The current state of the Philippine startups

Photo credit to e27

“Can the Philippines produce the next Google, Amazon or Facebook?” That’s the question I’ve been wanting to answer since becoming a silent startup junkie for years now. Take note of the word “silent” – because as an accountant by profession, I am often viewed as conservative boring guy with professional experience revolving only around boring spreadsheets within accounting firms or big private companies and all life is all about the prestige, perks and professional reputation in the industry. Too far from the startup life that I have for almost four years now and enjoying it to the fullest every single day!

Few weeks back though, and to my amazement, I came a across a Facebook post by one of my former officemates. It’s the first ever Philippine startup survey jointly conducted by PwC Philippines and QBO Philippines.

The survey is very insightful and shows the current state of the Philippine startup ecosystem. Here’s some interesting survey results:

About Philippine startup founders

  • 46% of the startup founders are within the 26-35 years old range
  • 54% of startup founders launched their businesses between 2016 and 2017
  • 66% have established startups prior to their current startup
  • Background of founders: 27% IT degree holders, 18% business degree holders and 16% holds engineering degrees
  • Primary skills: 72% software development skills, 67% entrepreneurship, 55% Sales and 52% Marketing/Branding. Only 31% have financial management skills while 19% have fund-raising skills

About their performance and business models

  • 58% are business-to-business (B2B) models while 35% are business-to-consumers (B2C)
  • 43% are still in pre-revenue phase; 37% have annual recurring revenue of less than PHP 2 million; and 10% have annual revenue of over PHP 7 million
  • More than half of the respondents wants to innovate and disrupt existing technologies and services
  • 57% say strong visionary business leadership drives innovation and growth

About their current challenges

  • 88% say access to capital was the top challenge followed by scarcity of talent and regulatory requirements
  • 56% say market condition is their top challenge within the next 12 months followed by the need to continually innovate and keep ahead and attracting & retaining the right talent
  • Only 18% say they are challenged by the growing foreign startups/tech companies in the Philippines

About their future plans

  • 94% plans to welcome investors in the next three years
  • 95% wants to enter other markets in the next five years particularly Indonesia, Thailand, Malaysia and Vietnam
  • 84% wants to focus on improving their existing products as main driver for growth
  • 63% are planning to conduct an IPO in the next five to seven years. Top pre-requisites for the IPO are profitability, strong growth prospects and right management team

The survey also showcases some of the countries’ notable startups and some of the very few incubators, accelerators and venture capital firms. Some startups that caught my attention (and I believe have good potentials) are Cropital, ServeHappy, Dragonpay, Revolution Precrafted and Flyspaces.

Cropital

  • Crowdfunding platform for farmers. For a minimum of PHP 5,000 people can invest on farmers with an ROI of about three to six months
  • Developing tech to allow to work more with less with farmers on the ground
  • PHP 8 million raised so far
  • Plans to reach 15,000 to 50,000 farmers in three to five years

ServeHappy

  • An online platform for service industry that caters to the C-D niche market
  • Started in 2016
  • Plans to enter other markets like Indonesia and Sri Lanka
  • Winner of the recent Techtonic Startup Challenge

Dragonpay

  • Online payment provider or more commonly known as payment gateway
  • Most widely-used in the Philippines. Clients include some big companies and the government
  • No direct competitor at the moment
  • Has the largest network of partnerships with majority of banks in the country
  • Completed Series A funding from Japan’s biggest online payment gateway, GMO Payment Gateway Inc.

Revolution Precrafted

  • Real estate technology startup that sells prefabricated homes designed by the world-renown architects, designers and celebrities like Christian de Portzamparc, Zaha Hadid, Jean Nouvel, Eduardo Calma, Ron Arad, Philip Johnson, Alan Ritchie, and Lenny Kravitz
  • First-ever Philippine unicorn
  • Investors include 500 Startups invested USD15.4 million at USD256 valuation last March 2017 or only less than two years from the launch date

Flyspaces

  • An AirBnb for office spaces
  • Completed Series A for USD2.1 million which is considered as the largest Series A round in the Philippines so far
  • Has around 500 clients across Asia

So far, there are only few success stories of exits such as Xurpass which IPOed in December 2014 and i-Remit (IPO in October 2007) and some other acquisitions by other giants such as Smart (acquired Chikka), and Naspers (acquired sulit.com.ph). This year alone, recent M&As to watch for include the Alibaba deal with Ayala and Globe (Jack Ma was in Manila back in October for this), 500 Startups investment in Revolution Precrafted, and the first ever largest pre-Series A of Flyspaces led by local investors.

Given my knowledge of the Philippine market, I would invest or help these startups as much as I could especially these current times. Why? Because the timing is perfect for investing in the Philippines: it is the fastest growing economy in Southeast Asia, strategically situated within Asia, strong demographics, good command of English language, hardworking and highly-skilled people and much lesser competition in the startup scene so far. Unlike other competing developing countries like Thailand and Indonesia, the Philippines has lower barriers for foreigners especially with the introduction of the Foreign Investment Act of 1991 and the Omnibus Investment Code of 1987 which among others, provide fiscal and non-fiscal incentives to qualified investors.

The challenges of Philippine startups and how to overcome them

88% of Philippine startups say their biggest challenge is access to capital. This is particularly true for both well-networked and not-so-well-networked startup founders. Robbie Antonio of Revolution Precrafted, who is basically real estate mogul in the Philippines already, even said that he had to pitch to investors outside the country just to seek capital. That is because there is currently a scarcity of investors – angel investors, VCs and even institutional ones – in the country. In fact, some of the wealthiest in the country opts to funds in major finance centers like Singapore and Hong Kong instead of investing locally. Clearly, this contributes to the lack of accessible capital currently. I am willing to help any investor, both local and foreign, that is willing to set-up shop in the Philippines anytime just to address this huge gap.

One fine weather in Makati (Instagram: excaliburger)

On the other hand, Philippine founders should understand that getting funded is not a walk in the park. I absolutely agree to what the survey says, “having a good product and an available market are not the only requirements of investors. Other factors include the founders’ background, management team, competitive environment, historical financials, forecasts, growth story, use of proceeds and possible exit strategies.” In addition, founders must always prepare for fund-raising activities ahead of time as lack of proper planning and preparation may also affect the valuation because investors also consider the amount of work that needs to be done when they come in.

Lastly, only 34% of the founders say that good governance should be a priority. Well, this is something that firms like PwC and QBO should keep on reiterating to startups because it is really hard to have good governance in the initial years of startups particularly during growth phase. They have to guide startups and find the right balance between putting too much control and meeting the objectives for growth. Governance mechanisms such as internal control and management policies should not be viewed as hindrances or show-stoppers in achieving the goals rather as enablers to achieve them. Also, firms like PwC and QBO should continue these startups overcome the challenge on ease of doing business in the Philippines with its lengthy business registration (and deregistration) process and complex taxation system.

Click here to download the PwC and QBO Philippine Startup Survey