The ecosystem of startups in the Philippines has been slowly and steadily growing in the last few years, nurturing a number of standout startups, like Coins.ph and Investagrams, to name a few. In 2020, the ecosystem is now home to more than: 400 startups, 50 angel investors, 40 venture capitalists, 35 incubators and accelerators, and 120 co-working spaces. It’s become a vibrant community of innovative minds, bolstered by investors and entrepreneurs looking to take the Philippine startup scene to new heights.
QBO Innovation Hub and PricewaterhouseCoopers Philippines have been keeping a close eye on the country’s budding startups, and their observations led to the 2020 Philippine Startup Survey, detailing useful insights on the state of startups in the Philippines.
Inside the Ecosystem
The Philippines’ promising startup ecosystem has already attracted global investors such as Kohlberg Kravis Roberts & Co. L.P. (KKR), Tencent Holdings, and Ant Financial Services Group. Government efforts have supported the growth of the startup ecosystem, particularly the 2019 signing of the implementing rules and regulations for the Innovative Startup Act (R.A. 11337) and the Revised Corporation Code, which now allows one person corporations (aka entrepreneurs).
Just a few milestones in the Philippines’ young startup history include Voyager Innovations’ $175 million investment from KKR and Tencent Holdings in October, 2018; Coins.ph’s inauguration as the second best block-chain platform in Southeast Asia in February, 2019; and PayMongo’s attainment of $2.7 million in seed round capital, the biggest in Philippine startup history in November, 2019. In 2018, the Philippines raised more than $300 million in startup deals, and according to Startup Blink’s 2019 report, the country is now the 54th best startup ecosystem out of 100 countries, which is 16 places higher than the 2017 report. Aside from the incubators and accelerators scattered all over the city, there are platforms like the show The Final Pitch, which give startups the chance to pitch directly to potential investors.
The 2020 Philippine Startup Survey looks at how the startups that participated in its 2017 study are doing three years later, giving startup newbies a look at how Filipino startups fare a couple of years down the line. Based on the responses from the participating startups, the challenges facing startups now are market readiness, talent acquisition, access to networks, and regulatory requirements, which are different from their worries in 2017, which included general business conditions and competition in the sector. However, both 2017 and 2020 surveys found that capital requirements are still the leading challenge for a large majority of startups.
As for skills, the ranked top skills needed in 2020 have changed from software development, entrepreneurship, and sales in 2017 to entrepreneurship, project management, and sales in 2020 (in that order). Over the course of three years, the top three focus areas changed from improving technology, customer experience, business model, and systems and processes, to innovating product development and new technology development.
The investor profile of startups is notably varied, with majority (47 percent) of investments coming from a family fund, followed by angel investors (34 percent), and personal funding (15 percent). Venture capital, corporate investors, and private equity funds only made up 12 percent of investments each. According to the report, 31 percent of startups are earning from over P2 million to over P100 million in revenues.
But money can hardly be called the main drive for all startups as 48 percent reportedly walked away from investments for reasons such as not sharing the same vision, demanding partners, and unfulfilled promises. Despite this, 95 percent of startups plan to enter a strategic alliance and partnership within the next 12 months.
Not only do startups plan to enter new partnership, but 62 percent are looking to enter new territories in the Philippines within the next five years. Fifty percent also plan to enter the Malaysian market, 47 percent plan to enter Indonesia, and 45 percent plan to enter Thailand and Singapore. However, despite this planned expansion, only two percent plan to go public within the next three years.
Investor Insight
Aside from the 111 startup founders interviewed, 31 investors (angel and otherwise) shared their insights from the perspective of the investor. Seventy-eight percent of investors are confident about the revenue growth of Philippine startups, and of the 65 percent that invested in local startups, 47 percent of those investments were in fintech. That’s a significantly large portion of the investments considering that medtech and enterprise startups received only 29 percent, e-commerce and real estate received only 24 percent.
When asked what sectors the investors plan to look into within the next three years, the popular response was fintech, followed by medical and healthcare, education, logistics, and enterprise services. Clearly, fintech is the future as 45 percent of investors voted that fintech would be the more successful sector compared to e-commerce, travel, etc.
Meanwhile, 71 percent of investors will consider the founder members first before closing an investment deal. Business model, scalability, and products and services come after what the investor thinks of the founder. Despite the potential of startups, investors believe that financial constraints, regulatory factors, and lack of experienced mentors are the main obstacles preventing startups from being truly disruptive.
While there are challenges, there are also even more avenues for growth in 2020 than 2017, and the success of startups like Aide, AdMov, and Edukasyon have paved the way for other startups to follow. As Chairman and Senior Partner of PwC Philippines Alexander Cabrera stated in the report, “A startup will not be successful by simply having a visionary founder. Employees, customers, investors, management, the government—these are all the relevant stakeholders who need to be actively involved for our country to have a successful startup ecosystem.”
In short, it takes a village—or an ecosystem—and as startups like Mober, Sprout Solutions, and many others have proven, the village can make (or break) a startup. Now it’s a matter of ensuring that the startups in the Philippines continue to have a supportive and innovative ecosystem.
