BOV CAPITAL BUOYANT ABOUT SRI LANKAN AI STARTUPS
Singapore and Sri Lanka-based venture capital firm BOV Capital is investing Rs1.5 billion to fund local startups that demonstrate potential to build globally viable software products from Sri Lanka. Co-founded by angel investors Prajeeth Balasubramaniam and Rajan Anandan, BOV Capital is particularly interested in Sri Lankan startups leveraging artificial intelligence and machine-learning to solve specific problems for global businesses.
AI, big data, Internet-of-Things and machine-learning technology are reshaping the world, and BOV Capital believes this presents exciting opportunities for Sri Lankan startups. “You can create hundreds of companies that can build solutions for specific industries by leveraging ML and AI. We are looking for startups that combine deep technical talent and domain expertise” Anandan says.
The fund has invested in seven startups here, infusing each with Rs50-200 million in capital. “We intend to raise a series of funds over the next few years focused on Sri Lankan startups because we are very bullish about the ecosystem here,” he says, discussing with Echelon the challenges and appropriate policy for nurturing Sri Lankan startups that can go global.
Excerpts from the interview are as follows:
How can Sri Lanka unleash the potential in the areas of AI and machine-learning?
Sri Lanka’s high-quality technical talent pool needs to increase in number; that’s the first priority. The country has extremely strong technical talent – especially applied computer science – but the number of high-quality technical talent is too small for Sri Lanka to realise its true potential. Moratuwa University needs to increase its annual graduates from Computer Science by five-fold. There also has to be an increase in the number of mathematics and statistic graduates, as these are the foundational skills for big data. Sri Lanka should also open its labour market.
Most entrepreneurs in SiliconValley are immigrants—30% of Silicon Valley founders are actually from India. Open borders make a huge difference if you really want to build a viable startup ecosystem.
Ideally, a founder building a company should be deciding between Jakarta, Bangkok, Bombay, Singapore and Colombo. You need borders so people can move back and forth, not just founders, but technical people as well. If you really want to attract people with the rights skills who’ve seen scale before, you should be able to do that. So, access to talent is a critical component for a vibrant startup ecosystem. Second, Sri Lanka needs forward-looking policies to support next generation technologies. This is very important. For example, drones are going to be a big deal, especially industrial drones for mining, agriculture, sanitation, parcel delivery, you name it. The countries that will become home to the most successful drone startups will actually have policies that allow and encourage drone-flying. Flying drones in India is restricted, so Indian drone startups are moving to Singapore and other countries where there is a regulatory framework for drones. Another area is autonomous cars. This is going to be a huge space. Most countries don’t allow self-driving cars, but Singapore has zones for autonomous vehicles. If you are an autonomous car startup or a company trying to work with autonomous cars – not building the car, because a lot of it is about software, machinery and AI – you need to be able to trial your products. If you’re building something for autonomous cars but these are not allowed to run around in designated experimental zones, it’s difficult to succeed as a company.
Another example is blockchain. This technology has the potential to fundamentally transform financial services, and Sri Lanka could potentially leapfrog many other countries by formulating policies that allow blockchain adoption in banks, insurance companies and financial service providers.
The Indian government has been very thoughtful and bold when it comes to startups. When Prime Minister Modi assumed office, Startup India was one of his initiatives, and it made a real difference. Several government programmes assist startups, and regulations have been changed to make it easier to start or shut down a company. India has created a $1.5 billion “fund of funds” to invest in Indian venture capital firms.
This has made it much easier for Indian venture capital firms to raise funds from domestic/Indian investors. Startups should have a place in the government’s agenda. This is a critical building block. At the end of the day, Sri Lanka has to create many more high-value jobs, and these will have to come from entrepreneurs who will build new companies. Once the government makes this a focus, all constraints to building a startup ecosystem will get the attention they deserve.
Take tourism, for example. Sri Lanka gets 1.7 million visitors annually, but what’s preventing it from achieving 5 million? You need to invest in infrastructure and marketing: Sri Lanka needs better airports, roads and hotels, and we need to market what we have to offer. Goa gets more Indian domestic tourists than all of the tourists who come to Sri Lanka every year. Goa is much more expensive and it costs more to fly there from Delhi than to Sri Lanka, which offers much more in terms of variety. So clearly, there are many things that need to fall into place. Similarly, building a startup ecosystem requires as much work. However, having been deeply involved for seven years in trying to build the ecosystem with others, we are bullish. The game is now on in Sri Lanka. There are many big tech trends shaping the world. There is no reason why Sri Lanka can’t play a meaningful role in any of these areas. The AI and imachine-learning technology trend will shape the next decade.
For any startup, finding a pain point to develop a solution is critical. How can an entrepreneur do this, especially if the goal is to go global?
