Sri Lanka
Startup
Report 2019
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 1
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 2
Jeevan Gnanam
Chairman
SLASSCOM
Chairman’s message
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 3
Table of Contents
Table of Content
PAGE 4
Economic Background of Sri Lanka
Doing Business in Sri Lanka
Sri Lankan Startup Ecosystem
Featured Startups
Survey Methodology and Analysis
Startup Founders – What backgrounds are they from
Startups in Sri Lanka – What are they like
What are Sri Lankan startups involved in
Challenges faced by Startups
Factors that enable startups to succeed
Why Do Startups Fail
Ecosystem Issues
Sri Lankan Startup Scene is Looking Up
The Way Forward
Sponsors
Contact
PAGE
5
6
8
9
12
13
14
15
16
17
18
20
22
23
25
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 5 |Economic Background of 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 6 |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
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.
Country
Global Rank
Ease of starting a
business rank
Sri Lanka
100
83
69
104
73
134
124
166
Vietnam
Indonesia
Philippines
PAGE 7 |Doing Business in Sri Lanka
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
Sri Lanka rose two places in the
Global Innovation Index (GII) to
rank at 88 out of 126 countries in
2018. In addition, Sri Lanka ranked
81 in both business sophistication
and knowledge and technology
outputs.
Co-working Spaces and
Accelerator Programmes
Colombo has witnessed an increase
in affordable co-working spaces
during the recent past, allowing
startups to network and share knowl-
edge. There are a number of incuba-
tors and accelerator programmes
that provide support to the growing
number of startups. Programmes like
“Venture Engine” encourage found-
ers to present their ideas and become
eligible for funding from potential
investors. Further, hackathons and
competitions organized by Universi-
ties and other firms provide a space
for innovation to take place and
power the startup ecosystem.
Government Support
The Government of Sri Lanka has
taken several steps that have proven
to be advantageous to startups. Since
2018,
the Company registration
process has been fully automated
and a web-based platform intro-
duced offering a much faster and
convenient service. Another initia-
tive carried out is the “Enterprise Sri
Lanka” programme by the Export
Development Board, where youth
are provided with a loan at a subsi-
dized interest rate to build their
business and accelerate its growth.
Private Sector Involvement
The private sector is also involved in
the development of startups, with
Companies like John Keells Holdings
PLC and Dialog Axiata PLC launch-
ing accelerators and
innovation
funds. Support from Companies of
this scale portrays confidence in the
potential of the startup ecosystem.
Success Stories
Over the past few years, Sri Lankan
business environment has embraced
the idea that startups are and will be
a part and parcel of the corporate
network, and there are quite a
number of mentoring programs that
target startup founders. Some of the
notable startups that have been
successful over the past few years
are:
Company
Domain
Founded in
Creately
Software
2009
Wow.lk
E-Commerce
2011
Bhasha.lk
Product
Development
2011
Takas.lk
E-Commerce
2012
4Axis Solutions
Creative Space
2012
Pickme
Transport
2015
PAGE 8 |Sri Lankan Startup Ecosystem
Featured Startups
Success Factors
One of the success factors was that the founders
focused on one aspect, without trying to offer
several products. For example, the Company
received orders to develop different types of
products for other clients which could have
been monetized but the founders decided not
to go down that path. In addition, they did not
focus on providing services, but concentrated
solely on developing their mobile colouring
book application.
The founders also noted that registering 4Axis
in Singapore was beneficial, due to the policies
and regulations in the Sri Lankan business
environment in 2012 that could have potentially
restricted the Company’s growth. Due to the
limitation of payment options in Sri Lanka and
global presence of their applications, estab-
lishing a Singapore office has helped the
business operations of the Company.
Market Research and Marketing
The founders did not engage in market
research prior to launching the Company in
2012, instead deciding to follow their passion
of developing drawing tools. Following the
introduction of their applications, the founders
have stayed up-to-date on trends in the creative
space and how the US and European markets
perceive such apps in order to release relevant
updates. As per the founders, the “Drawing
Desk” app recorded 3,000 downloads on the
first day it was published without any marketing.
