Increasing attention on start-ups in Sri Lanka is drawn to highlighting government policies which are acting as deterrents to setting up and operating businesses in the country.  Corporate law expert and partner at Nithya Partners Arittha Wikramanayake emphasized the importance of creating an eco-system for start-ups.  ”Start-ups are key to economic diversification and growth of [...]

The Sunday Times Sri Lanka

SL Government can do more to support start-ups


Increasing attention on start-ups in Sri Lanka is drawn to highlighting government policies which are acting as deterrents to setting up and operating businesses in the country.  Corporate law expert and partner at Nithya Partners Arittha Wikramanayake emphasized the importance of creating an eco-system for start-ups.  ”Start-ups are key to economic diversification and growth of our industry.  They are also the key to creating avenues for employment, especially for the talented engineers, scientists and IT specialists that the universities and producing in numbers.”

Speaking to the Business Times this week, Dr. Wikramanayake who is also a patron of the Lankan Angel Network and Chairman of the Company Law Advisory Commission, pointed out that despite the importance of this sector there has not been any particular focus on improving the eco system for start-ups. “There are no laws focused on start-ups per se. They are generally incorporated as companies under the Companies Act of 2007 and subject to all its provisions.” He said that entrepreneurs can incorporate as private companies or public companies.

Private companies have been given the option of dispensing with several administrative and reporting requirements if the shareholders consent, thereby reducing operational costs.  Dr. Wikramanayake also explained that although one of the objectives of the Companies Act of 2007 was to encourage incorporations by making the process simpler, easier and less expensive, it has not worked out that way in practice. Citing examples, Dr. Wikramanayake pointed out to last year’s budget which introduced an annual registration fee of Rs. 60,000 for companies. “That would kill the idea of start-ups,” he said pointing out that most entrepreneurs cannot afford the fee, particularly when they commence operations.

Winding up fee
Citing a further fault in the budget proposals, he pointed out to the Rs. 50,000 winding up fee that was sought to be imposed on companies when they wind up. “Providing cheap and efficient means of winding up is an inherent part of encouraging entrepreneurship. Entrepreneurship means taking commercial risks. A majority of start-ups will fail and that is accepted globally. There is no shame or stigma in winding up a company if the business fails for legitimate reasons and there is no fraud or negligence on those behind it. So the winding up process should be made easier and cheaper. A company will usually wind up when it has no money. How can you impose a fee of Rs. 50,000 when a company wants to wind up?” he questioned.

Dr. Wikramanayake also pointed out to further bottlenecks faced by start-ups. “Finding affordable office space is difficult. Leased lines for IT based companies are expensive. Our labour laws make it difficult to hire and fire. The inefficient legal dispute settlement system makes the cost of capital comparatively high with lenders being reluctant to provide facilities for start-ups since recovery is expensive.” He said all these factors result in stifling growth for start-ups.  Co-founder of monthly tech ecosystem meetup SPIKE Lanka, Sam De Silva, who is also a co-founder of Ground Reality Asia, an emerging accelerator program, said there have been talks about government involvement in start-ups but so far, there haven’t been any tax breaks or other incentives.

“I think many people feel the government can do a lot to bring down barriers and have mechanisms to meaningfully support start-ups,” he said. “Singapore is a good model. They have a lot of different services to offer start-ups such as dollar for dollar investments.” However, he said the Sri Lankan government has to lower barriers and red tape in setting up start-ups. “The government could contribute to financing investments and they already have some grants but those could be increased.”

ICTA involvement
Mr. De Silva said the Information and Communication Technology Agency (ICTA) of Sri Lanka has a very good scheme for start-ups but that it can be strengthened. “They are catering to early stage start-ups but there need to be mechanisms to get involved with start-ups that are two to three years old. The other challenge Sri Lanka has is that there is little expertise in taking start-ups to market. The expertise is more focused on setting up brick and mortar businesses and running small businesses.”  Mr. De Silva added that in order to build up an effective ecosystem, there has to be more community building. He also explained that there needs to be diversity in terms of investment, investors, supporters and even geography for start-ups.

“Right now, there is a lack of diversity of support and there needs to be a lot of diversity for an ecosystem to grow and flourish.” Co-founder and former CEO of Trekurious, Rukmankan Sivaloganathan told the Business Times that there are no laws, regulations or guidelines governing start-ups. “I think the government’s job is to set the framework and maintain infrastructure and leave us be. What would be ideal would be to introduce new laws that would make it easier to set up businesses such as tax holidays and regulatory holidays.” Mr. Sivaloganathan explained that in India for example, start-ups don’t need to do any regulatory reporting for three years. “There is no legal and financial reporting except for what the investors need. When you have a small team, you don’t want to spend money on hiring lawyers and accountants.”

Trekurious, founded in 2012, is an experiential travel company. Mr. Sivaloganathan still serves as an advisor to the company. “Trekurious was started in an attempt to take advantage of some of the inefficiency of the local travel industry,” Mr. Sivaloganathan said. “There was a gap for people who were looking for experiential and off the beaten track. I realized there wasn’t a culture of broad product development that could meet this demand.”  Mr. Sivaloganathan took part in the first Venture Engine startup competition that was organized by the Lankan Angel Network. “I think what Lankan Angel Network has done is quite a stellar job.

” He explained that earlier in Sri Lanka, there was a huge asymmetry of people with money to spare, looking to invest in interesting ideas but there was nothing formal. “There needed to be a catalyst to match these two sides. It happens a lot in other countries but not in Sri Lanka. Start-ups at the time were still very new and people were wondering if they were viable.” He noted that this year, Seedstars World which promotes, connects and invests up to US$1.5 million in emerging market start-ups through its exclusive startup competition in 60 countries, will be in Sri Lanka. “The whole landscape has changed.”

SPIKE aims to be Sri Lanka’s first regular pitching and ideas sharing night where tech start-ups and entrepreneurs get an opportunity to pitch to investors and a curious audience and everyone has a chance to meet and network in casual surroundings. Sam Silva explained that SPIKE started in November 2014 where entrepreneurs and investors meet up once a month. There are formal talks where founders and investors share their stories. At the next meetup, budding entrepreneurs will be able to make short pitches on their ideas. SPIKE Lanka has a Facebook page where anyone can find updates and information on meetings and events.

Singapore model
A little research on the Internet shows the vast range of government funding and assistance schemes that are available for start-ups. According to, the government has rolled out several initiatives to enable start-ups to gain access to funding including cash grants, government back equity financing schemes, business incubator schemes, debt financing schemes and tax incentives.  According to the website, Singapore has been ranked as Asia’s most entrepreneurial economy and the best country to nurture start-ups for expats.

Singapore has emerged as a hub for first-time entrepreneurs and the city has witnessed the mushrooming of several start-ups over the past few years. Start-ups, defined as companies employing at least one employee and less than five years old, have increased from 27,000 in 2002 to more than 36,000 in 2009 in Singapore. These start-ups have employed more than 300,000 workers and are generating more than S$166 billion in turnover.

Start-ups in India get tax exemptions
According to the Times of India, start-ups have now gotten a much awaited tax exemption last week from India’s Central Board of Direct Taxes (CBDT). The tax break, described as a major incentive in the article, allows start-ups to issue shares to investors at higher than fair value without worrying about tax consequences. “The effect of the CBDT notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value.”

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