1.

EXECUTIVE SUMMARY

Small and Medium Enterprises also known as SME’s are identified as an important strategic
sector for the policy making and growth plan of Government of Sri Lanka (GOSL), and it has
always been a driver of change for inclusive economic growth, regional development,
employment generation and poverty reduction. SME’s are quite important to developing
countries such as Sri Lanka where poverty and unemployment are the persisting problems in
those economies. Having understood this fact, government in Sri Lanka has taken various steps,
from time to time, to promote this vital sector since independence. According to the National
Policy Framework for SME’s the GOSL recognizes SMEs as the backbone of the economy, as it
accounts for more than 75% of the total number of enterprises, provides 45% of the employment
and contributes to 52% of the Gross Domestic Production (GDP).

Small and Medium Industries or Enterprises, Micro Enterprises, Rural Enterprises, Small and
Medium activities, Cottage and Small Scale Industry, etc., are some of the terms frequently used.
According to the latest statistics of Census and Statistics department of Sri Lanka, there are more
than 121,426 SMEs in Sri Lanka and these SMEs operate in the industries of mining,
manufacture of food products & beverages, tobacco products, apparel, chemical and chemical
products, machinery, metal products, electrical machinery & equipment, radio, TV &
communication equipment, motor vehicles, furniture & other products, and many more. SMEs
are defined in a variety of ways by various countries using such parameters such as number of
persons employed, amount of capital invested, amount of turnover or nature of the business, etc.
In Sri Lanka there is no clear definition for SMEs, but the most common definition for SME can
be identified as any enterprise which employ less than 300 employees and have an annual
turnover not exceeding Rs.750Mn.

The study however aims to evaluate Business Development Service (BDS) Providers that
support these SME’s and the extent to which BDS organizations are actually able to support and
develop these entrepreneurs. These BDS providers take on part of Government responsibility by

1
providing services to enable their environment, give access to technology, skill development,
facilitate market information, give access to resources and its utilization, and provide financial
assistance.

2. INTRODUCTION TO BUSINESS DEVELOPMENT SERVICE PROVIDERS

There are many BDS providers in Sri Lanka, the study therefore focus on Lanka Angel Network
as the primary BDS provider. Lanka Angel Network, LAN for short - comprises of individual
investors, venture capitalists and angel networks that provide support services for up and coming
entrepreneurs with great potential. They provide mentorship, funding and resources for
entrepreneurs and are passionate about empowering entrepreneurs and take them to the next
level. Their main focus is to bring together Sri Lankan investors and mentor community to
support the SME ecosystem of Sri Lanka. The support services they provide include:

1. Mentorship​; “If you read about startups, you will see that a lot of the success has been
from mentorship. Mentors can tell you what are the pitfalls going forward, and you can
learn from people who have had experience in this area,” said Mafaz Ishaq, Director,
Calamander Capital and a member of the LAN Core Team.
2. Financing: There is a process of funding requirements, a complete financing life cycle
from the discovery of an idea up to manufacturing and delivery. Many entrepreneurs
stumble at this point, due to lack of adequate financing and lack of access to sources of
credit. This is where LAN steps in.
3. Networking opportunities: ​LAN aims to assist entrepreneurs in overcoming obstacles
faced by startups and accelerate their business to the next level via access to potential
investors and mentors in various disciplines.
4. Setting ethical practices: ​LAN will facilitate the investors to act together as a group,
lowering risk and providing an easy exit as the company matures. The network will also
set ethical practices, which will govern investor behavior and protect the entrepreneur.

2
Their partners include The Ceylon Chamber of Commerce, PWC, Blue Ocean Ventures,
Academy of Design, Orion City, SLINTEC, Indian Angel Network, Sri Lanka Inventors
Commission to name a few. Their patrons are locally renowned business moguls such as Dr.
Hans Wijayasuriya - Director and Group CEO of Dialog Axiata PLC, Mr. Hanfi Yousuf – CEO
of Expolanka, Mr. Rajan Anandan – VP of Google Inc., Mrs. Sharlyn Linda Speldewinde –
Founder and Managing Director of Academy of Design Campus.

