The future looks bright for startups in the Philippines, according to the Philippine Startup Survey released by PWC, Ideaspace and QBO in February 2020. Despite reports that the Philippines is one of the most vulnerable economies in the context of the Coronavirus outbreak, due to economic links with China, there is optimism for its entrepreneurial future.
President of QBO and Ideaspace, Rene Meily, stated that “We accomplish more when we work together as a community. The stories in this report are inspiring and give us all hope that anything is possible with dedication and a dream.” Investors seem to share his optimism, as 73% of those surveyed declared that they would invest $5 million USD in the Philippines startups in the next three years.
The outlook does indeed look positive for the startup ecosystem in the Philippines, especially for Fintech. Closer examination reveals many opportunities, but also obstacles to be overcome.
The Philippine startup survey 2020
One of the key statistics to come out of the Philippine Startup Survey echoed the statement by Meily, in that 95% of participants said they intend to form strategic partnerships in the next twelve months. The formation of alliances is evidently the way forward for the Philippines startups.
Government support is cited in the report as one of the contributing factors to the successes in the startup ecosystem in the last few years. The Revised Corporation Code shows this support for entrepreneurship by allowing the incorporation of one-person companies.
As well as a supportive regulatory structure, strong global investment has added to the collective optimism in the Philippines startup sector. Investors such as Ant Financial Services Group, Tencent Holdings, and Kohlberg Kravis Roberts & Co. L.P. (KKR) have encouraged confidence, through their capital injection, that there are great things to come. Investors have predicted that Fintech, ecommerce and health & medical technology will be the primary growth sectors in the Philippines in the next two years.
Fintech in the Philippines
Fintech appears amongst the Philippine Startups Survey’s startup milestones of 2018-2020. In October 2018, Fintech platform Voyager received $175 million USD in investment from KKR and Tencent Holdings. In February 2019, Coins.ph was hailed as Southeast Asia’s leading blockchain-enabled platform following its acquisition by Go-Jek. And in September 2019, Paymongo raised one of the highest seed round capital injections in the Philippines.
Unsurprisingly, Fintech has emerged as the top sector that is attracting investors in the Philippines. The startup report uncovered that, of the surveyed startup investors, 47% have already invested in Fintech.
The Philippines, with its growing middle class and the increasingly tech-savvy population, is ripe for developments in e-commerce and Fintech. Investors agree, and almost half stated that it is the sector most likely to be successful in the next two years. Furthermore, Fintech is first on the list of industries where potential investors want to put their capital Addressing necessities within a population with such large numbers of unbanked individuals, is a strategy investors are willing to risk.
Challenges for Philippines startups
The principal challenge that lies ahead for startups in the Philippines is undoubtedly funding, with 78% of the startup founders surveyed agreeing on this. However, Diane D. Eustaquio, Executive Director of Ideaspace, iterated that this is less than in the previous survey conducted in 2017 when 88% of founders cited capital requirements as their biggest concern.
The limited number of investors is a challenge; however, the survey noted that more local corporations are gearing up to invest. Ayala Corporation, JG Summit, and Aboitiz Equity Ventures have all introduced venture capital arms to invest locally and abroad.
Encouraging investment is not always straightforward, and there is work to be done on an interpersonal level within management teams to solidify partnerships. A staggering 84% of investors reported they walked away from potential partnerships, predominantly due to a “mismatch of personalities with the management team”, closely followed by weaknesses in the management team.
A significant shift in challenges has also been from that of regulatory concerns to business concerns such as market readiness and talent acquisition. In the 2017 survey, many of the startups cited software development as the top skill of founding members, however, in 2020, entrepreneurship, project management and sales skills topped the list, proving the shift to a business focus is what is needed.
Can the Philippines startup ecosystem look forward to a successful and profitable future as startups begin to mature? There are certainly signs that point to a bright future. The favourable regulatory changes, startups’ willingness to work together as a community, support from the private sector, and the success of the Fintech startups, in particular, are encouraging developments. Enveloped in a country with a young population, and a growing middle class, all of whom are rapidly adopting technology, the Philippines startup ecosystem looks set to scale.