Differentiator
The “Colourgram” application developed by
4Axis allows users to publish their artwork for
other users to see. In addition, the content is
playable; a video that includes music will
animate the user’s artwork. As colouring is
considered therapeutic in US and Europe, this
app has remained quite popular in both Apple
and Andriod app stores.
Advice from Founders
It is important to be passionate about all aspects
of a business, not just the tech. User acquisition,
distribution and revenue generation are
important to sustain a business, so new
entrepreneurs should focus on these aspects
to ensure success. The founders also emphasized
the importance of believing in the product being
offered, and how founders should prioritize
what to focus on during initial stages of the
business.
Background
Founded in 2012 by four University of Moratuwa
Engineering graduates, 4Axis Solutions
focuses on building mobile applications in the
creative space. Their flagship application was
a mobile colouring app, while they also have
an app to send handwritten messages. The
Company currently has 17 employees working
from their office in Colombo. The mobile
applications developed by 4Axis have reached
18 mn downloads in over 150 countries, with
most of the traction coming from USA and
Europe.
PAGE 9 |Featured Startups
Success Factors
According to the founders, when Creately was
first launched, there was no other established
Company that was providing a similar platform
with the same ease of use on a global scale.
Therefore, they were able to gain traction in the
market. The Company has focused on making
their product less technical and more user
friendly which has allowed them to remain
ranked in the top three providers of platforms
for visual collaboration.
The founders noted that they were focused
exclusively on their product. They did not turn
to providing services for companies, which
would have diluted the purpose and resources
of Creately. Continuous improvement of the
app has also contributed to the Company’s
success.
Market Research and Marketing
The founders dedicated a significant amount
of time for market research prior to launching
the Company, in order to validate whether it
was worthwhile stepping into this space. Even
at present, the Company invests heavily in
market research, competitor analysis and
understanding how customer needs are evolv-
ing. Creately invests in content marketing, search
engine optimization, and social media marketing
Challenges
In the early stages, the founders faced difficulty
in hiring employees, as most people were not
familiar with the concept of a product startup.
Additionally, they had funding issues for about
a year, where the founders bootstrapped
Creately. The founders believed that location
was a setback, as being in Colombo did not
provide the same growth opportunities that
would have been available in a place like
Silicon Valley.
Advice from Founders
For a software Company, it is important to
understand what problem they have focused
on solving and to work with customers closely.
Solutions that can be scaled outside Sri Lanka
should be chosen, in order to grow a business
beyond the local market. Competitor analysis
is vital, as a Company should always know
what a similar business in another corner of
the world is developing.
Background
Creately is a cloud-based software product
company, launched in 2009 with the aim of
allowing its users to draw diagrams and graphs
and collaborate visually across different
platforms in real time. The Company caters to
clients ranging from large companies to small
and medium businesses and individuals.
Of the four initial founders, three are from a
technical background, and one from a
marketing background and they operate out
of Colombo with 20 employees. The founders
believe that the purpose of Creately is globally
applicable, as most people are visual commu-
nicators. Creately has 2.5Mn users across 140
countries and some of their global clients
include NASA, Amazon and PayPal.
PAGE 10 |Featured Startups
Success Factors
The founders had combined experience working in
startups and the corporate world, which gave them
a network of contacts and an understanding of how
to run a business. Therefore, they knew how to
convince investors to taking a chance with their
business idea, so they did not find it challenging to
access funding.
Having experienced founders also translated to a
better understanding of the operational side of
business. The founders noted that many startups
do not realize the magnitude of the expenses that
need to be incurred when starting a business. Even
employees are not cheap, therefore it is important
to be realistic about numbers, which is why some
startups drain their cash before reaching the end
product.