Few key Milestones of LAN:

● In 2014 ​Lankan Angel Network has signed a Memorandum of Understanding with
Brandix-funded Disrupt Unlimited, a seed accelerator program that helps start-ups in the
apparel, textile, and accessories sectors to commercialize their ideas.
● Lankan Angel Network is also an accredited member of Asian Business Angels Forum
(ABAF), an organization of premier Angel Investor networks in the Asian region. ABAF
hosts an annual meeting with US- and Europe-based Angel Investor networks, in an
ongoing effort to both share best practices and connect with other international networks.
As a result of this new association with LAN, startups from Sri Lanka finally have access
to global funding sources and practices, while also expanding the number of potential
investors they can tap.
● In 2015 LAN joined with Yarl IT Hub to give both IT and non-IT sector startups in the
Jaffna area the chance to pitch their ideas to potential investors. This gives startups the
opportunity for mentorship by recognized professionals in relevant fields.
● LAN continues its longstanding partnerships with several highly successful
entrepreneurship programs such as Sri Lanka Design Festival, Idea Mart platform by
Dialog and the Sri Lanka Inventors Commission which creates a platform for the
entrepreneurs to meet possible investors and industry tycoons.

Lankan Angel Network is not the only BDS provider in town; Venture Engine is another BDS
provider which creates a platform for Sri Lanka entrepreneurs to accelerate their business to the

3
next level. Venture Engines is an annual Entrepreneurship Program geared to provide a strong &
viable platform for entrepreneurs to launch or expand their business. They provide direct access
to potential investors and incorporates mentoring & workshops from leading investors, industry
experts & entrepreneurs. Venture Engine offers each shortlisted entrepreneur a host of benefits
few, most of which is crucial to every emerging business,
- Valuable insight into business planning
- Mentoring on creating a successful business plan to gain funding
- Access to a series of high profile potential investors
- Networking with successful entrepreneurs
- Mentoring by successful and experienced professionals
- Comprehensive feedback on their business models

Another such service provider is BOV Capital, it is a Venture Capital Firm based in Sri Lanka
and Singapore which help Sri Lankan startups capture regional and global opportunities.
Co-founded by angel investors Prajeeth Balasubramaniam and Rajan Anandan, BOV Capital is
particularly interested in Sri Lankan startups leveraging artificial intelligence and
machine-learning to solve specific problems for global businesses.

3. DATA COLLECTION AND EVALUATION OF BENEFICIARIES

A questionnaire was distributed among several SMEs that received the services rendered by the
Lanka Angel Network to collect data for the study (ref. Appendix for questionnaire and response
summary). The following section briefly evaluates each of the firms from which data was
collected.
Busseat.lk​: Sri Lanka’s number one online platform for bus ticket booking service and bus seat
reservation. They ​provide fully fledged online bus booking platform to buy and sell bus seats.
The passenger can purchase bus tickets online and in return to confirm the seat reservation. With
the efficient bus reservation system from BusSeat.lk, customers can plan their journey early, save

4
their valuable time in buying bus tickets, avoid waiting in long queues, find to their place easily
and can enjoy a happy journey with comfort.

Glitteray​: This is an online jewelry store in Sri Lanka. It is committed in crafting and selling
ethical jewelry. Glitteray’s core value is to create an awareness and bring together a community
to support and value craftsmanship. Their product portfolio ranges from jewelry to gift items to
seasonal collections. They are the next generation designer label, a company driven by our belief
in making products that matter and pieces that last.

Lonali​: Lonali is a fashion store which upcycles unwanted textiles from large manufacturers,
waste that would otherwise end up as landfill, and transforms them into original clothes and
lifestyle products. Lonali ​works closely with the cottage industries in Sri Lanka to hand-make
our pieces, providing income in fair conditions for local artisans. Their product portfolio ranges
from clothing items, clutches, bags, shoes, notebooks etc.

Extrogene: ​This is a software product company which builds products for the mobile internet.
They provide wide range of innovative software products, projects with high quality software
solutions for businesses and IT consultancy for improving productivity of the businesses. In
terms of their key services, they do mobile app developments, web designing and development,
enterprise IT solutions, telco app development, R&D etc.

