Converting ideas into businesses

• Venture Engine highlights the opportunities available to entrepreneurs in Sri Lanka and the key challenges they face

Start-ups play a vital role in a country’s economy, filling in niches and creating employment. In developing economies such as Sri Lanka, entrepreneurship is often viewed as an important component in stimulating economic growth, innovation and competitiveness. As in other developing economies, Sri Lankan entrepreneurs are faced with some very specific challenges.

“Over the next 10 to 15 years we will see a step-change increase in innovation and entrepreneurship in Sri Lanka. This transformation will cut across sectors and will lead to the creation of thousands of new companies, create millions of jobs and will bring significant new investment into the economy. Getting there will require the active development of an innovation ecosystem that supports the entrepreneurial potential of the country,” explained Prajeeth Balasubramaniam, Managing Director, Blue Ocean Ventures.
“With the establishment of programs such as Venture Engine and the birth of alliances such as the Lankan Angel Network, we are taking giant strides in the right direction and entrepreneurs need to know that more opportunities are now becoming available to them.”
A risk-averse culture has been a deterrent to entrepreneurship in Sri Lanka and the resulting lack of entrepreneurs has done little to encourage further start-ups.  The next stumbling block entrepreneurs face is the uncertainty about what steps to take in order to achieve success.  Lack of access to funding and resources adds to their challenges. Sourcing funding from risk-shy financial institutions or personal investors can be particularly overwhelming to a young entrepreneur. Seed stage funding is exactly where angel investors come into play. From ecommerce to fashion brands, several wildly successful international start-ups trace their roots to a foundation built with angel investors.
Entrepreneurs need to have a good understanding of the cycle of investment. Initial seed funding is often provided by friends and family, usually a small amount required to kick start the effort. As development progresses, a second round of funding is often sought in the form of angel investment.  Angel investors typically invest their own capital and are often well-connected individuals who have run successful businesses and are interested in helping other aspiring entrepreneurs to succeed. A large percentage of angel investments are lost completely when early stage ventures fail in the “valley of death”. Angel capital fills the gap between the initial seed funding and third round funding where venture capitalists, banks, or initial public offering kicks in. Venture Capitalists usually look at growth stage businesses with a focus on expansion and are a source of funding for businesses looking to expand.
Companies initiated by two or more partners are found to gain a competitive edge through the consolidation of skills that occurs. They are also looked upon favourably by investors who appreciate the increased scalability of a partnership.
“Getting your idea in front of an angel investor and convincing them that your business is the one that requires funding has become simpler with the establishment of this ecosystem,” stated Dilendra Wimalasekere, Chairman of 24/7, winner of Venture Engine 2012.
“Prepare a clear and simple pitch using the guidelines provided by the Angel Network. Provide enough information to showcase your idea and its potential but, also remember to showcase yourself – an investor does not just invest in an idea and numbers, they also invest in the person. Investors look for entrepreneurs with a strong sense of commitment and willingness to share risks together with them. It also makes sense to talk to a few investors before making any decisions as your final success will depend on having the right people on your team. Remember that your investor has more than just funds to offer, they also have skills, expertise and connections that can help elevate your business beyond the next level, and these are vital aspects that you should consider.
“The key elements that need to be covered in your pitch are: an overview, introduction, value proposition, sales strategy, technical/product/delivery model, a competitive analysis, risks and mitigation strategies, financials in USD and the entrepreneur(s),” he added.
From human resources to the legal aspects of business, a larger investor may be able to provide useful assistance, which reiterates the key point of asking for more than just funding from an investor.
“As an entrepreneur, you know that your idea and the vision you have for it is the most important thing you hold at that stage and protecting it until launch is crucial. Yet, you need to raise funds to develop the idea. This is where investor credibility becomes critical. I feel the angel investment group and Venture Capitalists have maintained their credibility, giving entrepreneurs the confidence to pitch ideas to them knowing their integrity will be maintained,” said Lanka Angel Network Patron Linda Speldewinde.
Although entrepreneurs can face considerable challenges in a developing economy such as Sri Lanka, there is also significantly more potential. Needs and opportunities are vast, which means that entrepreneurs can pursue profits in different areas of need.
The reality for Sri Lankan entrepreneurs is that while there are significant challenges there is also a significant focus on developing the right ecosystem to support entrepreneurship. The potential in the market is immense and it is now time for budding entrepreneurs to start investing in their ideas. As declared by Richard Branson, 2014 is the Year of the Entrepreneur.