The Philippines could be South-east Asia's startup dark horse

As published by: The Business Times


DAN Siazon has been investing in Philippine startups for over a decade, and by now he sees the country’s tech scene as a Cinderella of sorts.


“We’re the ones that get ignored,” said Siazon, senior vice-president of investments at Globe Telecom’s Kickstart Ventures, one of the Philippines’ most active startup backers.


For years, investors have flocked to Indonesia and Singapore to tap the meteoric rise in tech activity. Both markets – one a natural financing hub and the other home to a massive population – took the lion’s share of deals and overshadowed the rest of South-east Asia.


Not anymore. The Philippines is seeing an upward trajectory of deal activity driven by later-stage funding rounds and ramped-up interest from foreign heavyweights like KKR, Andreessen Horowitz and Tencent.


It recorded 18 deals in Q1 this year, more than double the 8 in Q1 2021 and higher than the 17 in the preceding quarter, according to a DealstreetAsia report. Total deal value in 2021 was double that in 2020, and research from VC firm Cento Ventures showed South-east Asia’s share of funding from the Philippines has steadily risen.


Tech unicorns, the highly coveted startups with a price tag of over US$1 billion, are beginning to emerge. Fintech player Voyager Innovations recently became the Philippines’ second unicorn when it announced a raise of US$210 million led by SIG Venture Capital. Payments app Mynt was valued at over US$1 billion in end-2021.


Often dubbed the “social media capital of the world”, the Philippines reaped the benefits of the surge in tech usage during the pandemic. It also evolved into a Web3 consumer hotspot overnight, which ranked the population among the world’s largest adopters of crypto and play-to-earn games.

All this bubbling activity is making investors take a closer look, with conglomerates, regional venture capitalists and foreign funds writing their first cheques or setting up a presence in the market. Funds linked to wealthy business families such as the Gokongwei and Sy families have stepped up their activity.


“If you looked at the Philippine market 15 years ago, most of what you'd see are a handful of family-owned corporations that have built and developed the modern economy. As a startup back then, if you weren't backed by one of these families, you were much less likely to succeed locally,” said Victor Lim, co-founder of 2-year-old cloud kitchen operator The Kraver’s Group.


Things began to change when a handful of major global players took a chance on the Philippines as part of a larger South-east Asia strategy. Uber, Grab and Shopee, as well as Rocket Internet companies Lazada, Zalora and foodpanda, started operations in the market.


“These startups already had deep enough pockets to stand on their own two feet, and gave the Philippines a glimpse of what a true startup can do to disrupt the greater ecosystem,” said Lim.


A second generation of entrepreneurs is taking shape as well, as a handful of ex-founders and executives of the first batch of Philippine tech companies start their own ventures.


Former Grab Philippines president Brian Cu, for instance, is now running community group-buying startup SariSuki. Before he founded Kraver’s, Lim was an employee of Zalora and e-wallet startup Coins.ph.


Coins.ph’s journey was a particular bright spot for the ecosystem, said Siazon of Kickstart Ventures, an early backer of the crypto wallet operator. Gojek acquired the startup in 2019 in a rare exit deal, reportedly for US$72 million.


Those formerly with Coins.ph have gone on to found companies such as NFT rental marketplace Playdex, crypto savings platform Finblox and prominent play-to-earn gaming guild YGG.


Still, investors aren’t rushing into the Philippines. Many prefer to test the waters and often lack the experience needed to do thorough due diligence and set valuations.


“A lot of investors from outside are very uncomfortable leading transactions in the Philippines, and that puts the local private equity firms or local investors at an unfair advantage,” said Akarsh Dhaiya, managing partner of corporate finance advisory firm Rocket Equities.


But the situation is shifting. “As bankers, what we always saw was that after getting a deal in the Philippines, we run around all over South-east Asia to find an investor. I'm not saying it has changed entirely, but more and more investors are opening shops and hiring people on the ground,” said Dhaiya.

Singapore-based Wavemaker Partners was an early backer of GrowSari, which helps small stores digitalise. The startup raised US$77.5 million in March, led by KKR.


“My partner Eric Manlunas and I were born and raised in the Philippines. I started my professional career there and built and sold a few businesses there. Understandably, we were more comfortable investing there than most other regional VCs,” said Wavemaker managing partner Paul Santos.


Santos said valuations of Philippine startups are still generally lower than their Singaporean, Indonesian and Vietnamese counterparts. “The only exception might be crypto companies. They exist in their own space and aren’t contextualised by being based in the Philippines.”


Even as more in the Philippines and elsewhere turn optimistic about the country’s startup scene, none are spared from the effects of the current market downturn.


“Predictably, most startups we interact with are trying to be more conservative with their burn in order to extend their runways,” said Raya Buensuceso, managing director of early-stage VC Kaya Founders.


That said, VCs have raised record levels of funding and could look to the Philippines’ budding ecosystem. The local government is keen on building the tech scene as well, with the passage of legislation such as the Innovative Startup Act.


“I believe that the most important driver is our people. A young, tech-savvy, and mobile-dependent population paired with an educated, English-speaking workforce is fertile breeding ground for new companies to set up shop and for the widespread adoption of new products,” said Buensuceso.


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