destinations have considered establishing a national platform to give startups a better chance of becoming viable businesses. To this end, the Government must also understand what policies would matter to start-ups. For example, giving tax concessions would matter little as most startups would not make profit in the first few years anyway. Instead, policies to hire and fire people or even dissolve a company have to be eased to enable startups. Getting this mix right will be at the core of Sri Lanka’s growth prospects.

Sri Lanka’s expenditure on R&D is also the lowest in the region. In 2010, Sri Lanka’s R&D to GDP ratio was a meagre 0.16% and it has not risen much since then. Out of this 0.16% only 11% was spent by universities while the rest was spread equally between Government research institutions and businesses. Unfortunately, most of this research is targeted at academic goals rather than driven to achieve economically viable goals. This needs to change if Sri Lanka’s startups are to go places.