By now you probably know what Disrupt Asia is. But in case you’re lost, Disrupt Asia 2017 was a massive conference dedicated to celebrating and helping the Sri Lankan startup ecosystem grow. So far, we’ve seen the many startups that were present, its opening keynote along with panel discussions covering a variety of topics, and a series of workshops. And now we venture into one of the most restricted areas of Disrupt Asia 2017: The Investor Forum. As its name suggests, these sessions were exclusive for the attendees who had the investor tag. In fact, we were the only attendees in the hall that didn’t have these investor tags. So what exactly did we find in this mysterious world of the investors?

A critical look at the Sri Lankan startup ecosystem

“At this time last year, we said Sri Lanka would be on the global startup map. And today we are,” said Sachindra Samararatne – Program Manager at ICTA.  As proof of this, he shared the details from the Startup Genome Global Startup Ecosystem Report 2017 that focused on startups in the tech industry. According to this report, Sri Lanka’s startup ecosystem is currently in the activation stage. This is the first stage on the road to maturity for a startup ecosystem.

Disrupt Asia 2017Having highlighted this, Sachindra argued that the performance of the Sri Lankan startup ecosystem is below average even though it’s still in the activation phase. As per the report, Sri Lanka has 225 startups in the tech industry with a collective value of $32 million. In contrast, Bangalore has approximately 2,300 startups and is valued at $19 billion. Furthermore, the global average is 1,762 startups and average startup ecosystem value being $4.1 billion.

Looking at the data, Sri Lanka has a lower startup output and startup density compared to its peers in the activation stage. Additionally, the amount of funding available to startups is also fairly low when compared to other ecosystem. However, Sri Lanka has the highest growth index at 7.4 amongst other startup ecosystems featured in the report. While this is a metric to be proud of, Sachindra argued that this is actually normal for startups in the activation stage.

Investors Disrupt Asia 2017But despite all of this, our global connectivity is fairly high for a startup ecosystem in the activation phase. Thus, we must capitalize on this.But for the Sri Lankan startup ecosystem to grow we must invest in the community. That means helping create a larger community of entrepreneurs, talent, and investors, that’s more connected both locally and globally with other startup ecosystems.

Lessons from a local investor

Competitions, Mentorship, Funding, and Incubators. Jeevan Gnanam – Director/CEO of SAIG and Orion shared that these were the four fundamentals that drove the growth of the Sri Lankan startup ecosystem in its initial days. In these initial days, there were only few competitions like Spiralation and initiatives like the Lankan Angel Network that provided funding and mentorship. Then the ecosystem exploded with Jeevan describing it as, “I can’t keep up with the number of competitions.

After explaining how entrepreneurs can find success, Jeevan shared the lessons he had learned as an angel investor. The most important one being that no investor should come into the startup ecosystem and dream of making money. Startups are the worst asset that an investor could use to make quick money due to the high level of risk involved. So why invest in startups? For Jeevan, the answer is to learn from them. But another more logical reason would be to help a conglomerate enter a new industry with relative ease.Investors Disrupt Asia 2017

Afterwards, Jeevan spoke of the Spraying Effect, which is the theory that if you invest in ten startups then one will succeed. He argued that while this is a popular theory, it’s better for investors to invest in startups operating in areas that they’re comfortable in. He added that investors should avoid buzzwords like IoT and focus on the basics such as whether the startup is making money or where its customers are.

Jeevan went onto say that startups should build unique local products rather than copying international unicorns. But these startups should build products that make a local impact that can easily be taken regionally. Ultimately, the most important lesson Jeevan shared was a basic one: the agreements between investors and entrepreneurs must be a strong one with the terms clearly defined. He concluded his session by saying that we should incentivize risk, encourage more venture funding, encourage more corporate investments into the startup ecosystem, and create more affordable accelerator spaces to help the Sri Lankan Startup ecosystem grow.

Understanding the role of investors

Following Jeevan’s session, we saw a panel discussion moderated by Sachindra. The panelists were: Chalinda Abeykoon – CEO of CrowdIsland, Prajeeth Balasubramaniam – General Partner at BOV Capital Limited, and Jeevan Gnanam. During the panel discussion, the panelists shared their insights on the role of an investor in supporting entrepreneurs and helping startups grow.

Chalinda shared that business plans rarely survive the first six months. Therefore, it is the people that make a difference and that’s why investors should be involved. He reiterated this point by sharing his experience running a corporate startup accelerator, where he found that one of the biggest problems he saw that startups faced was that they had great ideas but needed people with equally great skills to bring them to life.

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The panelists during the panel discussion (Image credits: Thisal Gunarathna)

Afterwards, Jeevan shared exactly how often an investor should meet with entrepreneurs and be involved with startups. If it’s an early stage startup, then it’s ideal for an investor to meetup with the entrepreneurs at least once or twice a week. But if the startup has a strong business model and is executing it with few issues, then once a month would be enough. Later, Prajeeth shared that for a startup to find success, it should start by solving a local problem, then a regional problem, and finally a global problem. He also added that as a founder negotiation and financial skills are vital. He argued that Sri Lankan entrepreneurs also need more exposure because while our products are great their marketing is weak. Jeevan went onto say that a founder should also be persistent and willing to take risks.

An introduction to key investor metrics

Following the panel discussion, we saw Daniel Goldman – Managing Director at Ignition Angels take the stage. His session was focused on sharing the lessons he learned over 25 years as an investor. These lessons aimed to show local investors how they could make more money when investing in startups from a Silicon Valley perspective.

