While the year will be remembered for the political changes it ushered in, it was an unimpressive year for business. The local startup scene saw plenty of activity, but fewer companies got funded, particularly at an early seed stage. The overall business sentiment doubtless was partly to blame, but many angel investors also pointed at high valuations demanded by pre-revenue, pre-product companies. Are high valuations a sign of the nascent local startup eco-system maturing? If clinching the deal by convincing investors to buy-in is our yardstick, the answer is no. This perhaps explains why a year that hosted a record number of hackathons and venture capital competitions (by local standards) ended with fewer newly funded startups. On the bright side, startups like Mydeal.lk, Takas.lk and Pickme raised significant growth funding, proving that investor appetite cannot be solely to blame for the dull year.
Many startup events held throughout the country this year are sure signs of an active and growing eco-system for startups. While the events themselves may not have translated into a correspondingly high number of startups, the intention – to be fair by the organizers – was mainly to inspire participants. This year saw a markedly larger number of industry leaders and investors stepping up as mentors and contributing their time to fledging startups, and this bodes well for the future. If this trend can be harnessed with more focused events, perhaps restricting participation to smaller numbers to increase one-on-one time with mentors, the outcomes may prove to be more immediate and tangible. For now, inspiring more young people to start up is critical. Sri Lanka has only a handful of startups, mostly centered around Colombo. If the globally established average for business ventures of 10 failures for one success holds true, the majority of these are likely to fail. At that point, investors in the doomed ventures would need to have investments in other startups that prove successful for their overall venture capital investment portfolio to return a profit. If this is not so, these early backers and mentors are likely to seek better gains elsewhere, to the detriment of the whole ecosystem. While it is not impossible for investors to diversify to some extent within a pool of 30 or so startups, it’s far more plausible to achieve meaningful diversification among 500 or 1,000 startups. Perhaps recognizing that we are at a tipping point in the evolution of our eco-system, the industry body for IT/BPM in Sri Lanka, SLASSCOM launched the 1,000 startups programme under which budding entrepreneurs will receive easier access to startup capital through state banks, while the industry as a whole will receive government backing to promote and brand itself internationally. SLASSCOM is also making a concerted effort to help regional expansion of selected startups through programmes such as Xeleration – which aims to introduce local startups to the Singaporean market. Every startup eco-system needs fast-growing companies and periodical exits to keep interest levels among entrepreneurs high and new capital coming in. Scaling the current crop of startups regionally is the best strategy to achieve this. Beyond regional tie ups and partnerships, most local IT product startups are likely to require fine-tuning their user experience (UX) and technology to deliver an experience on par with global apps.
Several software development services companies catering to foreign clients have, in recent times, forayed into the product arena, eager to create startup products of their own. The engineering resources that these companies can dedicate to their products far outweigh what a cash-strapped startup can manage. The challenge for them is to make a concerted push to develop and market their products, whilenot losing focus on the core services business that finances these efforts. A win-win solution might be possible where such services companies are encouraged to set up accelerators and take on startups that have achieved product-market fit under their wing. This may prove easier than setting up their own startup units with dedicated resources inside the company and allow them to pursue more products, thereby increasing the chances of success. Startups would benefit from greater access to top-notch engineering talent and marketing networks of the larger company, and in return bring their passion and out-of-the box thinking.