Market Research and Marketing
One of the founders came from a background
where he was experienced in localizing global
concepts. Therefore, understanding the market
came mainly through past experience. In terms of
marketing, working with established partners such
as Booking.com and Expedia gave the business
exposure and helped them gain traction. After
generating business
initially
through
these
channels, and after customers had a taste for how
Yohobed worked, they were able to resell their
services through their own website. From day one,
the Company was focused on getting the right,
experienced people to their team which enabled
them to move to the market fast.
As the industry is mature, the founders found it
challenging to work with giants such as booking.com
that has more than 20 years of experience and to
building technology to get on a par level. In addition,
the Company had to go through a restructure due to
pre-mature scaling.
Challenges
The Company is completely tech based, allowing
them to scale fast. As such, they can add more
properties on a daily basis which other hotel chains
cannot accomplish. They strive to become the largest
hotel chain in Sri Lanka without owning any physical
properties.
Advice from Founders
It is important to find the right partners to begin
with by looking at their profiles and how those
profiles will help build the company and move
forward. In addition, the founders need to focus on
finding serious and realistic investors in order to
ensure their business stays afloat long enough to
roll out the end product and generate revenue.
Background
Yohobed is a virtual hotel chain and has positioned
itself as the “first branded network of budget hotels
in Sri Lanka”. While the Company does not own
any properties, they take online ownership and
provide the operational know-how and technology
to provide customers with a better service. The
Company also gets involved in training staff of their
properties and follows up with the quality, in order
to ensure their properties are up to standard.
The three founders come from different backgrounds,
one who has around a decade of startup experience,
one from a service and accounting background and
the other from a retail background. When one of the
co-founders was travelling to India, he came across
a similar business concept for hotels and believed if
India could do it, so could Sri Lanka, where the
hospitality
industry was booming and more
recognized. Their idea was to localize this new
concept to the Sri Lankan market. At present,
Yohobed claims to have a reach in 70 cities, across
over 500 properties.
PAGE 11 |Featured Startups
SLASSCOM Startup Survey 2019
The 2019 Survey was launched by the SLASSCOM
Entrepreneurship Forum, in order to understand the
nature of the startups and their founders, and what
challenges are faced in Sri Lanka’s startup ecosystem.
The survey was shared among the startups registered
with SLASSCOM, in addition to being shared on
social media platforms to reach those startups who
may not be connected with SLASSCOM as of yet.
While the questionnaire focused on collecting in
depth information regarding the startups, key players
in the startup ecosystem were also interviewed in
order to glean an understanding on the challenges
faced by the ecosystem as a whole, and how they can
be addressed.
Survey Methodology
and Analysis
PAGE 12 |Survey Methodology and Analysis
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.
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.
Sri Lankan Startup Founders are young – 33%
of founders who responded are between the
ages of 25 – 29, while only 2% were between
the ages 20 – 24. This is a notable shift from
2016, where 16% of founders were between the
ages of 20 – 24. According to the 2018 Startup
Genome Report, the new era of tech has paved
the way for a new type of founder: one who has
formal education, experience and whose
median age is 39 years.
Reasons for embarking on a Startup:
Startup Founders – What backgrounds are
they from?
0
5
10
15
20
25
30
35
20 - 24
40%
Computer
Science
31%
Business
Management
14%
Others
7%
Finance
Male
Founders
87%
Female
Founders
13%
15%
Engineering
29%
Innovative
Idea
15%
Financial
Motivation
23%
Control /
Independence
19%
Flexibility
15%
Motivated by
icons/ mentors
25 - 29
30 - 34
35 - 39
Over 40
2%
3.23%
12.9%
14.19%
30.32%
21.94%
Ordinary Levels
17.42%
33%
24%
26%
14%
Advanced Level
Bachelors
Masters
Professional Qualifications
Doctoral
PAGE 13 |Startup Founders – What backgrounds are they from
Sri Lankan Startups are expanding – 55% of
startups that responded are in the growing
revenue or expansion stage. In addition, 29% of
respondents reported an annual revenue of
more than LKR 10 mn, while 40% are still in the
less than LKR 1 mn revenue category. 61% of
respondents reported being profitable, while
the rest are not.
