Ambitious goal of a million start-ups in Sri Lanka by year 2022
Prajeeth Balasubramaniam
Start-ups in Sri Lanka are gaining in popularity due to the efforts of investors who have banded together to support entrepreneurs in the targeted fields that are needed for Sri Lanka. One such group of investors is Lankan Angel Networks (LAN), comprising individual investors, venture capitalists and angel investors. In an interview with the Business Times, co-founder of LAN and Founding General Partner and Managing Director of Blue Ocean Ventures (Pvt) Ltd, Prajeeth Balasubramaniam said after the creation of LAN in 2012, they have funded about US$6 to 7 million as seed capital towards 22 companies.
Those 22 companies include takas.lk, Trekurious, a high end experiential travel company, Saraii Village Hotel, and Wild Trails, an eco-friendly hotel with luxury tents based in the elephant kingdom of Sri Lanka in Udawallawe. Angel investors bring in smart money which means the resources they bring in are more than the money they give. Mr. Balasubramaniam said LAN has selected targeted industries with differences that make a social impact on the community such as education, IT, BPO, tourism and fashion design. “We are also funding logistics companies. We have looked at sectors that are needed for Sri Lanka.”
Jeevan Gnanam
Mr. Balasubramaniam said LAN takes a minority stake in each company, empowers the entrepreneur and exits in five to six years. The investors make money by taking a minority stake. If funding a company fails, LAN writes it off. So far, he said that hasn’t happened. “It’s high risk capital. We have also been in the game and can select good entrepreneurs who have passion and are adaptable.” He added that due diligence is done more on the entrepreneur than the idea itself. The investor and entrepreneur sign a shareholder’s agreement. “It’s very clear cut.”
Success
Mr. Balasubramaniam explained that one in 10 companies succeed in a start-up. “In our case, we have done 22. I wouldn’t say that all will give us major profits but so far, nobody has closed up yet. That is a good sign after four years. We have companies that are not performing well but we restructure them and they are sustainable.” Blue Ocean Ventures was founded in 2009 by Mr. Balasubramian and his partner at a time when there was no real venture capital in the country. LAN came out of Venture Engine, launched in 2012 as an annual entrepreneurship programme providing a platform for entrepreneurs to launch or expand their business. “Venture Engine was created as a business competition to create awareness in Sri Lanka and provide a platform for entrepreneurs to apply directly to investors,” Mr. Balasubramaniam said.
“We are also investors. There is no brokerage fee and no commission taken. It is a clear platform where entrepreneurs pitch to investors. That was the core purpose of the whole ecosystem that was created.” The Venture Engine website says entrepreneurs have direct access to potential investors and a focused programme that incorporates mentoring and workshops from leading investors, industry experts and entrepreneurs. The Venture Engine event funders are Blue Ocean Ventures and the Indian Angel Network. Mr. Balasubramaniam explained that Venture Engine was also created for entrepreneurs as they only knew people who would take over their company and run it.
“For an angel investor network, we are about 10 years behind India.” Through the programme, around 200 plans come through for the year.
He also said there were differences between the ecosystem in Sri Lanka as opposed to the ecosystem in the entire region. Mr. Balasubramiam explained that four start-ups from Sri Lanka, of those two from LAN were selected to participate in a global start-up programme in Singapore a few weeks ago but that start-ups in Singapore are supported by their government. “In Sri Lanka, it’s the private sector that’s doing everything.” Discussions are ongoing with relevant government authorities and Mr. Balasubramaniam is hopeful of support from the Sri Lankan government.
Lobbying
CEO of Orion City/Anton and Director of LAN Jeevan Gnanam who is also on the board of the Sri Lanka Association of Software and Service Companies (SLASSCOM), said they actively lobby the government in making things easier for start-ups. “We lobby the government quite heavily to make changes,” he said. Recently, the Export Development Board (EDB) which works closely with SLASSCOM said it was offering Rs.1.5 million to graduates to start their own business. “Our goal is to reach about a million start-ups by 2022. Multiple initiatives are happening and the government has been quite supportive but they can do more.
Mr. Gnanam explained that the average capitalization for start-ups varies between a concept which could begin at $60,000 all the way to $3 to 4 million for an existing business. “We usually take up to 20 to 30 per cent of the business. We will have a lead investor and others to help it grow. There have been instances where there has been increased funding after the initial funding.” Mr. Gnanam said one of the problems in Sri Lanka is that there are no real venture capital funds. “One of the other problems is that Sri Lanka is such a small market that companies struggle to break even and replicate the model in the region.
To overcome this, LAN is working with the Indian Angel Network to find partners abroad. In terms of exiting a start-up, LAN has not done one yet. However, it can be structured both privately and by going public. In countries like the United States, investors would exit in about three years.
Mr. Gnanam said the Sri Lankan stock market is reasonably robust and feels it is good enough for start-ups. The revenue required to list is only Rs.100 million and two years of profits. “The stock exchange is making an exception for companies to list. Our start-ups haven’t reached that maturity state yet but one or two companies are looking positive to list in the next year or so.”
Mr. Gnanam added that start-ups are sustainable in Sri Lanka. “Otherwise, we wouldn’t invest but because of certain conditions in Sri Lanka and because of the small population, they need to evolve quickly and look outside Sri Lanka.” Start-ups have to innovate their business model and look at new ways of financing. “The challenges that Sri Lanka poses are quite unique and that is why the angel network is there to figure out how these entrepreneurs can grow.” To join LAN, Mr. Gnanam explained you must have your own business because of the mentorship that it provides. “The fact that we’re getting the ex CEO of Etisalat to put in money and take an active role helps the calibre of the company to allow for start-ups to quickly grow, break even, make revenue and grow further.”
| MTI raises Rs 700 mln for start-up community | |
| MTI Consulting created idea2fund to support start-ups. MTI Consulting CEO Hilmy Cader told the Business Times that start-ups are providing real solutions to real problems and as a result, it is disrupting the industry they operate in. “At a macro level, it is further strengthening the economy as SME’s continue to be the backbone of the country. No longer are start-up entrepreneur’s individuals with corporate experience on their back. Instead, there is a younger breed who is challenging the status quo.” The idea2fund is powered by MTI Corporate Finance, the corporate finance arm of MTI Consulting. The website says any business idea is welcome and that idea2fund is open to ventures in agriculture, education, energy, engineering, fashion, financial services and ICT amongst others. The investors for idea2fund comprise of venture capitalists, angel investors and banks with high risk appetite. “With idea2fund, we have Sri Lanka’s top corporates pledging Rs.700 million,” Mr. Cader said. They include Abans, Access Engineering, LOLC Brown & Company, East West Properties, Hemas Holdings, Hirdaramani Group of Companies and MTD Walkers. Start-ups also receive equity and debt finance and on top of that, MTI Consulting provides the required mentoring, business consulting and coaching to those shortlisted. “Our investment pledgers would enjoy returns of monetary value and a stake of the new venture in terms of a percentage of equity, plus the satisfaction of starting out and being a part of something new,” Mr. Cader said. (NG) |