Venture Capital Funding May Have Slowed But Deals are at a Record High, VC Report Says

The Philippines may have seen a slowdown in funding for startups over the past year, but the country itself still has the most attractive startup ecosystem for global investors. This was the key takeaway in the Philippine Venture Capital Report 2024, released on Wednesday (March 20) by Foxmont Capital Ventures and Boston Consulting Group.

According to Foxmont’s managing partner Franco Varona, who delivered the report during this year’s edition of the Build Startup Festival, while Southeast Asia saw a staggering 62 percent decline in venture capital funding in 2023, the Philippines only recorded a 14 percent dip, raising $956 million compared to 2022’s $1.1 billion. This resilience is even more impressive considering the global economic slowdown.

In addition, the Philippines achieved a record number of deals–96–in 2023, up 16 percent from 2022. Varona attributed this impressive number to the significant trust investors had in MSMEs “...especially during the early stages of investment,” he said, The country's growing importance is reflected in its increasing share of total funds raised in Southeast Asia, from a mere five percent in 2021 to a significant 13 percent in 2023.

“Each year we’re taking more and more of the regional capital pie...almost double from the year before,” Varona said. He cited several factors that contributed to this strong performance and investor confidence. The Philippines boasts a deep pool of talented founders, fueling a vibrant startup scene. The market fundamentals are also attractive, with the report highlighting modest entry valuations compared to other regions. This makes the Philippines a compelling investment opportunity for global investors.

Embracing digital transformation

Another huge factor that makes the Philippines a “hot” commodity for investors, according to the report, is strong signs of digitization, which contributes to the country rapidly catching up with other digital leaders like China and India. The number of Internet users and penetration rates show how open the country is to the digital platform, with 74.2 percent, or 87 million Filipinos online, compared to the global average of 66.2 percent. This trend is evident in sectors like ecommerce and fintech, where companies build on a large user base. 

“You can actually see how the ecommerce market evolved during the pandemic years,” Varona said. “From a tiny $3 billion in 2019, pre-pandemic, all the way to $16 billion in 2023.”

The Philippines' workforce is also on the rise, and its growing labor participation rate is projected to surpass the global average by 2030. 

“By 2050, the Philippines will have the fifth largest working population in the world,” added Varona. To capitalize on what Varona called the "demographic dividend," the government and private sectors are collaborating to create more job opportunities, improve the quality of talent, and actively promote entrepreneurship.

While the Philippine startup ecosystem is still young, stakeholders are already taking steps to facilitate exits for investors through acquisitions or public listings. The government is implementing more progressive laws to encourage inbound investments and boost participation in the public stock market. The Philippine Stock Exchange is revising its listing rules, specifically those pertaining to lock-out periods, to enable exits by alternative investments during an IPO. This collaboration between the public and private sectors aims to create a more robust and sustainable startup ecosystem in the Philippines.

As the fastest-growing economy in Southeast Asia, there are many things to look forward to in the years to come from startups and big businesses alike. These were highlighted during the insightful talks and panels during the Build Startup Festival by industry leaders such as Rene Cuartero from AHG Lab and Jay Fajardo from Ideascape Ventures/QBO Innovation Hub. Many other startup founders, investors, and government officials discussed topics like environmental sustainability, advances in tech, and scaling startup businesses.

Check out these links to watch the event recordings yourself, and visit this link to download Foxmont Capital Partners and Boston Consulting Group’s Philippine Venture Capital Report 2024.