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
Many of the respondents are relatively new – 36%
have been in operation less than one year while 44%
have been in operation between 1 to 3 years. Only
8% have been in operation more than 5 years.
In terms of staffing, 16% of respondents have
employed more than 20 staff members, with 82% of
respondents expecting to increase staff in the next
12 months. When considering female participation,
52% of respondents have females in the manage-
ment team, however only 32% have women on the
Board of Directors.
Sources of Funding:
Idea
Prototype
Early Stage Growing
revenue
Expanding to
new markets
Number of Staff
51%
Self
19%
Family
12%
Angel Investors
8%
Banks
4%
Venture Capitalists
6%
Other Sources
5%
10%
31%
36%
18%
Startups in Sri Lanka – What are they like?
2 - 5
54%
5 - 20
20%
20 & above
16%
No
response
10%
PAGE 14 |Startups in Sri Lanka – What are they like
Of the Startups that responded, 32% are involved in
Software, Offshore Accounting and IT Services. The
other industries that Startups are involved in
include: retail, media, telecommunications, digital
services, logistics etc.
Breakdown of Startups based on Province are
depicted in the map below:
Of the startups that responded, it was noted that 56% earned all of their revenue within Sri Lanka.
The proportion of revenue earned from different geographies are shown in the table below:
92% of Startups are
based in the Western
Province, while 2%
are located in the
Eastern Province.
62% of the Startups
are based on
Software, while 4%
are based on
hardware alone and
34% are based on
both.
86% of Startups have
1 – 3 members in their
founding team, while
13% have 3 – 5
members
91% of respondents
believed business
outlook will improve
for next year, while
6% did not know.
17% of startups are
based on B2B
Products, 14% on
B2C Products and
10% on Knowledge &
Professional Services.
52% of the
respondents have a
hierarchical
management team in
place, while the rest
do not.
Characteristics of the Startups that responded
Geographic revenue breakdown
Share of Startups
7.14%
19.05%
13.1%
4.76%
4.76%
Engineering
2% Eastern
1%
Northern
1% North
Central
92%
Western
1%
Southern
1%
Uva
1%
Central
Financial Services
Software
Offshore Accounting / Software and IT
Education
Consumer Durables and Apparel
Other
What are Sri Lankan startups involved in?
Structured
Hierarchy
Technology
Business
Outlook
Number of
Founders
Software or
Hardware?
Location
100% Abroad
5%
100% Sri Lanka
50% Sri Lanka, 50% Abroad
60%- 80% Abroad, 20%- 40% Sri Lanka
60%- 80% Sri Lanka, 20%- 40% Abroad
56%
9%
16%
14%
47.62%
PAGE 15 |What are Sri Lankan startups involved in
Government support for Startups
Ease of access to funding
Limitations due to Sri Lanka's
positioning as an investment hub
in the regional and global space
Barriers to expansion and growth
of existing startups
Availability of qualified talent
Availability and quality of
affordable working spaces
Extremely Challenging
Somewhat challenging
Slightly challenging
Not challenging at all
Not Applicable
Challenges faced by Startups
49%
33%
29%
28%
9%
7%
15%
34%
34%
27%
30%
19%
16%
1%
3%
24%
24%
21%
21%
13%
11%
5%
5% 5%
10%
25%
23%
30%
30%
21%
Access to International Payment
Gateways
Availability of guidance by willing
mentors within the local startup
ecosystem
Professional assistance available
relating to business planning,
financial advisory, and other services
Infrastructure support
Networking opportunities
Technological support
Extremely Challenging
Somewhat challenging
Slightly challenging
Not challenging at all
Not Applicable
20%
14%
27%
31%
34%
26%
15%
19%
2%
14%
25%
30%
29%
3%
9%
24%
26%
38%
3%
8%
23%
38%
29%
2%
13%
18%
20%
28%
26%
7%
PAGE 16 |Challenges faced by Startups
Technical skills and expertise
Supportive regulatory environment
and ease of doing business
Availability of capital
Pro-entrepreneurship culture and
support from family/friends to pursue
startup dreams
Supporting infrastructure and
organisational bodies
Role models and visible examples of
successful startups
Guidance from experience
entrepreneurs and professional
experts
Highly important
Somewhat important
Slightly important
Not important
Factors that enable startups to succeed
69%
21%
7% 2%
61%
27%
8%
3%
61%
23%
14%
4%
56%
30%
11%
4%
49%
36%
10%
5%
38%
35%
22%
5%
66%
28%
7%
PAGE 17 |Factors that enable startups to succeed
Failure to do Market Research
One issue that investors and mentors of accelerator
programs have encountered is that startups do not
conduct sufficient market research. The current
ecosystem is tech-driven, which leads to founders
designing products without consideration for the
end-user and the need for their product in the market.
