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Visual Representation of Startups in Sri Lanka 
Posted 3,October

By Chaveendra Dunuwille

In Articles

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When we think of earning a living, the first thing that usually comes to mind is looking for a job at a recognized institution with good pay and employee benefits. Seldom do we see individuals take the path less traveled and start their own business, which is arguably a risky undertaking in any given scenario? If the most recent data says anything, more and more individuals are not breaking away from the traditional mold and building their future. 

Startup Genome, the global innovation policy advisory & research firm, in the 2021 edition of the Global Startup Eco-system Report (GSER), highlighted Sri Lanka’s growing startup ecosystem. The report, which analyses 280 entrepreneurial innovation ecosystems and 3 million startups, considered Sri Lanka the second-best in the Asian region for starting a startup. 

A fast-growing stock market along with a reduced cooperative income tax, a knowledge-driven economy, being one of Asia’s top 30 bang for buck ecosystems, and recent developments in the law such as the Port City Economic Commission Bill were cited as reasons for Sri Lanka’s high ranking. 

The report indicates that Sri Lanka’s startup ecosystem has grown by 13% from last year, and it has managed to generate over $132 million during the pandemic. 

Government Contribution 

Apart from developing the law to create a more startup-friendly environment, the government supports local startups via ‘Startup SL,’ an online platform for startups maintained by the Information and Communication Technology Agency of Sri Lanka. The online platform, created in 2016, claims to help local startups gain access to finance, market, accreditation, and partnerships. As of the 24th of September, 2021, the website lists 582 startups and 24 ecosystems registered in Startup SL. This is a significant improvement from the 335 startups registered in 2020, highlighting the growing popularity of Startups in Sri Lanka. 

Classification – Startup stages 

(Please note that all statistics mentioned in this article are subject to change from the time of publishing

Startups in Sri Lanka are classified according to their evolutionary stage and funding stage. In terms of the evolutionary progression of startups, the portal organizes them into six stages. They are Ideation, Traction, Break even, Profit, Scaling, and Stable.

The Ideation phase is described as where the founders brainstorm an idea that would base their startup. The Traction stage will see the idea gain some momentum after the owners have had some time to field test the theory. The Break even stage is described as the point in time where the total revenue is equal to the approximate cost. As of the 24th of September, 2021, Startup SL registers 92 startups under this category. The Profit phase is self-explanatory; when the revenue exceeds the cost, and Startup SL lists 72 local startups in this category. The Scaling stage is where the company experiences significant growth, and according to Startup SL, there are 57 such registered companies. The final classification is the Stable phase. When a startup reaches this level, they are considered a stable business. Startup SL has 17 such registered entities. 

Classification – Funding Stages 

Sri Lanka’s startups are classified through their funding phases, and the local system consists of eight levels. They are Pre-seed, Seed, Angel, Series A, Series B, Venture Capital, Mezzanine, and IPO. 

The Pre-seed stage is when unofficial funding from close friends and family are used to kick start the business. The Seed stage is the first time a startup will receive official financing. At present, Startup Sri Lanka has around 121 registered seed-level startups. When the startup reaches the Angel level professional investor who makes risky investments known as ‘Angel investors’ take an interest in your startup. Startup SL currently has no angel-level startups in its registry. Startups that come under Series A have proved their idea, gained traction, and are now planning for long-term profitability. At present, there are 33 registered startups designated under series A. Series B startups are usually more profitable and are looking for large-scale investments. While other countries also have Series C & D, B is the last classification used in Sri Lanka’s ranking system. 

In the Venture Capital, stage funding tends to overlap with the post-pre-seed stage of funding. There are around 22 registered Venture capital startups. A combination of investment and loans defines the startup’s Mezzanine stage and is one step away from a company’s final designation. Startup SL registers around 11 Mezzanine stage startups. The last level in the Sri Lankan startup financial classification hierarchy is the IPO (Initial Public Offering) stage. The company allows the public part of the company ownership by selling its ordinary voting shares in the Stock Market. 

While the pandemic has slowed down economic progress, it is undeniable that Sri Lanka is going through a paradigm shift in its economy and local Innovative startups play a significant role in Sri Lanka’s journey towards financial prosperity.