Sri Lanka Startup Report 2019 PAGE 1 A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. - Eric Ries - The Lean Startup - PAGE 2 Introduction SLASSCOM Startup Report 2019 The Sri Lanka Association of Software and Service Companies (SLASSCOM) launched the “Sri Lanka Startup Report 2019” to understand the current startup ecosystem in Sri Lanka, identify the challenges faced by ecosystem players and strategize the way forward. The report draws its findings on Sri Lankan startups from a survey sent out to the startups currently registered with SLASSCOM. Most of these startups have been in operation for at least one year. The profiles of featured startups have been put together following interviews with the founders. The challenges faced by the ecosystem at present and the way forward have been compiled based on research and discussions with key ecosystem players. One of the unique selling points of Sri Lanka is that a startup based in Sri lanka can enter into the other South Asian markets of Pakistan, India & Bangladesh without being subjected to any geopolitical issues. International startups such as Oyo, Ikman and international startup brands like Startup Weekend by TechStars, Seedstars, AngelHack venturing into Sri Lanka are positive indicators of our ecosystem’s potential. PAGE 3 Chairman’s message Jeevan Gnanam Chairman SLASSCOM A very important part of our $5Bn goal and employment goals is the Startup ecosystem. We believe that the companies that will help us achieve this target by 2022 are yet to be born or in the nascent stages right now. This is the opportunity in front of us that all of us can become a part of and support. The opportunity is that the world is changing at a faster pace than ever before. With the onset of the fourth industrial revolution and pace of change, the opportunities or gaps in market are best addressed by new exciting business models, unhindered by old legacy systems; fuelled by innovation and entrepreneurship. I believe Sri Lanka as a nation can be a driver of this change in the South Asian region. Whether Sri Lanka can position itself on the global landscape with a differentiated position for startups, is a challenge we must all embrace. The vision of Sri Lanka as a Startup Friendly Nation should and can be fulfilled. This report identifies the opportunities and gaps to fulfill such a vision. Our wish is that it will sharpen focus, spark debate and delineate steps needed to move the Sri Lankan Startup Ecosystem to the next level. The most important aspect of the startup ecosystem is the community. I’m glad to say that the community SLASSCOM along with its partners and other bodies have been able to foster is one of open collaboration, support and a strong growth mindset. It’s all about community; the collective “we” that will harness the startups at the same time hone their skills trying to push them to national and international platforms. The success of our startups depend on the ecosystem and the support they receive. As a nation, we have to provide a supportive ecosystem that embraces a diversity of ideas and beliefs; and supports these nascent companies to the fullest. I am glad to say that this year we were able to achieve some significant milestones such as 400 startups, acceptance of LLP struc- tures and allowance of startups to bid for government tenders. With these policy and structural changes I’m certain we can reach our 2022 vision of a 1000 startups. PAGE 4 Table of ContentTable of Contents PAGE Economic Background of Sri Lanka 5 Doing Business in Sri Lanka 6 Sri Lankan Startup Ecosystem 8 Featured Startups 9 Survey Methodology and Analysis 12 Startup Founders – What backgrounds are they from 13 Startups in Sri Lanka – What are they like 14 What are Sri Lankan startups involved in 15 Challenges faced by Startups 16 Factors that enable startups to succeed 17 Why Do Startups Fail 18 Ecosystem Issues 20 Sri Lankan Startup Scene is Looking Up 22 The Way Forward 23 Sponsors 25 Contact PAGE 5 |Economic Background of Sri Lanka Economic Background of 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. Lacklustre GDP growth in 2018 can mainly be attributed to weak domestic demand, tight monetary policies, stagnant fixed investments, and political instability, but ADB and IMF expect the growth rate to bounce back to 4.3% - 4.5% range in 2019. However, given the terror attacks in April 2019, these estimates might be revised down, as the tourism and retail sectors could be affected in the coming months. PAGE 6 |Doing Business in Sri Lanka Doing Business in Sri Lanka Sri Lanka’s strategic location provides geopolitical benefits, acts as a global logistics hub, and allows businesses to work with clients in several different time zones. The government has taken steps to attract FDIs and make the private sector the main engine of economic growth. 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. The growing popularity of Sri Lanka as a place to expand a business is also reflected in the fact that several foreign startups have set up shop here, such as Ikman, Daraz, Oyo, Vista Rooms and Carmudi. PAGE 7 |Doing Business in Sri Lanka Doing Business Index 2019 The country rose 11 places in the World Bank’s 2019 “Doing Business index” and now ranks 100 among 190 econ- omies in the ease of doing business (13th in Asia) and 83rd in “Starting a business” index. Sri Lanka’s position in comparison to several other countries in the SEA region are as follows Ease of starting a Country Global Rank business rank Sri Lanka 100 83 Vietnam 69 104 Indonesia 73 134 Philippines 124 166 What is a 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. PAGE 8 |Sri Lankan Startup Ecosystem Sri Lankan Startup Ecosystem Overview The Sri Lankan startup ecosystem is presenting steady progress, with developments in areas such as communication and IT contributing to a rapid growth in the number and scale of start- ups. The local ecosystem benefits from a high rate of literacy, software and technical expertise, high-speed internet access, affordable working spaces and both public and private sector orga- nizations facilitating networking and knowledge sharing platforms in the country. Global Innovation Index Government Support Sri Lanka rose two places in the The Government of Sri Lanka has taken several measures to improve the startup Global Innovation Index (GII) to ecosystem in the recent past. Since 2018, the Company registration process has rank at 88 out of 126 countries in been fully automated and a web-based platform introduced offering a much 2018. In addition, Sri Lanka ranked faster and convenient service. The "Enterprise Sri Lanka” programme by the 81 in both business sophistication Export Development Board, provides youth with subsidized loans to accelerate and knowledge and technology their business ventures.