Transforming Sri Lanka into a Startup Nation

Currently, the country hosts around 400 startups, with many at the early stage and therefore significantly more attractive to first movers

Post COVID-19, Sri Lanka will be in an ideal position for a major pivot away from its old safety net of traditional investments. 

With global trends currently favouring new investment opportunities, smart investors will do well to consider alternatives such as venture funding in startups to further add value to their portfolios, to ensure they are truly bullet proof in the face of future pandemics.

Given the high risk, high reward nature of investing in startups, it is no wonder many shy away from this area. However, investing in venture funding mitigates much of that risk while ensuring better returns.

Exciting time for innovation
Now is the most exciting time in history in terms of innovation, with daily advances in many important fields that help further human understanding. For instance, where previously it took several months to get the SARS epidemic under control, today we are able ramp up production for ventilators and N95 masks in only a few weeks to combat COVID-19. 

These innovations aimed at helping the public have also resulted in significant profits for smart investors who are willing to take a chance on new technologies.

South Asia as a region has also benefited remarkably from venture funding, with India hosting the world’s third largest spawning ground for unicorns, which are startups valued at US$ 1 billion. With 57 unicorns, India is third in line behind China, at 155, and the USA, at 378 startups. And 20 of those unicorns reached this valuation in just the last year.

Some of India’s 2021 successes include Zomato, a food delivery platform that recently concluded a successful IPO where it was valued at US$ 12 billion; and Flipkart, an e-commerce giant currently valued at US$ 37.6 billion due to a funding round led by its main owner, Walmart.

Not too far behind
And with the correct mix fueling its Startup sector, Sri Lanka may not be too far behind its northern neighbour. The country has already witnessed some major buyouts specific to the tech sector. 

For example, 2009’s acquisition of MillenniumIT by the London Stock Exchange Group for US$ 30 million, and Singapore-based supply chain enabler Zilingo acquiring nCinga for US$ 15.5 million in 2019. This is aside from Sri Lankan companies like WSO2, which reported US$ 50 million in revenue last year.

The approach taken by BOV Capital, for example, as Sri Lanka’s first venture capital firm, has been to fast track the growth of the entire local startup ecosystem, instead of solely focusing on individual startups. 

For 15 years, it has built credibility by recruiting highly experienced fund managers, many of who have also worked with local and global startups, as well as domain experts in up-and-coming areas such as Health Tech, Fin-Tech, Agri-Tech, Ed-Tech and Last Mile Delivery.

“One win for us, as well as the startup sector as a whole, was the nCinga acquisition by Zilingo in 2019”, according to BOV Capital Co-Founder Prajeeth Balasubramaniam. 

“We recouped around 30 percent of our fund from just that one exit alone, so the Startup Sector in Sri Lanka is undoubtedly ripe for huge rewards. And our investors are already looking forward to even more exciting outcomes over the coming months.”

BOV Capital has also done really well with its investment in online retailer Zigzag, which has steadily grown to become one of Sri Lanka’s top fashion brands, with hundreds of new designs launched monthly. And the mood of BOV Capital’s investor base remains positively buoyed due to investments in InsureMe, an InsureTech company focusing on both B2C and B2B segment; Doc990, already Sri Lanka’s No.1 Health-Tech startup; and Roar, a regional media network, founded in Sri Lanka, that delivers content in English, Sinhala, Tamil, Hindi and Bengali; all of which show a lot of potential.

These exciting and successful outcomes have also proven to be very powerful, and positive, signals to those interested in Sri Lankan startups, attracting many inquiries about this emerging market from potential investors, who have become increasingly keen on taking part in local startup acceleration programmes like Venture Engine.
Importantly, Sri Lanka also features a number of unique selling points that are highly beneficial to potential investors, such as its geopolitical location for one, with several key Asian and Middle Eastern economies within a short, five-hour flight. 

Another key point of interest is that Sri Lanka in many ways is a largely untapped marketplace. Currently, the country hosts around 400 startups, with many at the early stage and therefore significantly more attractive to first movers. And the innovation potential for local startups is much greater here since they are able to become profitable faster in a smaller test market like Sri Lanka, and grow globally thereafter.

Further, Sri Lanka may have a smaller pool of tech talent in numerical terms, but these human resources have already proven time and again that they can build world class products that can compete globally. In addition, the country was ranked the second best for digital nomads in 2021, ahead of Singapore, by Club Med. This study by the French travel company looked at cost of living, safety, average internet speed, presence of nature and wellness spots, as well as adventurous activities in each country. 

Brain gain
Young Sri Lankan talent too is keen on returning to the country, and this brain gain has led to many successful startups in Sri Lanka being founded by returnees. These entrepreneurs studied in the best schools globally, and have worked for several years.

The Government of Sri Lanka is also increasingly open to incentives and policies promoting the ICT sector, including providing tax breaks, infrastructure development focused on ICT exports, internet for every citizen, etc. 
So, given the multiple advantages of investing in local startups, as well as the opportunity to mitigate risk and increase returns by partnering with a venture fund, the time to invest in Sri Lanka’s highly innovative and fast growing startup sector is now.