One of the main reasons for failure is that startups do
not focus on solving a market problem. Instead, they
follow their capabilities and passion and introduce a
solution which may not be needed by customers,
which results in the startup being unable to attract a
customer base. A study done by CBInsights identifies
“tackling problems that are interesting to solve rather
than those that serve a market need” as the number 1
reason for failure in startups. While it is important to
introduce a product that is needed in the market, it is
also important to focus on solving a large enough
problem that would enable the startup to scale in the
future.
In instances that secondary market research is not
readily available, founders can conduct primary
market research by interacting with customers and
identifying problems that need solving.
In order to maintain long term sustainability, it is
important for entrepreneurs to be data driven, and
not carry out business based on emotions and passion
alone.
Lack of Experience
An observation in the Sri Lankan ecosystem has
been that startups with more experienced founders
tend to succeed more often. While this is not the
status quo (for example, the USD 3 mn revenue
generating 4axis was founded by four University
graduates), startups tend to do better if its founders
have at least a few years of corporate experience.
Given the dynamics of starting and running a
business, a founder with real world business experi-
ence would have more resilience in the face of
challenges faced during initial stages, in addition to
having better knowledge of daily operations such as
finance and human resources.
When authors of the article titled “Research: The
Average Age of a Successful Startup Founder Is 45”
published in Harvard Business Review analysed
the winners of the US based TechCrunch Awards
over the last decade, the average age at the time of
founding was 31 years. When the top 1% of highest
growth startups (over a period of five years) in the
US were analyzed, it was identified that approxi-
mately 30% of the founders were between 40 – 49
years old and the average age was 45.
Commitment
While young founders have the passion for their
product, it has been observed that some of them
lack the commitment that is required to ensure the
business succeeds. As Sri Lanka’s startup ecosystem
is in its early stages, founders need to take a more
active role, unlike in Western countries where the
ecosystems are more mature and founders can be
more passive.
Why Do Startups Fail?
PAGE 18 |Why Do Startups Fail
Why Do Startups Fail?
Spending habits and insufficient business acumen
Money is a finite resource that must be allocated prudently. Unnecessary expenditure when money flows in
causes cash flow issues for startups. This is due to a lack of direction, where the founders may not be aware of
appropriate money management techniques. Oftentimes, founders spend exorbitant amounts on digital market-
ing campaigns which do not have measurable results, causing the cash flow to take a hit. The monthly burn rate
is a crucial metric to keep track of, in order to identify how the company is managing its fund in day to day opera-
tions.
Another reason that startups have a hard time succeeding is that most tech startup founders do not have a solid
understanding of how a business is managed in terms of operations, distribution, marketing, finance and human
resources. It is important that founders hire the right people, or invest in learning these aspects themselves to
ensure their business does not tank after a few years.
