On Entrepreneurship: Who Will Blink?

On Entrepreneurship is a column that I write for Forbes Magazine in the Philippines. I wrote the following for the July 2016 issue.

I was recently invited to an event hosted by Google and Temasek where they shared findings from probably the most extensive research project of its kind to map Southeast Asia’s e-conomy. Everyone knows who Google is. Temasek is Singapore’s $260B sovereign wealth fund.

The research focused on e-commerce (for first-hand goods), travel and digital media. They didn’t include areas like second-hand goods e-commerce, financial services, healthcare, online education and entertainment/videos. They only covered 6 countries in SEA — Indonesia, Philippines, Vietnam, Thailand, Malaysia and Singapore. They didn’t include the rest for now.

Here are some region-wide highlights:

- The SEA internet economy is expected to grow from about $30B in 2015 to about $200B in 2025.
- Online Travel (airlines, hotels, taxis) is currently the largest today and will continue to grow from $22B to $90B.
- e-commerce (apparel, electronics, household goods, food, groceries) will grow the fastest from $6B today to just under $90B.
- Digital Media (online advertising & games) will grow from $4B today to $20B.
- There are about 260M internet users in SEA today making it the fourth largest in the world after China (~700M), India (~350M) and the USA (~300M).
- SEA is adding 3.8M new internet users every month and total internet population will be close to 500M by 2020.

Here are some Philippine highlights:

- Online Travel in the Philippines will grow from $ 1.3B today to $6.3B in 2025. Indonesia will be the largest at $30B with Thailand second at $22B.
- e-commerce in the Philippines will grow from $500M today to $10B in 2025. It won’t be too far from second-placed Thailand at $11B, but quite a distance from Indonesia at $46B.
- Online advertising in the Philippines will grow from $100M to $1.5B in 2025. Indonesia will be at $2.7B and Thailand at $2.3B.

It doesn’t take a genius to see that there are tremendous opportunities to create value over the next decade. Of course there will be many challenges to overcome like internet infrastructure, logistics, payments and consumer trust.

However, it seems like the biggest challenges will be:

- Finding the talent to purse these opportunities and overcome these challenges.
- Finding the capital to support the talent.

1. Let’s start with talent.

There are about 7,000 technology startups in the region today. 80% of them are in Indonesia (2,033), Singapore (1,850) and Vietnam (1,541). The Philippines has only 385.

To be clear, this is not a reflection of Filipinos’ capabilities nor does it mean we should start building startups for the sake of building startups. Maybe it’s an indication of level of interest vs. our neighbours, but there is a gap that needs to be filled. We need company builders.

2. Let’s look at capital.

In 2015, about $1.1B of venture capital (VC) investments were made into 355 deals. 88% of the investment went to Singapore ($820M, 131 deals) and Indonesia ($188M, 96 deals). The Philippines had $28M across 28 deals.

Note however, that the lack of capital is not just a Philippine problem, but a regional problem as well. SEA lags the US, China and India in terms of VC invested as a % of GDP. Although India’s GDP ($2.1 Trillion) is lower than SEA’s ($2.4 Trillion), it invested about 0.25% in VC while SEA invested only 0.04%.

A major conclusion of the Google-Temasek study is that it will take about $40B-$50B of VC investment over the next 10 years to unlock the $200B opportunity. To achieve this, SEA will need to start growing its VC investment as % of GDP to eventually match India’s current rate of 0.25% of GDP.

Assuming the Philippine GDP is $280B, then the $28M invested in VC comes out to only 0.01%. In contrast, assuming Indonesia’s GDP is $870B, then their $190M in VC investments represents 0.02%.

It’s true that Indonesia is benefitting from very attractive macroeconomic factors, especially its young, upwardly mobile population of 250M so foreign investors are coming in droves. However, the biggest local investors aren’t sitting on the sidelines. Groups like Lippo, Sinar Mas, Emtek, Salim, Djarum and Kompas are finding different ways to actively participate in the growth of the Indonesian ecosystem. I think it’s fair to say that we aren’t exactly seeing the same activity in the Philippines yet.

Here’s my take. Historically, the impact of disruptive technology always takes longer than expected, but it’s always bigger than expected. Who will build the biggest tech companies in the Philippines in the coming years? Who will back them patiently and in a big way? Who will blink?