If you want to target global markets, you must have some understanding of the pain points. If you don’t know anything about the insurance industry and you’re trying to build a product for them, that’s probably not going to work. Where do you even start? For a startup, it’s not easy to do research, meet a lot of people and figure out the pain points. The best founders we’ve seen are those that already possess a level of experience in a specific sector.
For example, the founders of Linear Squared have PhDs in statistics, and understand how to use big data to solve business problems. They approached a large clothing manufacturer and asked if there was a problem they could solve using their expertise in AI and machine-learning. The clothing maker said they wanted to improve efficiency and cut wastage. Linear Squared studied the problem and applied their core expertise to that problem. This is why it’s important to have a core strength or capability. Otherwise, you end up going around and copying, and not solving a real pain point.
Why was BOV Capital established?
BOV Capital was launched in Sri Lanka in 2016. It’s a Rs1.5 billion venture capital fund targeting Sri Lankan tech startups building software products for regional and global markets. My partner Prajeeth and I have been working to build Sri Lanka’s startup ecosystem since 2010. Prajeeth Balasubramaniam was one of the co-founders of Lankan Angel Network, and we created the Venture Engine Competition six years ago, investing small amounts of our own capital in startups just to get the ecosystem going. Back then, it was difficult for a startup to raise Rs5 million. Today, however, if a startup has a good idea and some level of traction, raising Rs10-20 million is not a problem: Lankan Angel Network has about two dozen active investors. For startups entering the next stage of growth and expansion, raising Rs100-200 million is a challenge. We set up BOV Capital to address this gap. Building large companies out of Sri Lanka requires risk capital. Some of the startups we’ve invested in have the potential to become large companies, but quite a number of them may not. We’ve already made seven investments, and will make two to three more over the next three months. With that, we would close this fund and embark on raising our next fund. Our intent is to raise a series of funds over the next five to ten years focused on investing in Sri Lankan startups.
BOV Capital has external capital. There are other private equity funds that invest in later-stage startups – companies with profits – but this is the first institutional fund that I know of in Sri Lanka that launched at the pure venture stage, writing cheques of Rs50-200 million per company.
What makes Sri Lanka’s startup ecosystem so compelling?
I was born and raised in Colombo. I left Sri Lanka in 1987, went to MIT and Stanford, and spent almost 20 years in the US before I moved to India over 10 years ago. I’ve been investing in startups in the US since the early 90s, and when I moved to India, I started becoming active in the Indian startup ecocystem. Now, I invest pretty much in the US, India, Sri Lankaand other parts of Southeast Asia.
The reason we’re bullish on Sri Lanka is very simple: it boils down to technical talent. If you want to build strong technology startups, you need to have strong technology talent. And what we see in Sri Lanka, especially when we look at the top universities, the engineering talent especially in computer science is very strong. Since the war ended, Sri Lankans in their late 20s and early 30s are coming back after graduating and working for four to five years elsewhere abroad, and starting companies here. They’ve seen a little bit of the world, so they understand some of the problems or have seen some of the consumer internet companies in the US or worked in industries where they experienced different opportunities. Returning to Sri Lanka, they build companies that offer very-focused solutions. So, the most important reason we are bullish is because of the talent.
Google runs an annual coding competition called ‘Google Summer of Code’ where students across the world, from Stanford, MIT and all throughout Beijing participate. Over the last few years, Moratuwa University has made the most submissions than any other university in the world. When I first heard this, I couldn’t believe it until I looked at the data; and it’s true. Moratuwa University trains computer scientists who are very good at solving real world problems. They are not entrepreneurs when they graduate, but because they are very applied in engineering, you can work with an entrepreneur to build a distinct company.
The second reason we’re bullish is because it’s becoming easier to do business in Sri Lanka. When you live in Sri Lanka, it’s easier to complain about how hard it is to do business, the bureaucracy and taxes. But, in reality, if you look at it in comparison to other economies in the region, Sri Lanka is a great place to live. It’s not polluted. There isn’t much traffic compared to most cities. Sri Lanka is a reasonably easy place to do business, and it’s centrally located. If you’re targeting the region, the Middle East or even China, Sri Lanka is very well placed. That’s why many Sri Lankans are coming back, because they want to be with family and it’s a great place to live. The third reason we’re excited about Sri Lanka is because the building blocks for a vibrant startup ecosystem are falling into place now. There are several companies like WSO2 that have developed world-class products. The country needs a few dozen more such companies, which this is why risk capital is so important. We came up with BOV Capital to fill the funding gap, but Sri Lanka needs several venture capital funds investing in startups.
