What is stopping the big conglomerates in Philippines from getting their skin into the startup game?

Southeast Asia has long been dubbed the next hub for startups in Asia Pacific with its big-name unicorns going more rapidly global—like Grab and Go-Jek. And yet, the Philippines, despite being the region’s second largest with more than a hundred million citizens, only has one unicorn, Revolution Precrafted, a startup that produces premade homes.

The Philippine startup community has pointed to the lack of funding sources and government support in the country for its slow growth. In the 2017 Philippine Startup Survey conducted by accounting firm PwC Philippines, majority of startup founders cited capital and regulatory requirements as major challenges when starting up.

Also Read: Women-focused startup competition ‘She Loves Tech’ comes back to Philippines

For one, the startup community could have enjoyed support from the country’s big businesses earlier, as major partners. In Indonesia, the country’s largest conglomerates took a bet on startups early on in the game, setting up venture capital firms of their own as they sought companies who were poised to become the region’s next unicorns.

The country’s darling startup, Go-Jek, is even funded by two of the country’s biggest conglomerates: Astra International, which has interests in automobiles, and cigarette manufacturer Djarum Group.

With that kind of capital support, it is no wonder the country now has four unicorns. And it’s not like Indonesia is far more advanced than the Philippines. The archipelagic countries both struggle in financial inclusion and suffer from poor infrastructure. If anything, Indonesia is even more susceptible to risk and challenges with more than 260 million citizens spread across more than 18,000 islands. The 100 million Filipinos based in the Philippines’ 7,700 islands suddenly pale in comparison.

So why did Philippine business institutions hesitate to embrace the digital revolution?

One cannot help but be reminded of  the “innovator’s dilemma.” In the seminal book by  Clayton Christensen, the business professor bared that most successful businesses struggle to invest in disruptive technologies until it’s too late, for fear of hurting the very systems that make their enterprises work and flourish.

It’s a sentiment recently echoed by Talino Venture Labs CEO and co-founder Winston Damarillo at e27’s recently concluded Echelon Asia Summit 2019 in Singapore. “Big institutions grapple with [serving the next half of the population] because in order for them to survive long term they have to serve the down market. But in order for them to serve down market, they have to scale down what they are very comfortable with,” he said.

Lucky for the country’s conglomerates, no startup has completely disrupted their core businesses yet. Still, the decisions most of them have been making in recent years show that they too are keeping their backs in check for the next big disruptor who might swoop in and acquire their market shares.

Last May, Ayala Corp., and JG Summit Holdings both announced fresh capital worth $200 million in total to invest in early-stage startups in the region. The announcement came after two to three years’ worth of investments made by the two companies in different startups both here and abroad either through their sister companies or subsidiaries.

Also Read: [In Photos] IGNITE wraps up Philippines tech conference with more collaborations to come

Ayala Corp. has technically long been an investor in startups, but only through Kickstart Ventures, a subsidiary of Globe Telecom, which is also under its wing. Kickstart Ventures has made 38 investments since its inception in the early 2010s, a healthy mix of local and regional ones, including a stake in Philippine-based Coins.ph, which was more recently acquired by Go-Jek.

In recent years, even Ayala’s other more traditional subsidiaries, like its health arm, AC Health, also invested in startups that eventually supported its current businesses. In 2017, AC Health invested in MedGrocer, an on-demand delivery service for medicines. In the next two years, it bought majority shares on two other health startups, health tech solutions developer Vigos, and health care platform AIDE App.

JG Summit made similar moves in the same year when it invested in Garena Interactive Holding, the company which operates e-commerce platform Shopee. It has since expanded its startup portfolio, even as far as launching its very own fintech firm, Cashalo, in 2018.

The fresh funds from the two conglomerates affirm what Damarillo similarly described at the Echelon Asia Summit 2019 in Singapore as “Corporate VC 3.0”.

“Corporate VC 3.0 lends itself very well to engaging family-run corporations, in particular, the third generation who are tasked with growing the businesses given technologies available to them now,” Damarillo said. “It involves creating startups from within, not as a side-venture but to further develop and expand their core business.”

Saphron, an insurtech startup driven to make insurance “radically accessible through seamless technology” is one example of a Corporate VC 3.0 innovation. Backed by Talino Venture Labs, in cooperation with Sage Capital, Saphron aims to bridge the gap between the low-income markets to affordable insurance products through its two main offerings: micro and modular insurance.

The startup’s first partner is the Pioneer group, a leading commercial insurance provider in the Philippines that caters to Filipinos from socio-economic classes A to D. It is also the top provider of coverage for migrant workers and the low-income sector in the country.

“Saphron is a prime example of Corporate VC 3.0 at play, where large corporates support startups to bring their own core services, in this case insurance, far and wide,” said Damarillo.

“In the case of Saphron, what we need is to demystify insurance, remove its barriers, and make it attractive especially to the people who typically run away from it—but who actually need it most. We need a massive education and a shift in mindset. How will we do it? By meeting consumers where they are, through technology that they’re already familiar with.”

The country’s big businesses may count themselves as fortunate in the midst of this big startup revolution brewing in the region, for now. But with the number of startups mushrooming across Southeast Asia, ready to solve the biggest hurdles and challenges facing its biggest markets, the conglomerates’ long-term success will depend on their quick eye for the next big innovator in the space and in keeping them motivated under their wings.

Also Read: Lazada, Shopee and Zalora are most visited e-commerce sites in Philippines

Because talent and ideas are no longer scarce. The battle is now in keeping innovators and startup founders satisfied with their partnership and the joint impact they are making. And with that kind of problem, the real winners are no longer just businesses, but the markets set to enjoy the services and products they have long desired.

—

Editor’s note: e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.

The post Are Philippines’s traditional conglomerates finally embracing corporate investing? appeared first on e27.