By: Staff Writer
September 21, Colombo (LNW): Sri Lanka’s startup ecosystem is showing signs of acceleration, but beneath the optimism lie persistent challenges that could stall its growth if urgent reforms are not implemented. The country, long praised for its strong ICT sector and high literacy rate, has recently begun attracting global attention, yet the numbers reveal that it remains far behind regional competitors in both funding and policy support.
According to global startup mapping platform StartupBlink, Sri Lanka’s ecosystem expanded by 47.2% in 2025, climbing to 68th place worldwide.
The island now hosts around 316 startups, but total venture funding raised this year is still modest at just over US$4 million. Tracxn, a global data provider, reported that only one significant equity round had closed by April 2025, valued at US$4.5 million.
This level of activity pales in comparison to neighboring ecosystems in Southeast Asia, where venture capital inflows often exceed 0.5% of GDP. In Sri Lanka, the figure is a fraction of thatbarely scratching 0.01%.
Industry experts argue that Sri Lanka should aim to scale venture investment to at least 0.1% of GDP, or about US$80 million annually, if it is to nurture startups capable of competing globally.
The government has acknowledged these gaps and announced the launch of a state-backed “Fund of Funds” to catalyze private capital inflows into local venture funds and early-stage companies. Yet questions remain about the pace of implementation and whether such measures can be rolled out quickly enough to match investor appetite.
Policymakers are also pledging to strip away bureaucratic red tape and create investor-friendly regulatory frameworks. The 2025 national budget introduced several digital economy initiatives, including a Digital Economic Authority, a data protection framework, and a national digital ID program, all aimed at building trust in Sri Lanka as a modern innovation hub.
Officials have set an ambitious target of generating US$15 billion in revenue through the digital economy by 2030, with ICT exports expected to contribute at least US$5 billion.
Despite these initiatives, critical gaps remain. Sri Lanka ranks 93rd out of 139 economies in the Global Innovation Index for 2025, with weaknesses in research capacity, institutional support, and business sophistication.
While the country has produced success stories such as Roar, InsureMe, and Mint Pay through programs like Venture Engine, the broader ecosystem struggles to convert academic research into commercial products. Inconsistent policy enforcement, high infrastructure costs, and a lack of reliable seed capital continue to deter both local and foreign investors.
The presence of over 35 global investors at events such as the Venture Engine Finale and Disrupt Asia underscores international interest in Sri Lanka’s entrepreneurial potential. Fintech pioneer Vijay Shekhar Sharma, founder of India’s Paytm, recently urged the island to seize this moment and transform into a regional digital leader.
But without bold government action to close funding gaps, expand infrastructure, and deliver regulatory clarity, much of this momentum risks dissipating.
Sri Lanka is therefore at a crossroads. With global investors watching closely and a pool of skilled professionals ready to innovate, the opportunity is clear. The question is whether the government can act decisively to create an environment where startups move from survival to global scale or whether the island will once again be overshadowed by its faster-moving neighbors.