Then, we need an ecosystem of mentors in engineering, product, marketing, sales and finance, so companies can leverage those networks. Seven years ago, there was no ecosystem and no one really knew what a startup was. But today, if you look at Colombo, it’s got a reasonably established, rapidly emerging ecosystem where, if you want to build a company, it’s not difficult to find people to make the right hiring choices or investments. That’s really the sign. We think that is very encouraging because, at the end of the day, when you launch a venture capital fund, you need to find companies to invest in.
What are some of the fund’s investments here?
From the current fund, we’ve made seven investments. The first was Omak Technologies, a restaurant point-of-sales (POS) software company. They have over 700 restaurants signed up in Sri Lanka, Indonesia and India, with a sales pipeline of several thousand stores across these markets. The startup will expand to Dubai and GCC by the end of 2017. Omak is an interesting example. When we invested in the startup in 2016, they had 150 restaurants in Sri Lanka only, and by the end of this year, the footprint could extend to over 1,000 across several countries. By 2018, restaurants powered by Omak will reach 2,000, with only 200 of them in Sri Lanka. What makes Omak exciting is that they have a world-class software product, built in Sri Lanka, introduced to the domestic market, then refined and launched across many countries in the region.
There are very strong solutions for specific vertical use-cases that can be tested in the Sri Lankan market, and that is what interests BOV Capital. When we invest Rs50-200 million, we want to see teams in place, products in place and POCs (proof of concept), so we know it works. We assess the potential for these products to be sold elsewhere in the world and we’ll take it around. We will announce two more investments in AI.
They’re focused on specific industries and have a few big customers in Sri Lanka. We will invest to accelerate their global expansion, as that is where capital becomes important. That is the primary theme of BOV Capital.
We have also invested in domestic-focused companies, and we’re pretty excited about this space as well. Those companies will basically focus on Sri Lanka; we don’t think they will expand to other countries because they are consumer-focused. One is Takas, where we were the first investors. The e-commerce company is growing rapidly. E-commerce is at an early stage in Sri Lanka, but it will grow to be a $1 billion industry over the next 5-7 years. The market-leading e-commerce players in Sri Lanka will be as large as the biggest companies in Sri Lanka. We’re excited about Takas and Zig-Zag (a fashion and accessories brand).
How important is it to open borders with India?
Opening borders with India is not just important, it’s beneficial. India has 400 million internet users, while Sri Lanka has 8 million. Sri Lanka is next to the second-largest consumer market in the world. By 2025, India will be the third-largest economy in terms of GDP at $5 trillion, and Sri Lanka will be like $200 billion. It’s a 40-minute flight from Chennai. India presents Sri Lanka an incredible opportunity. Omak just closed one deal in India bigger in value than the entire company. You can imagine what happens if you get five of these: these are very exciting opportunities. India is just one story. There is Southeast Asia with 600 million people, and BOV Capital is always trying to back amazing Sri Lankan entrepreneurs that have the potential to be global and market leaders to enter and expand in these markets. It’s part of our story.
Are there specific sectors you think will present opportunities for startups?
We’re focusing on B2B and B2C companies. We’re bullish about e-commerce in Sri Lanka. Simplex is the number one e-commerce logistics company in Sri Lanka. Digital media could be very interesting. There are 8 million Sri Lankans on the internet, and they’re consuming digital media, which is going to be monetized over a period of time. Every industry is going to be impacted by digitalization: financial services, healthcare, education. You’ll have niche areas like auto aggregators. We expect Sri Lanka to have a minimum of 25 startups, each valued at Rs1 billion, over the next five years. In ten years, there’ll be ten Rs10 billion startups; these are the companies we want to identify and invest in.
Startups that can use AI and machine-learning on specific solutions are what we’re looking for. Everyday business problems can be better solved with AI: increase productivity in manufacturing, reduce churn in insurance, upsell in telecom – these are just a few of the problems
where ML can significantly improve results. One example is 99Retail, which has linked 300 small retailers in Sri Lanka. Around 25% of all pharmaceutical sales go through POS tech deployed by these guys. Imagine the kind of data they can provide for brands!
Our view is that there are lots of unsolved problems or pain points that can be solved by applying software like AI and machine-learning. Sri Lanka could have a thousand companies that go after specific vertical niches because industries have many different problems that need solving. It’s an unprecedented opportunity for Sri Lanka.
30-second Bio – Rajan Anandan
Anandan joined Google in 2011 and is Vice President/Managing Director for Southeast Asia and India.
Anandan held several global leadership positions including Partner at McKinsey and Co and Vice President at Dell Inc. before moving to India in 2006 where he served as Vice President at Microsoft.
He holds a Master’s in Manufacturing Systems Engineering from Stanford University and a B.Sc. in Mechanical Engineering from the Massachusetts Institute of Technology.
Anandan is an active angel investor in India and co-founder Blue Ocean Ventures in Sri Lanka, where he was born.