Zigzag.lk​: This is an online women clothing store which has currently expanded in to a physical
store too. Their product portfolio ranges from clothes, bags etc.

4. ANALYSIS OF THE STUDY

In this chapter, the responses of the selected five beneficiaries of the LAN are analyzed. The
responses are from Busseat.lk, Glitteray, Lonali, Extrogene Software and Zigzag.lk. Questions

5
from 1 to 3 try to find out few general information about the beneficiaries. A majority, 60% of
beneficiaries classified themselves as startups while the rest as small scale businesses in terms of
their annual turnover. These results are in line with the LAN’s mission of supporting high growth
early stage Sri Lankan ventures. Question 4 also supports this fact as 80% of the beneficiaries
reached LAN with the goals of raising startup capital and expanding their business scale. Also a
few has expectations to expand their business portfolios as well. LAN seems to be attracting their
intended prospects.

Service industry is the up-and-coming sector in Sri Lanka, ranging from IT services to Business
Process Outsourcing. Results of the question 3 reveals the same; 60% of the beneficiaries are in
purely service oriented businesses and other are equally divided on service and manufacturing
mixed with greater degree of service and manufacturing, and non is purely manufacturing.
Question 6 gives the idea of how beneficiaries perceive the selection process on a likert scale
where 1 indicates poor and 5 indicates Excellent. Majority of the beneficiaries show neutral to
very positive perception how they were selected to be funded. But it also indicated that there is
room for improvement. To get a better picture on this, question 7 gives a further idea as it shows
how they were chosen. Majority of them were chosen by means of the Venture Engine
Competition carried out by LAN together with the BOV capital and Indian Angel Network.

Questions 8 and 9 seek the perception of beneficiaries on the competition if they got selected
through the Venture Engine Competition. While most of the beneficiaries have a positive
feedback on the experience they gained through the competition and believe the competition
evaluated business the right way, they is a small portion who has negative opinions on this
aspect. But all the sample beneficiaries are already funded by LAN already, so its a good
opportunity for LAN hear to their opinion to improve the competition process as well.

The next two questions, 10 and 11, analyse the content & quality of the workshops LAN carries
out for the selected entrepreneurs. In this case, all the beneficiaries have positive perceptions.
But on the contrary, they point out the lack of participation of investors for these events, in

6
answering latter questions. After careful consideration of the opportunity and the entrepreneurs
behind the idea, LAN will commence making investments. According to the survey, when
considering the stage at which the startups were funded initially, 60% of the startups were funded
by Angel investors who are people or groups providing private equity or second-round funding
for growing, profitable small businesses that need money to grow. Further 40% of the
respondents were funded for Seed Capital which is the initial capital used when starting a
business. This shows us that LAN helps the new startups since its initial stages, which ultimately
become an inherent strength and a strong foundation to the small startups. On the other hand,
when considering the frequency of fund allocation for startups, 60% of the startups have received
only once and 40% have received funds two times which shows that these startups have received
funds in an adequate manner and by that LAN has created a platform for entrepreneurs to pitch
directly to potential investors in an easy way without waiting for long time.

When considering the structure of the startup businesses surveyed, 60% of the startups have only
one founder and 40% have two founders for the business. Since these companies have one or two
people to guide the business, it will be helpful for them to join with LAN in order to get together
with investor and mentor community to scale the startup ecosystem. Further when it comes to
funding, 40% of the startups have 5 investors from LAN invested in their startups and other
companies got 3, 7 and 11 investors respectively with 20% weightage according to the survey
results. This shows that companies can attract investors to their business in an effective way once
they have a clear path to profitability and realistic business plan. Further this will pave path for
the companies to have access to potential investors and mentors in various disciplines and
ultimately this will help the startups in overcoming obstacles and accelerate their business to the
next level.

