As published by: Esquire
The Philippines is fast becoming Southeast Asia’s darling for startups, as the global community sees the huge potential of the country as a new ocean of opportunities.
Investors now see the Philippines as the new hub for startup investments, Kaya Founders managing general partner Paulo Campos observes.
“We were just a bit of a frontier market, but now we’re entering the spotlight,” he tells Esquire Philippines in an interview. “We’re not just a big domestic market, but we’re really part of the global ecosystem.”
The interest from the global community was so pronounced that $1 billion in new capital was injected into Philippine startups in 2021, Campos says, citing the 2022 Philippine Venture Capital Report of Foxmont Capital Partners.
Among the big names in venture capital that made their first investment in the Philippines last year are Andreessen Horowitz (a16z), Tiger Global, and Sequoia.
“Investors now see that any successful venture in the Philippines can globalize and regionalize given how Filipinos are so cosmopolitan, plural, and plugged into the global economy,” Campos says.
Global players, he adds, are also smitten by the strength of the domestic market in high-growth areas like cryptocurrencies, Web 3.0, and decentralized finance (DeFi).
“Investors are now seeing the Philippines as leading and having leapfrogged in areas like crypto, Web 3.0, and DeFi,” Campos says. “So, the story is changing. We’re not just an interesting market, but we’re rather now trailblazing this move towards a more digital, metaverse-like world.”
Not polished diamonds, but kernels with the right ‘gene’
However, despite the strong demand from global venture capitalists, the Philippines has yet to unlock its full potential as a hub for anything and everything digital—especially in the early stages of building viable startups. While founders have great and groundbreaking ideas, they often find themselves struggling to implement projects due to a lack of funding, a lack of support, and a lack of experience.
This is where the likes of startup fund Kaya Founders come in. In a nutshell, Kaya Founders is an early-stage investor that funds promising early-stage startups while providing them with the right tools and know-how to survive and thrive from launch to their Series funding.
Kaya Founders’ support ranges from helping set up their businesses and being connected with the right people to getting access to a pool of talent and coaching.
“The way we think about Kaya is an ecosystem of founders supporting founders where we think of our role as being a catalyst for any founder or potential founder to make their mark in the Philippine tech landscape,” Campos explains.
As an ecosystem, Kaya Founders has a fund to invest in founders in the earliest stage. Think of funding rounds even before the pre-seed stage.
Campos notes that the early-stage investor is interested in startups in their nascency because its partners are also entrepreneurs, startup builders, and dreamers. Campos himself is the founder of Zalora, the pioneering online retail marketplace that is now celebrating its 10th anniversary.
“What differentiates us from other venture capitalists is that we come in very early,” he says about Kaya Founders. “Anyone can come to us with just an idea and the will and drive to become a founder. We want to be early in the journey to shape the destiny and success trajectory of a founder.”
When it makes its investment in a startup, Kaya Founders considers itself as an “institutional co-founder,” which essentially means that the fudners and principals will care for the business like an owner.
“We don’t look for polished gems or diamonds, but for the kernel or seed of what could be amazing. We back founders who we know would be successful because they have the founder gene, which is not just about your domain expertise, but also in your resolve, grit, will, and character,” Campos says.
The alchemy of building a risky venture
“Kaya Founders exists because we’re still at that stage, where we still need to nudge along that development of a pool of founders,” he adds. “There’s great opportunity, there’s great capital; what’s missing is there’s a dearth of VC-backable companies because of a gap in a lot of first-time founders or would-be founders who don’t know how to make the first step into entrepreneurship.”
This puts a lot of risk on Kaya Founders, given that startups with nothing but an idea could easily crash and burn.
But Campos says Kaya Founders is persistent and passionate about early-stage startups, because, while they carry a lot of risks, startups can also bring massive rewards should they succeed. The venture studio is so risk-tolerant that it is willing to invest in “high-potential founders” or those who have yet to realize that they could be startup leaders.
For Campos, there are four types of potential founders: a Sea Turtle, or an overseas Filipino tech talent looking to come home but just needs a “nudge” to become a founder; a Corporate-Executive-Turned-Entrepreneur, which is a person who can use their learning in the corporate world to build a startup; a Second-Generation Tech Talent, or an individual who has seen the scaling journey in tech in Southeast Asia; and Adopted Filipinos, who are expatriates who choose the Philippines as their stronghold.
“There’s a gap in the market for early-stage institutional investors,” Campos says. “Why do we take the risk? It’s because we believe in the creative power of founders. Like there’s some magic that can really happen with a talented person with the founder gene that is acting with the passion and fire of someone who really believes in what they’re doing—there’s magic there.”
He likened Kaya Founders to being the “alchemist” that brings all the magic elements of a founder’s idea together, while its funds will be the “fuel.”
“Identifying the right ingredients of what could be an amazing venture—I think there’s a particular value add that we can bring as entrepreneurs, operators, and builders ourselves,” Campos says.
Creative destruction to reach the Roarin’ 20s
Kaya Founders is interested in investing in startups that further digitalize e-commerce as well as those that disrupt critical services such as healthcare, education, climate, finance, labor, climate, and property, among others.
“There’s a huge upheaval in how we do things as consumers now and through this creative destruction we are going through—with all of the changes because of the pandemic—we see our job as helping to enable the 'creative' part of the creative destruction of the economy.”
In a sense, Kaya Founders would like a slice of almost all of the industries going through digital transformation.
“In the tech startup landscape, we are in the midst of the Roaring '20s that started with us being in the pandemic,” Campos explains. “And as we come out joyfully from the pandemic, we’ll see a real golden age now of the Philippine tech ecosystem, where you’ll have the next generation of Philippine companies born in the 2020s with the next great founders and leaders of our country.” The Roaring '20s refers to the period of prosperity that was first experienced in the Jazz Age in the U.S. in the 1920s.
Campos believes it is imperative for the Philippines to enable the next generation of founders and entrepreneurs to become successful, which is a mission that is front and center for Kaya Founders.
Still, there are a lot of barriers to entry for startups, such as the endless red tape in government permissions, licensing, and certifications. That is why some startups—Filipino-founded or otherwise—choose to set up shop in other countries that are more liberal in business registration and more open to a more seamless way of conducting business.
“We hope entrepreneurs don’t get discouraged by those challenges,” Campos says. “The fact that if we as a country can enable a whole generation of entrepreneurs—tech or otherwise—this is how we as a country can recover from the pandemic.”