Ecosystem Deep Dives #6: Sri Lanka - Small but mighty
Ecosystem Deep Dives #6: Sri Lanka - Small but mighty
The small island nation in the Indian Ocean is quietly growing its start-up ecosystem.
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Still recovering
A three decade long civil war left the country of Sri Lanka in shambles, as much in terms of infrastructure, societal tension and evidently exile of talent, a problem the country is still struggling with today. After the war ended in 2009, the country embarked on its reconstruction. Despite a rough start, today Sri Lanka is actually doing pretty well compared to other countries in the region. Its HDI (Human Development Index) stands at 72, higher than Mexico, Colombia, Tunisia and Thailand. HDI measures indicators related to three main sectors: health, knowledge and standard of living.
The country enjoys a relatively progressive business environment and is considered one of the best countries to do business in Southeast Asia. With a population of almost 22 million, one of the Sri Lankan market's strength is the ability to act as a test market for innovations that can then be scaled to its behemoth neighbor: India. However, Sri Lanka still lacks on internet connectivity (50% of the population), which represents a handicap for the country's tech start-ups. Now that introductions are made, let's dive into what makes the Sri Lankan start-up ecosystem special.
Sri Lankan specificities
The Sri Lankan start-up ecosystem enjoys a few specificities that have been fundamental in the development of its start-ups. The three main ones are:
Extremely qualified tech talent: Sri Lanka enjoys a history of very performant tech talent, and today companies such as Ebay and Paypal rely on Sri Lankan engineers for parts of their software development. This high quality talent is a result of the country's world-class universities such as the University of Moratuwa, who's applied computer science curriculum provides the country with scores of potential CTO's. The macro-quality of the country's tech scene has led to the emergence of very advanced, local start-ups such as Vega, a Sri Lankan start-up building an electric supercar.
Welcoming business climate: Similar to many other emerging markets, the Sri Lankan government has woken up to the game-changing impact local start-ups can have on the economy. The creation of Special Economic Zones, technology parks, and the implementation of advantageous fiscal policy (listed here), are all contributing to the growth of the ecosystem.
Small domestic market: Similar to Palestine or Tunisia, Sri Lanka enjoys a relatively small domestic market. This "forces" Sri Lankan start-ups to build globally (or at least regionally) scaleable solutions, as a Sri Lanka-only product won't attract traditional VC money. If played right, the country's strategic positioning at the crossroads of Africa, MENA and Southeast Asia could turn into one of Sri Lanka's biggest advantages. Its proximity to India and the latter's dynamic start-up ecosystem will also be key in providing Sri Lankan start-ups with the resources they need to takeoff.
The state of the Sri Lankan start-up scene
There is no doubt that the Sri Lankan start-up ecosystem is still in its infancy, and much more is needed to bring it to the next stage, which in my opinion represents the stage Colombia is currently in. However, governmental and international involvement in the Sri Lankan ecosystem have given birth to a couple laudable initiatives and some success stories. A couple of them include:
Venture Engine: "Started as a project by Blue Ocean Ventures and the Indian Angel Network, Venture Engine is a program that provides Sri Lankan startups with funding, mentoring and workshop opportunities"
Spiralation: This is an initiative of the ICT Agency of Sri Lanka, known to be the apex ICT institution of the Government of Sri Lanka that aims to support new technology ventures in the island.
Seedstars: Not native to Sri Lanka, Swiss-based organizations Seedstars is considered to be one of the best support for start-ups in emerging markets. In 2019, they ran a competition in Colombo, Sri Lanka's capital.
Hatch: A co-working/accelerator/incubator in the heart of Colombo
A lot of other entrepreneur-support initiatives exist in Sri Lanka, a list you can find here. One of my personal favorite is CrowdIsland, an equity-crowdfunding built for Sri Lankan start-ups.
Corporate involvement
As start-up ecosystems in emerging markets take on more and more space, incumbent corporations are starting to get involved. In Palestine, local telco giant PalTel sponsors its own incubator/innovation center through Fikra Hub. In Africa, French telco Orange has been investing in start-ups and sponsoring incubators. In Sri Lanka, although many ecosystem actors are asking for more corporate involvement, some organizations have started making strides such as:
Dialog (TelCo): Launched DIF (Digital Innovation Fund), considered to be one of the first local, VC fund.