LAN does the investments in the startups believing in the business idea. Therefore it is not a loan
given to the business, but it will take a stake in the company for which the investment is made.
When considering the LAN investors becoming the members of the board of directors in the
startup business, according to the survey results, 60% of the startups have 2 investors joining to

7
the board and 20% each has 3 and 4 investors joining to the board. According to this result, it can
be seen that investors too are interested in putting their money in to a startup with a good return
and this will ultimately help entrepreneurs in Sri Lanka and the economy as a whole as it helps
commencement of new businesses.

Further when considering the commitment of the board members from investor side in
supporting developing the business, 20% has indicated that they are getting an excellent support
from the investors who are in the board and 40% has indicated that they are getting a very good
support from the investors who are in the board. Further 20% has indicated that they are getting
a fair support from the investors who are in the board, but only 20% have indicated that they are
getting a poor support from the investors who are in the board. Altogether 80% of the businesses
get fair and greater support from the investors who are in the board and this shows that investors
are providing a greater strength for the startups while being there in the business as a board
member.

Further when it comes to overall support from the investors, it is not only the financial support. It
includes constant access to high quality mentoring, vast networks and inputs on strategy and
execution. According to survey results 40% have indicated that they are getting a good support
from the investors, while 40% have indicated that they are getting a fair support from overall
investors, while remaining 20% has indicated that they are getting a poor support when it comes
to overall support from the investors. Since 80% have indicated that they are getting a fair and
good service from LAN, it can be concluded that LAN is rendering a good support for the
startups which is with good value to the new companies. Further since the network members
have very good business background, they are able to assess the potential risks at the early stage
of the business and support the new businesses to mitigate these risk which in turn helps the
startups to grow in rapid manner.

Many startups with great ideas lack the guidance and know-how on the ways to get going with
their business. According to the success stories of start-ups in the past, it is visible that many of

8
them were successful because of the careful mentoring in their business. Through this process,
obstacles coming on the way when going forward can be identified easily. Further with this
process the startups can learn from people who have greater experience in various disciplines.
According to the survey results 20% have strongly agreed that they get regular mentoring for
their startup from investor side and 40% has also agreed to the same fact. 20% had no idea about
the mentoring services they are getting from the investors and 20% has disagreed for the same
fact. Altogether 60% has agreed to the fact that they get regular mentoring for their startups from
the investor side. Further when considering the quality of mentoring process, 60% of the
surveyed companies are satisfied with this process and 20% had no idea whether they are
satisfied or not and rest of the 20% have dissatisfied with the mentoring process. Since majority
of the startups are satisfied with the LAN’s mentoring process, it can be concluded that this
mentoring process helps in guiding them with the correct path to be in the business and make
them competitive in the long run.

Considering the overall services provided by LAN, according to the survey 80% have indicated
that benefited from the relationships and connections of LAN investors with their business while
overcoming obstacles on their way and accelerating their business to the next level. All 5
SMEs/Startups who were participated in the survey has being in the LAN’s incubation center.
40% of them accept that the incubation facility is very good and 40% accept that the facility is
good. Only 20% of them indicates that the facility is fair. This result shows us that the startups
have positive opinions about the overall incubation facility. LAN incubation center is having an
open working space for the startups to share among them. It also has a common board room with
a projector which can be used by any startup by booking the property. Incubation center is
governed by the LAN manager who is working at LAN incubation center. Lunch room,
bathrooms and utility bills are shared by the startups. Address of the incubation center can be
used by the startups as the registered address of the business. Investors are present at incubation
center for meetings and workshops where startup founders can talk with them when necessary. A
concern in the LAN incubation center is that open working space distract the employees from

9
focusing to works due to noise generated from other startups due to various works and visitors
depending on the nature of the business.

LAN governance system is to govern the funded startups to be align with the accepted
accounting, finance and legal frameworks in Sri Lanka and to make sure that the startups are
working to maximize the shareholder wealth. Under that LAN funded startups are required to
meet legal and accounting requirements and also report to the investors regularly. 60% of the
respondents to the survey has agreed to that the LAN governance system being helpful to build
their startup right way. 40% has not agreed to that. According to this results we can see that the
startups who are align with the governance system and respect to it have built their startup right
way within Sri Lankan legal framework but others have missed it and has not gain the benefit of
LAN governance.