In addition, ecosystem partners who mentor startups have noted that some founders lack confidence in pitching
their business, which results in investors being hesitant to provide funding. While technical skills are important,
those alone will not ensure business success. Therefore, founders must broaden their horizons in order to
become more business savvy and attract high quality investors
Funding issues
While the number of startups in Sri Lanka has grown exponentially,
the investor pool has not expanded to meet this growth. At present,
there are around 300 startups registered with SLASSCOM,
however only a few players exist in the angel investor and
venture capital space, with Lanka Angel Network, Blue Ocean
Ventures and Crowdisland acting as the main connectors
between investors and startups.
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.
PAGE 19 |Why Do Startups Fail
Ecosystem Issues
Availability of Market Information

Currently, there is a deficiency of recent, up to-date
and relevant information at a reasonable cost in
certain industries. For example, the transport indus-
try does not have easily accessible descriptive statis-
tics which could be useful to ride sharing platforms.
Market research on the real estate industry is prohibi-
tively expensive. Thus, startups may fumble in the
dark due to poor knowledge and advice regarding
direction of markets and customer needs. Lack of
information also leads to poor investor education
which means their involvement may be a hindrance
to the founders and their start-up.
While certain information can be collected through
primary research, it is challenging to obtain data for
historical trend analysis through this method. Avail-
ability of well analyzed historical market information
allows founders to conduct thorough research before
developing a product and business plan. Up to date,
current information throws light on information
such as market maturity and competitors.
Whether provided by the government or private
sector, timely and accurate market information
would provide a strong foundation for startups to
flourish. Therefore, it is important for both private
and public sectors to take steps to increase the avail-
ability of comprehensive market data that startup
founders and investors can refer to.
Low Female Participation

As the startup ecosystem in Sri Lanka is predomi-
nantly tech-oriented, this has organically resulted in
a male dominated ecosystem. While women are
involved in the tech industry, they fail to be included
in the respective circles, which to an extent is by
choice, however a main reason is cultural limitations.
In areas in the Northern Province for example, most
families do not believe females should run a business,
insisting instead that they should follow professions
which allow them to raise a family comfortably.
Certain features in the startup ecosystem are inher-
ently inconvenient for females; for example events
and courses mostly take place during the evening,
which might create issues as women need to return
home to their families. While such aspects lead
females to be excluded, it is important that the
ecosystem partners acknowledge this and create
more inclusive programmes.
Female participation
in educational programs
conducted by ICTA is higher than male participation,
with the breakdown being 60/40 outside Colombo.
However, that same participation is not seen in the
aftermath of these programs, due to the above
reasons.
Nonetheless, it should be noted that many non-tech
startups focusing on food and beverages, health and
wellness and fashion are mostly female dominated.
Awareness on these issues would help shed light on
female talent and increase representation in the
startup space.
PAGE 20 |Ecosystem Issues
Ecosystem Issues
Delays in Government Procedures

Red tape has been identified as a major obstacle,
where delays create an uneven playing field for found-
ers who do not have contacts in higher ranks, and
therefore experience delays when trying to get
approvals necessary for the business. It is important
for the government to adopt measures to cater to the
needs of fledgling startups whose requirements may
differ from those of traditional businesses.
The divide between resources and drivers of startups
hinders the swift development of new businesses. For
example, Artificial Intelligence and similar newly
developed segregations are unheard of in the business
registration department, which delays the operations
of startups in those fields.
It is also important that government programs are
catered to the specific nature of startups. For example,
the Enterprise Development Authority’s programmes
do not speak the language of startups, creating a
disconnect between what is needed by their founders
and what the programmes offer. The government
could look into partnering with bodies who work
within the ecosystem and who have the capacity to
follow up once resources are provided, to ensure that
startups are driven forward.
Coordination and Cohesion in Programmes

While there are a number of startup focused
programs, a lack of cohesion amongst them has been
noted by several ecosystem players. For example,
certain programmes provide introductory knowledge
on how to start a business. However, after participat-
ing in such a workshop, founders may not know how
or where to connect with a program that provides
exposure on attracting investors, conducting market-
ing campaigns etc. Thus, it is vital for the programmes
conducted by different hosts to be connected, in order
to provide a holistic learning experience for new
founders.