His first and main lesson was that missed opportunities are worse than failed opportunities. An example of such opportunities he shared were Google and Facebook. If the pieces are aligned, then you should take a risk. That means primarily identifying how you as an investor would get a return on the investment, whether the team has a learning mindset, and how big the market potential is to understand why the startup requires capital. Afterwards, he shared that investors need to look at each startup like a part of a larger portfolio.

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Daniel Goldman at Disrupt Asia 2017 (Image credits: Thisal Gunarathna)

This means that investors should expect to invest in more than 20 startups, each of which is capable of a 100x return on investment, to achieve a high return. However, most startups will fail. As such, that that do succeed have to pay for the failures and give the investor a profit. This means the investors need to play a key role in helping the startups they invest in. But at the same time, startups themselves need to be aggressive about learning and growth. And when it comes to learning, Daniel shared a few questions that he uses to test for a learning mindset, a focus on continuous learning in the startup team.

The first example question Daniel shared was whether founders have learned from thought leaders and then changed. Another question Daniel uses whether the startup has helpful mentor. Daniel shared that startups with helpful advisors will have a much easier time in raising funds. Furthermore, if there’s only one founder with no one complementing their skills, then it takes much longer for the startup to grow that with two co-founders or more co-founders.

Daniel then went onto share that a test to measure the learning mindset was whether the entrepreneurs could clearly communicate their business. Daniel shared that he doesn’t invest in people that can’t explain their business in a simple manner. This is because then it’s challenging to evaluate the startup as an investor but also because it’s unlikely that the startup can be expected to sell to customers well. He also noted that growth is also related to how well the startups track their own metrics and whether they’ve learned from those that previously attempted executing similar startup ideas. Daniel’s final metric to measure growth was to see how intrigued the founders are about their own startup because in the end it is their curiosity and continuous learning that drives a successful startup.

A trip to Silicon Valley

Once Daniel had shared his metrics to measure the growth of a startup, he invited Cheryl Edison – CEO of Edison International on stage. When Cheryl took the stage she asked the audience to pretend that they were in Silicon Valley. She then shared that she wants to create payment gateway because she spoke with two companies offering payment gateways but their offerings didn’t work. With this premise, the audience was tasked with solving this problem alongside Cheryl while being based in Silicon Valley.

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Cheryl Edison begins her exercise at the Investor Forum (Image credits: Thisal Gunarathna)

This would be an interactive exercise that began with the audience swapping tables with people they didn’t meet before. Afterward, Cheryl asked the audience of what a startup ecosystem needs to help entrepreneurs succeed. The answers she got ranged from energy to connectivity to collaboration to opportunities. She then shared that the most important thing to happen in a startup ecosystem is to not stay in a place that’s comfortable. This she went onto say, is the most important aspect of Silicon Valley.

Cheryl then asked the audience to share what they like and the skills they possess. After the audience had shared what they liked and their skills, she asked them what skills could be combined with their likes to create a new business. Two ideas we heard were: a business that helps you learn about places while travelling and a tool that analyzes what you’re buying. Cheryl referring to the second example then asked the audience, “would it benefit from a payment gateway?”

The audience responded with a unanimous yes. Having said that, each table was then asked to think of five business ideas within three minutes that could go global with a payment gateway. Once the three minutes came to an end, Cheryl asked the audience to share their ideas. Some of the interesting ideas we saw from the investors were: a platform to pay traffic fines online, a microfinancing platform, and another to send maid remittances online. Cherly then picked the idea to send maid remittances online and asked three members of the audience to become its CEO, CFO, and CMO.

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Cheryl questions the CMO of the new startup: Joe Lenora (Image credits: Thisal Gunarathna)

Cheryl then asked the volunteer CMO two questions: why should she invest in the startup and why should she care about the problem they’re trying to solve? Once these two questions have been answered, a startup is born. This Cheryl says is how quickly startups are born in Silicon Valley. She then concluded her session by challenging the investors in the audience to be in different parts of the startup ecosystem and launch ideas saying, “You’re experienced so please lead.”

Building the Sri Lankan startup brand

Following lunch, when we returned to the investor forum we saw Cheryl Edison take the stage once more. Continuing from her previous session, she shared that it’s not a big mystery to build a company. It all comes down to five basic steps: have an idea, build a product/service, measure the customer response, pivot, persevere or exit. Daniel Goldman added to the last point saying, “Until you have a few large exits, everyone will jump in but not the money.”

Disrupt Asia 2017Afterwards, Cheryl shared examples of Sri Lankan startups that could go global and truly help create a strong brand for the Sri Lankan startup ecosystem. One of the most prominent examples she shared was IgniterBee. Having shared her reasons as to why these startups could go global, she asked the audience to once again form groups with people they didn’t meet before and discuss a breakthrough idea that could create a startup that would represent Sri Lanka.

She got a few ideas such as a platform to conduct online tutoring for students in the UK by teachers here in Sri Lanka. While the ideas were good, they weren’t breakthrough ideas. Cheryl went onto say, “A business that will be a brand is one that can scale to a global level, otherwise it’s just a business.” This is what is required of a startup if it is to represent the Sri Lankan startup ecosystem as a brand. Having said that, Cheryl praised the Sri Lanka IT industry for its quality saying, “So many things were made here that nobody knows was made here.”

Afterwards, we saw the investors in the audience share some of the challenges the Sri Lankan startup ecosystem faces. The common issue that was identified was that there was a lack of knowledge in the ecosystem. Thus, Cheryl encouraged the investors in the audience to create incubators, accelerators, and become mentors for startups to help conquer this lack of knowledge. This she said, is how Sri Lanka can build startups that go global and truly put us on the map.

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