LAN is having members in accounting, finance and legal areas of expertise and can help in case
the startups having issues in those areas. If those members are in the investor panel of a selected
startup, it is likely to get instant advices and help. Others can still reach them since LAN is a
network which can help startups. According to the responses for the question 24, different
startups having different experience related to getting support for legal and financial matters. The
LAN is inefficient in this case according these feedbacks from the startups.

According to the responses to the question 25 which is “Do you still believe that getting funds
from LAN was the right way to go?”, 60% of startups has agree that the getting funds from LAN
was the right way to go but 40% is not agreed to that. This can be due to reasons like the
commitments of the investors are not sufficient for the perspective of the startup founders or the
founders have lost good relationship with the investors. However, some of the founders has feel
that they have got a wrong decision by getting LAN investors in to their startups. Too much
power to investor side can be another reason for this kind of negative feeling about LAN
funding. Since 60% agreed, there is something to think and both parties should improve to
satisfy each other while developing the startup.

10
Question 26 and 26 tries to collect what startups think on how LAN can improve on their
business development service. Respondents have indicated that “investors Should support
startups to train their staff by organizing training sessions for employees of startups in which
case the startups cannot afford individually”. This means LAN is not having clear idea on these
pain points of providing training sessions for employees of startups individually.
Another comment on LAN is that “As a female entrepreneur, I expect more females. Think there
is a big gender diversity. There is a difference in mentoring received from a male mentor to a
female. In terms of empathy and understanding. Follow up funding rounds take too long to close
which really can slow down a growing company”. The point highlighting here is that there is a
difference when getting support from LAN members who are in different genders. That’s a point
to consider carefully by the LAN since the comment is from a female entrepreneur. She expects
some gender diversity because percentage of females in LAN investors is very low.

The next comment for LAN is that “Investors should more committed to support developing the
funded startups beyond monetary funds”. This indicates that there is a lack of commitment
towards supporting build the startups from investors side as mentioned previously according to
the survey results. LAN should carefully look at this to protect their business and support startup
ecosystem to thrive.

One more comment from a startup to improve LAN service is that “To have more sessions that
can help us interact with investors as most investors in the network don’t attend events or
meetings”. This point also shows us that the commitment of investors is very low for the startups
they funded and startup founders does not meet investors regularly which is an unfortunate
situation where startups can fail easily. So according to the survey results, the Lankan Angel has
more space to improve in terms of their business development service.

11
5. CONCLUSION

Sri Lanka is experiencing an increasing trend of startups. Though many of them have either
become mediocre or failures, there are several very successful novel businesses which have risen
as startups to large scale companies during the last decade or two. Few best examples are
takas.lk, 247techies.com and pickme. LAN is the venture capitalist firm behind those first two
businesses. This proves how a BDS institute like LAN can be valuable for entrepreneurs and that
venture capital financing and investors can expect high returns by funding such fast growing
ventures if they are carefully chosen.

6. RECOMMENDATIONS

But this study also revealed that there are opportunities for improvement for LAN specially in
providing more intellectual training and managerial guidance by means of well organized
workshops and meetings with investors. Involvement of investors during these events must be
maximized. Also, the diversity of investors in terms of not just the scale and industry, but also
gender, ethnicity, etc can be important as not every investor can truly understand every
entrepreneur.

12
REFERENCES

Ministry of Industry and Commerce: National Policy Framework for Small Medium Enterprise
(SME) Development
http://www.businesstoday.lk/article.php?article=7747
http://www.ft.lk/article/351300/Lankan-Angel-Network-and-Disrupt-Unlimited-up-entrepreneur-
support
http://www.dailymirror.lk/70583/lankan-angel-network-funds-us-5-mn-for-20-startups
http://www.lankabusinessonline.com/vc-fund-bov-capital-invests-in-omak-technologies/
http://www.bovcapital.com/default.php
http://www.ventureengine.lk/about-us.php
http://echelon.lk/home/bov-capital-buoyant-about-sri-lankan-ai-startups/
http://www.lankanangelnetwork.com/default.php

13
APPENDIX:
Questionnaire & Responses summary

14
15
16
17
18
19
20
21
22
23
24
25