Foxmont Capital Managing Partner Franco Varona (L) and Founding Partner Jelmer Ikink
With a population of 113 million, the Philippines remains an attractive destination for venture capital. In 2022, local startups raised US$1.1 billion, exceeding the US$1.03 billion amount raised in 2021, giving more confidence to Limited Partners to invest in local VC firms.
Foxmont Capital Partners is one VC that has gained immensely from this investor confidence. The early-stage VC firm recently witnessed its Fund II oversubscribed at US$21.3 million. Singapore-based Pavilion Capital, Taiwan-based AppWorks, and Netherlands-based Orient Growth invested.
Founded in 2018, Foxmont Capital has invested in 31 startups and looks to invest in more from the new fund.
On the sidelines of the Fund II closing, e27 sat with Foxmont Capital’s Managing Partner Franco Varona and Founding Partner Jelmer Ikink, who discussed their plans, the local startup ecosystem, and the funding winter.
Below are the edited excerpts:
Raising capital from Limited Partners has been challenging in the current environment. How did you manage to convince your LPs to invest in your fund?
Ikink: Given the complex macro environment and Foxmont Capital being the first independent VC fund manager in the Philippines, there was a bit of education and familiarisation to be done on the startup opportunities that the country brings.
Also Read: Monde Nissin CEO backs Foxmont Capital’s initial close of US$20M Fund II
Having said that, Philippine economic fundamentals and startup ecosystem are showing excellent traction. Foxmont is well-positioned to benefit from those. That’s why we managed to close our Fund II oversubscribed with a great group of LPs.
Can you share the details of your philosophy and ticket size? Have you changed your investment strategy, given the current situation?
Varona: Foxmont Capital has always looked at fundamentals and been diligent on entry valuations, so we haven’t had to change our process too much in response to the market. Our ticket size is around US$500,000, and we like to be the first institutional ticket for founders to accelerate their growth.
How many startups do you plan to invest in from this fund? Do you also plan to follow on in your existing portfolio from Fund II?
Varona: Foxmont Capital has thus far invested in 16 startups with this fund and expects to maintain a healthy distribution strategy in the future, both for new portfolio companies and through follow-ons.
How does the overall startup market in the Philippines perform during the recession? Are growth-stage startups struggling to raise follow-on funding? How do they cope with the situation?
Ikink: We’ve seen an increase in growth-stage deals in the Philippines in 2022. As a percentage of total deal flow, growth deals represented over 20 per cent in 2022, up from 4-5 per cent in 2017-2019.
Moreover, the share of funds raised by Philippine startups as a percentage of total funds raised in Southeast Asia has quadrupled over the past three years. We also see increased interest in Philippine deals from foreign growth funds with regional mandates.
While big startups in Indonesia and Singapore have reduced their workforce, only some Philippine startups have resorted to such steps. Does it mean the recession has not hit the local startups as severely as other countries in SEA?
Ikink: Inflation and other macro pressure have impacted us, but we continue to see significant traction with the startups in our portfolio. Philippine consumption and GDP growth remain strong, and digital adoption continues to accelerate. The entry valuations were never too high, to begin with when compared to other countries in the region.
What challenges are peculiar to the Philippine startup ecosystem in the current downturn?
Varona: The challenge for any ecosystem early in its life cycle — downturn or not — is the need for more developers. The Philippines recently digitised, and the demand for developers has ramped up quickly. We must continue growing that base through the private and public education systems.
How can growth-stage startups in the Philippines survive the current slowdown? Can you share some tips?
Ikink: Like other startups across the globe, expense control, smart and sustainable growth and the use of KPIs and ROIs of money spent will be essential to extend the runway beyond the 12 months that was more typical over a year ago.
Also Read: Fund managers have their task cut out right now: Edward Tay
Moreover, keeping close correspondence with your investors and shareholders will be essential to plan for follow-on rounds properly.
I understand e-commerce is one of the fastest-growing sectors. Which other sectors in the Philippines are growing fast?
Varona: Foxmont Capital remains sector agnostic but sees potential in the direct-to-consumer segment and so recently invested in Colourette and Pickup Coffee. The Philippines economy is primarily driven by domestic consumption, and an interesting quirk to that is that there continues to be a significant gap in the aspirational space. We have the luxury that Western brands are winning the upscale market and the older generational brands are winning the super mass market. But we are yet to service the young population that is quickly turning middle class.
Fintech is naturally a hot space in the Philippines at the moment as well.
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