Failure Stigma and Investor Mindset

Sri Lankan culture is such that failure is viewed as
despicable. While any business is an inherently risky
undertaking, startups entail higher risk due to the
novel products and non-traditional ways of operation.
The investor mindset not allowing for failure is a
deterrent when it comes to investing in startups, as
most investors are unwilling to take on possible
losses. Additionally, most investors demand a lion’s
share of the business, so much so that by the third
round of funding, the founders may not have more
than 10% ownership in their business.
Regulatory Barriers

Most startups follow non traditional business models,
and certain regulations that exist in the Sri Lankan
context have resulted in an uneven playing field for
startups. For example, banks only provide loans
against tangible securities. However, most startups
operate out of home offices and do not have a tangible
product, and their ideas sound risky to traditional
bankers, which discourages banks from offering loans.
Certain legislature prevents crowdfunding as a source
of funds for startups. Section 31I of the Securities
Council (Amendment) Act, No. 26 of 1991 prevents
private companies from “inviting the public to invest”
in them. In addition, the Companies Act no. 07 of
2007 limits the number of shareholders of a privately
held company to fifty.
As per the survey carried out by SLASSCOM, the
number one challenge for startups has been identified
as government support. Additionally, when asked
about the factors that enable startups to succeed,
supportive regulatory environment and ease of doing
business were identified to be of highest priority.
Thus, it is important that the government works in
tandem with the private sector and parties with exper-
tise in the startup space in order to facilitate their
business operations.
PAGE 21 |Ecosystem Issues
Sri Lankan Startup Scene
is Looking Up
Programmes encouraging Entrepreneurship

The Information and Communication Agency (ICTA) of Sri Lanka conducts
several programs at school level and University level to encourage students to
explore the avenue of entrepreneurship.
“Educate to Innovate”, targeting students in secondary school level, focuses
on STEAM educational approach, where Arts is included in the traditional
Science, Technology, Engineering and Mathematics streams. This program
also focuses on introducing the idea of entrepreneurship and basic computer
coding to students.
“Imagine If” caters to State University students, which gathers interested
students to inspire them to think outside the box. They are motivated through
workshops, inspirational speeches and mentorship events. Students are intro-
duced to the concepts of revenue and cost models, what to consider before
starting a business, stakeholder theories, marketing plans etc.
Tech Talent and Brain Gain

Sri Lanka is home to excellent tech talent, graduating from both State and
Foreign Universities in the country. As per the UGC Annual Report, 1,153
State University Computer Science and IT graduates entered the workforce in
2017. In addition, there are a number of private programmes that offer IT
qualifications for students aspiring to be employed in the tech industry.
In the recent past, Sri Lanka has witnessed an influx of students who studied
and worked abroad for some time with the goal of building Companies on
home ground. With their exposure and world view, they are able to bring an
interesting dynamic to the startup ecosystem.
Growth of co-working spaces

Over the past few years, Colombo has witnessed an increase in the number
of co-working spaces that can be utilized by startups. Spaces like Hatch and
Colombo Cooperative provide more than just a space to carry out their
operations, they introduce founders to important players in the ecosystem
like investors and possible mentors.
Only 21% of respondents believed that availability of affordable co-working
spaces was an issue, indicating the relative availability of affordable
co-working space. As Sri Lanka’s startup ecosystem expands, it is important
to have spaces that foster a sense of community and provide founders with a
way to network and be exposed to learning experiences from industry
specialists.
PAGE 22 |Sri Lankan Startup Scene is Looking Up
The Way Forward
One Stop Shop for Startups
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.
Several countries like Singapore1 and Lithuania2
have established a single destination website which
includes all the information a startup founder would
require in terms of starting a business, funding a
venture, regulatory procedures and potential inves-
tors to connect with. They also list upcoming events,
programmes available to ease business processes,
who the ecosystem players are and important news
highlights.
