Isla Lipana & Co./PwC Philippines (PwC) has conducted its second collaboration with QBO, the country’s first public-private initiative for startups, and IdeaSpace, a non-profit that supports early-stage technology entrepreneurship, resulting in the 2020 Philippine Startup Survey.
According to the survey, which covers questions directed to startup founders and investors about their current status as well as their plans, 77 per cent of the founders say that capital requirements are their biggest challenge. Regulatory and business concerns also exist.
Seventy-three per cent of the investors plan to invest up to US$5 million in the Philippines’s startups in the next three years.
The survey further reveals that the country’s startup ecosystem has changed over the last three years. However, challenges are to be expected, despite recent developments.
Diane Eustaquio, IdeaSpace Executive Director, shared: “The 2020 Startup Survey brings to fore the issues we need to address to strengthen and bring the ecosystem towards maturity. I’m glad to know that fewer founders mention that funding is an issue, it shows they are understanding how to address constraints and lessen risks.”
PwC Philippines’s Chairman and Senior Partner, Atty. Alexander Cabrera, is optimistic as the number of growing startups is on the rise. “This year, it is comforting that the majority of the founders are scaling up with them (founders) want to do business, and stay in business.”
Also Read: Why disruption is no longer a buzzword in the Philippines
The survey also features the participation of the Management Association of the Philippines (MAP) members, a 70-year-old management organisation whose over 1,000 members represent a cross-section of CEOs, COOs and other top management practitioners from the largest local and multinational companies operating in the Philippines. It encourages investors to support the ideas of the startups and help deepen the bench for future business leaders.
“While we need more investors to help fund our startups, we also need the private sector to help by becoming the customers of our startups. We all need to work together to build sustainable businesses that will provide opportunities for the Filipinos,” Cabrera said.
Changes and improvements in the scene
The survey notes that the Philippines’s startup ecosystem has changed over the last three years. The 2019 signing of the implementing rules and regulations for the Innovative Startup Act or Republic Act 11337 as well as the Revised Corporation Code allowing the incorporation of one person corporations show the government’s support in promoting entrepreneurship.
The recent investments from global investors poured into local startups from the likes of KKR, Tencent, and Ant Financial prove that the Philippines has a promising and stronger startup ecosystem.
According to the founders, the majority of them are scaling up. Majority of the founders are also very confident about the prospects for revenue growth, and almost all are planning to enter new territories in the succeeding years.
Similarly, startup investors are confident about the growth prospects of the Filipino startups. According to investors, fintech, e-commerce, and medical and healthcare technology are the top sectors that will be successful.
The year of scaling up
The investors also said that their top investment considerations for startups are the founding members, business model, and scalability.
This year, the majority of the startups are scaling up with the improved products and businesses, and only 5 per cent are in the ideating stage compared to when the Philippine Startup Survey first launched in 2017.
Back in 2017, regulatory requirements and the general economic/business situation were among the founders’ top challenges. This year, founders are more concerned with market readiness and talent acquisition as they wish to create sustainable businesses.
Also Read: Fintech in the Philippines: opportunities, challenges and why global participation is critical
The startups’ focus on business is also evident in the needed skills that the founders have identified. In 2017, the founders ranked software development as the top skill of its founding members. This year, however, entrepreneurship ranked first followed by project management and sales.
Fundraising climate
While fundraising is among the key priorities of the founders, 48 per cent admit to having walked away from a potential partnership or investment or terminated an existing partnership.
When asked why the founders identified not sharing the same vision as the top reason, the mismatch of personalities with the management team, weak management team, and lack of traction as major reasons for walking away. Surprisingly, having a low valuation only ranked fifth.
In 2019, there were over 20 disclosed deals, which include the US$72 million investment of gojek in Coins.ph as well as the US$175 million investment of KKR and Tencent in Voyager Innovations.
According to the investors who participated in this survey, 65 per cent have invested in Filipino startups, with a significant number saying they’ve invested between US$1 million and US$5 million.
What’s next
While startup dealmaking in the Philippines still lags behind the other Southeast Asian countries, a growing number of domestic and foreign investors are showing interest in deploying capital to the country. The Philippines’s young population, rising middle class, higher smartphone penetration, and ongoing reforms are among the factors that help drive the investors to the local startup ecosystem.
What’s noteworthy this time is more local corporations have started to formally establish their own venture capital vehicles. In 2019, top conglomerates such as Ayala Corporation, JG Summit, and Aboitiz Equity Ventures launched their corporate VC arms with the vision of investing in local and foreign startups.
Also Read: Are Philippines’s traditional conglomerates finally embracing corporate investing?
The investors agree that local startups should enter new markets in the next five years. While the founders have identified other areas in the Philippines, Indonesia, and Malaysia as priority markets, the investors, however, think that startups should prioritise Vietnam, Indonesia, and Singapore.
When asked about innovation, the investors identified technology, products and services, and business model as the top areas that the startups should focus on. With the growing number of startups in the Philippines and abroad, the investors are looking for target investees with distinct and competitive products and solutions.
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Picture Credit: 2020 Philippine Startup Survey
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