Support for share swaps, funds to boost start-ups
The Ministry of Digital Economy is working with the Ministry of Finance and the Central Bank to build an enabling environment for investors and attract funding for start-ups, a top official said.
“We need to improve the chances of success in Sri Lankan digital start-ups. This success rate won’t be more than 5 or 10 per cent, but the success rate of building bankable businesses which can attract multiple rounds of investments needs to be improved,” Dr. Hans Wijayasuriya, Chief Adviser to the President on Digital Economy, told The Sunday Times Business in an interview recently.
Currently, Sri Lanka’s regulatory environment is challenging for start-ups, particularly in terms of foreign exchange controls and limited foreign currency reserves, which hinder the free movement of capital and complicate cross-border share swaps. Despite some output remittances being permitted for expansion, the absence of a share swap framework leads to delays, uncertainty, and lost opportunities for both start-ups as well as investors, says Prajeeth Balasubramaniam, Information Communication Technology Agency (ICT A) Board Advisor / Founder of Lankan Angel Network.
Already, a submission for share swaps and fund of funds has been drafted in this regard to be submitted to the Ministry of Finance and the Central Bank, he added. “Share swaps between local investors in Sri Lankan start-ups and overseas entities, allowing shareholders to exchange equity stakes without immediate cash outflows, are essential for start-up growth as they enable cross-border expansion, attract foreign investors who favour jurisdictions with robust legal procedures, enhance valuations by providing access to regional and global capital markets and facilitate strategic partnerships and acquisitions necessary for scaling operations,” he explained. He said that there are several lessons from other countries such as India, Malaysia, Singapore, that have had capital controls that have successfully implemented regulatory frameworks to enable share swaps and support start-up internationalisation.
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