The existence of a single point of reference eases the
process of entering into a new venture, as most start-
ups are founded by individuals who do not possess
prior business experience. A one stop shop would be
beneficial for foreign investors as well, as it reduces
the time they would have to spend looking for infor-
mation on the startup ecosystem.
https://www.startupsg.net/
https://www.startuplithuania.com/
Government Support
It is vital for the government to work cohesively with
institutions and individuals who have experience and
expertise in the startup arena, in order to benefit
upcoming business ventures. Improvement of approv-
al processes, introducing funding programmes should
be carried out in consultation with key players in the
startup ecosystem, so that programmes can be
catered to best suit the participants.
In terms of funding, the government could look into
co-investing with someone who has the expertise in
the startup field, in order to direct Companies towards
acceleration and growth. For example, Vietnam has
experienced explosive economic growth over the past
30 years, with startups playing a key role as drivers of
change in the past decade. The Vietnamese govern-
ment has launched several projects to support local
innovation and entrepreneurship. The government
assistance program “SpeedUP” had invested in 14
startups by mid-2018.
The government could also look into allowing foreign
talent to work in Sri Lankan tech space, even for short
time periods, which may assist startups in developing
their businesses. Singapore has introduced an “Entre-
pass Workpass Scheme”, which allows foreigners to
work in startups, which is required to be renewed
every two years.
Regulatory support would signal Sri Lanka as an
economy that is startup friendly, which would be
beneficial in attracting foreign capital.
PAGE 23 |The Way Forward
The Way Forward
Skill Focused Programmes
While it is important to host speeches and meetups, it would serve the start-
up community well if coworking spaces could host programmes that focus
on improving specific skills in founders. Most partners agreed that while
initial knowledge like how to handle business operations, finance and
human resources can be learned through online courses, there are certain
areas which need extra focus.
For example, investor readiness is a skill that could be focused on, as there
is a practical side to it that might not be conveyed through online courses.
Founders must treat investment readiness as the bridge that provides the
financial and fundraising capability that investors expect from entrepre-
neurs, thereby significantly increasing the chances of being funded. There-
fore, ecosystem partners could focus on such skills and develop
programmes that enable founders to move forward with confidence in
these areas.
In addition, the ecosystem would benefit from workshops that focus on
founders who are experienced professionals, as these programmes would
need to be tailored toward individuals with more corporate experience
than recent University graduates. These programs would need to focus
more on business acceleration, rather than knowledge on how to start a
business and day to day operations.
Export and Business Acceleration
Accelerators that focus on a specific business type
would be beneficial for startups that have moved
beyond the earliest stages of getting established and
are currently in the “adolescence stage”. While these
startups can stand on their own two feet, they may be
looking for guidance to gain strength in external
markets. As the Sri Lankan market of 21 mn people
may be limited for startups focusing on certain types of
technology, export and business accelerators would
support businesses that are looking to tap into foreign
markets.
For example, Singapore has different corporate spon-
sored accelerators that focus on specific areas such as
fintech, cloud computing, internet of things etc.
Currently the Sri Lankan Export Development Board
provides a LKR 1.5 mn loan for innovative business
ideas. In addition to such programmes, the startup
ecosystem would benefit from accelerators that focus
on specific industries or technology types, that would
allow businesses to draw on know-how from of experts
in those fields
Toolkits
Ecosystem partners agreed that in addition to a one
stop shop, founders would benefit from a comprehen-
sive toolkit detailing everything from how to register a
business in Sri Lanka to what steps to follow when
pitching to investors. This could be prepared with the
participation of industry experts, in order to assist new
businesses obtain the knowledge and tools they need
to succeed in the cut throat startup arena.
PAGE 24 |The Way Forward
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by SLASSCOM’s Entrepreneurship Forum.
A national initiative to educate, enable
and empower entrepreneurs, startups
and investors in building a startup
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