Here’s How Philippine Startups Fund Their Product Development
I have been organizing meetups on product management here in Cebu. We visit startups in their offices, and we do a conference type event, where the company we visit share how they build software. These were the companies we visited:
Here’s my main takeaway: software development is a long and expensive game. Saastr says to budget at least 24 months to reach initial traction. Based on my data, a more realistic number for this part of the world is 36 to 60 months (3 to 5 years).
The first years would cost roughly the same as a small manufacturing business or a small real estate project. It is expensive because the worst outcome would be countless lines of useless code, not equipment or land you could sell at a loss. Failure for startups (businesses without established playbooks) is also more likely than ones with proven business models.
Despite all these, the call of software product development is irresistible to many entrepreneurs, because with software it costs practically zero time and money to replicate the value you create (aside from being creatively rewarding). Financially, software startups are the worst kind of business to fail with, and the best kind of business to succeed with.
Before I share how these startups funded their product development, let me list down the other important things I learned from these meetups.
- Great programmers are hard to find. Their salaries are ~2x vs a non-programmer with the same years of work experience and the same base talent. Competition for talent is tough. Salaries are rising fast. Most don’t care about equity; pay market salaries. Always be recruiting.
- CTO-level guys. I’ve only seen 3 variants: 1) You are one. 2) Your co-founder is one. 3) You could afford to hire one. Note that Clicklabs and engageSPARK had to import CTOs from abroad.
- The founder or a co-founder should manage the team and the product. If you have no experience in software dev, the tuition fee to reach level 1 is ~12 months of bloody hand-to-hand combat. Start with vanilla scrum. Experiment with the team (e.g., length of sprints, QA process, tools). Experienced devs help with work process and momentum. Expect attrition.
- Launching your product will take at least twice as long and twice as expensive as you expect
Here are some more notes and musings from those meetups:
While we are in the topic, here are to top product management posts I’ve read here in Medium:
So, how did these companies fund the development of their product? I have seen 3 playbooks:
- Do software development for other companies
- Go enterprise and build something with early revenue
- Use funds from a previous success
As examples of each playbook, let me share stories from the companies we have visited, plus others whose founders I have talked to.
1. Do software development for other companies
Sym.ph built a team of 25 through classic outsourced software development, growing their clients largely through word-of-mouth. Albert Padin leads the software dev. Dave Overton does the business dev. Since the beginning, their dream was to build their own products. At some point, they realized they needed to have folks dedicated to their internal projects to make this happen. They now have 6 developers who do this full time, funded by profits from projects for other companies.
Arup Maity and team built Blastasia, based in Manila, also through outsourced software development. After more than a decade of relative stability, they invested in building their own product, Xamun.
Eric Su was one of the first guys to raise some capital among this generation of Philippine startups. He got funding from Toivo Annus (Skype co-founder), Plug n Play and Kickstart. He built a team of 15 — possibly the best mobile dev team in PH. He has extended their runway indefinitely without further dilution by accepting mobile dev projects.
2. Go enterprise and build something with early revenue
This playbook seems to work best with founders who worked in large corporations.
Mike Martinez, for instance, worked in Microsoft Canada for 7 years. He then built a company doing a Business Intelligence services with Microsoft as the biggest client. A few years ago, he moved back to the Philippines and started 3AG. They began by building an ERP for one of the biggest fishing companies in the Philippines (with a Microsoft stack). From this project, 3AG has built Insight, an ERP software that competes in niche domains with unique business processes.
Similarly, Gian de la Rama worked in Fortune 500 multinationals in the Philippines like HP and Unilever before becoming an entrepreneur. His first company did some services for IT departments of large companies. This experience undoubtedly gave him the unique insights that led to the creation of Cogito. He and his co-founder Aldrich Abrogena self-funded and bootstrapped their way to early traction, with pretty impressive recurring revenue and retention. Last year, they raised a seed round from Kickstart.
3. Use a previous success as a springboard
Serial entrepreneurs say it never gets easier. It’s probably faster though after the first one. You can skip those early stages where your growth is cramped by lack of experience and lack of money.
Ravi Agrawal, for example, already had several exits (US tech companies) before starting engageSPARK with his co-founder Avner Mizrahi. He travelled throughout Asia to look for a place where he could build a non-profit tech company that aims for social impact. He chose to locate in Cebu. Read the story here. After a couple of years, Ravi and Avner have built a team and launched a product. Ravi funded the company.
Clicklabs has a similar story. JP Bisson, Diana Quartin and Jonathan Kennedy — the founders of Clicklabs — moved from America/Europe and built their team in Cebu. They had an explosive success in the early wild days of Facebook marketing. From this success, they grew from a company centered on online marketing and design, to now include software development. They built a couple of products before their extraordinary traction in the domains of loans (Loansolutions.ph) and real estate sales (Midash). They recently raised a seed round for Loansolutions from Kickstart, KK Ventures and John Dang of Zipmatch after reaching $100k in revenue.
In the context of Philippine families, success as springboards to new businesses can span across generations. Wesley Chiongbian of Mynimo, for instance, comes from a clan with several generations of successful entrepreneurs in Cebu. His team built the first version of their jobs board, and survived the two-year journey to profitability with the support of his family (and Cebu-style ultra-frugality). His entry into the employer side of his market also followed relationship-heavy and patient playbook of Cebuano B2B businesses.
Other Playbooks
That trio is of course just some arbitrary construct to divide this article neatly into a magic number. Reality is messier. Here are examples that don’t fit my categorization:
- Equity for CTO + tech team. Jeff Siy and Christian Blanquera partnered to build Galleon.ph. Jeff is a veteran of The Great Philippine Group Buying Wars of 2010–2012. Christian is like a super-CTO, whose company,Openovate Labs, acts like the technical team for startups.
- Classical fundraising. As far as I could tell, Kalibrr has had the best fundraising run among Philippine startups, getting funding from Kickstart, Y-Combinator and others. They have built several iterations of their talent matching solution.
- Continue to earn a salary. Lots of #StartupPH developers have their side projects. Sammy Delena, to give one example, built Uncoverbugs while holding a full-time software development job.
The startup journey seems to be all about clearing a series of hurdles:
- Finding product-market fit
- Creating a repeatable way to get customers
- Creating a repeatable way to create value (building your product)
- Scaling your company
I’m sure there are many ways to reach these milestones. The examples of our peers show us actual solutions that work in the Philippine context.