The involvement of the corporate world in Sri Lanka's start-up ecosystem will be beneficial through the provision of resources, both technical and financial, but also through fruitful business collaborations. One can think of the use of mobile operators API's, which can allow tech entrepreneurs to reach large swaths of the population that do not have access to the internet. A telling example of this type of collaboration can be found in the case study of Eneza Education (Kenya), which used Safaricom's mobile network to provide access to curriculum-aligned content in all subjects for learners in primary and secondary through SMS.
Local start-ups
As with many other emerging markets, the most successful start-ups (at least at the beginning) are the ones that have successfully "cloned" a pre-validated model and adapted it to the local market. Although many look down upon these types of start-ups, I think they are fundamental to kickstarting start-up ecosystems. Just think of the impact Rappi has had on the Colombian ecosystem. Also, if these start-ups work, it means there is strong demand for their services and the company is solving a real painpoint. So why so much hate surrounding these "copy-cat" start-ups? Maybe it comes from the difficulty these start-ups will have to scale beyond their national market, but I am not quite sure.
Anyways, here are an example of three successful Sri Lankan start-ups to date. You can find the complete list here.
Pick-Me: The local Uber/Doordash
Roar Media: A lifestyle news platform focused towards South Asians.
Odoc: A mobile application that enables consumers to connect with a doctor remotely and avail tele-consultation for non-emergency conditions.
In terms of the main sectors start-ups are innovating in, Start-Up Genome reports that CleanTech and AgricultureTech (Agtech) are among the top. This is explained by the country's highly technical talent pool. One of the challenges the ecosystem is facing is actually the lack of business acumen in many of the technical founders, which augments the need for early-stage capital to truly accompany the entrepreneurs on the business side of things.
Keys to success
The Sri Lankan ecosystem has the advantage of being early, and thus gets to weigh its next moves in order to expand. One of the main barriers to the development of Sri Lankan start-ups is the lack of capital. However, that problem isn't one-sided. One of the main reasons Sri Lankan start-ups lack capital is because many investors don't consider them to be investment-ready. Therefore, all aspects of the ecosystem have to be improved in order to reach that ultimate goal of attracting more investors into the country. In my opinion, three main instruments could be used to kickstart the Sri Lankan ecosystem:
Diaspora mobilization: The rise of the internet, and the democratization of Zoom during the pandemic, have, in my opinion, completely redefined what brain drain is. Brain drain isn't black and white anymore. Diasporas can contribute expertise, capital, and skills while still living abroad. If Sri Lankan start-ups can tap into the diaspora's resources the large, educated Sri Lankan population abroad could become an asset rather than a burden. Another effort that could be made is encouraging diasporas to come back home to launch start-ups, efforts the government of Tunisia is undertaking through their pioneering "Start-up Act".
Feeding off the Indian start-up ecosystem: Sri Lanka has the advantage of having easy access to one of the largest and most dynamic start-up ecosystems in the world. Angel investor groups, mentorship programs and market expansion could all be ways to cross-pollinate both ecosystems.
Playing its location card right: Sri Lanka is quite literally at the crossroads of the most explosive consumer markets in the world, through the likes of Africa, MENA and Southeast Asia. If Sri Lanka can try to position itself as partners and collaborators in all three regions (through events, joint-initiatives, etc), Sri Lankan start-ups could reap the benefits of three other hugely promising markets.
Recent developments have shown promising signs of a more vigorous fundraising scenes, with companies such as WS02 raising $90 million from Goldman Sachs, MagicBit raising $120,000 from Sri Lanka’s Angel Fund and Blockchain-as-a-Service platform Niftron raising $50,000 from local investors.
Conclusion
This has been of my favorite episodes to write because I had strictly no idea about the Sri Lankan start-up ecosystem before researching it. It is definitely one of the most earliest-stage ecosystems we've covered, but I think it has Singapore-like potential. The fact that, at such an early-stage, the ecosystem is already full of highly technical talent lays the ground for very interesting start-ups once the business and capital sides of the ecosystem catch up. In Sri Lanka more than anywhere else, educated diasporas could act as the business-minded CEO's that guide highly talented technical teams to new heights.
See you next week, and don’t forget to share and subscribe if you enjoyed the article :)