Phillippines — The Hidden Gem in the Startup Scene
The Startup Buddy has started expanding overseas. That is Singapore speak for growing to anywhere else but the main island. Through our collaboration with Golden Egg Check we were already active in Europe from the beginning and our online accelerator already has users from over 20 countries. But October last year we decided to make a dedicated push for it and went to Indonesia to do so. We started talks with multiple potential partners in different countries, one of them being John Calub in The Philippines.
John is a well-known business trainer and runs multiple companies like Success Mall. When we first met, he immediately recognized how an online accelerator provides great support and guide new founders in countries that don’t have the state-of-the-art logistics and eco-system that Singapore has. By leveraging on his network, we are now able to venture into the market overseas.
The idea behind The Startup Buddy is any founder anywhere, anytime should have access to the knowledge, resources, and support that any entrepreneur needs to get his startup off the ground
…and what better country to grow that concept than The Philippines?
As a result of our presence elsewhere, we are learning a lot about those markets. How business is done? What issues do founders run into? How to adapt our platform to that and of course, what are the fundraising challenges for both investors as well as entrepreneurs. So going forward I will write more articles about the different countries in South East Asia we are present in through our partners and things we have learned so far that I think interest the investors in our network.
Self-reliant entrepreneurs
I have now talked to some 15 entrepreneurs in different industries based in The Philippines. Not exactly a statistically relevant measurement, but substantially more than the zero I knew a year ago. What strikes me every time is the amount of traction in terms of users and revenue they typically have before they consider fundraising and the hands-on approach the founders take. Since there is not really a system of grants and the VC market is not developed yet, it is normal to build your business using your own sweat, tears and whatever resources you have. Bootstrapping is not cool, it is simply the way you start a business most of the time and it’s a model that worked for any traditional businesses and shops, so why not for a startup. Thanks to this the founders have a very practical approach to building their companies and try to run break even as soon as possible, also when they develop a new online platform or payments app.
Real live issues
The startups being built solve very real-world problems that need solving for a lot of people or companies. An interesting way to do this seems to be through sari-sari stores. There are an estimated 800,000 of these simple stores across the country and anyone with space and enough money to buy some initial supplies can operate a store like that. Combine this network together with over 67 million mostly mobile internet users, it makes Phillippines the 12th largest country on the internet and you get the potential for a lot of very agile new approaches for startups that skip a lot of development stages other countries went through.
Broken is normal
I am a Dutch guy living in Singapore. The evening news in both these countries will typically cover a 15-minute outage of either the MRT delays or National Service accidents, simply because it rarely happens and we have nothing more important to report. Coming late for your appointment is acceptable for this reason since you are not expected to keep that into consideration for your planning.
In The Philippines, it works the other way around. Basics like travel, internet connections, power and water supplies are not a given depending on the place you are in and reliability of any of these is another issue. It changes the approach to solving problems. A delivery or taxi service aims to have a lot of small locations in many places that will only serve the immediate 5 miles around it instead of having large trucks that can go long distances and being fuel efficient. Any internet service needs to be able to work with little data and it must also handle frequent interruptions (one of the reasons we started working on our Android app). When the inevitable does happen you can distinguish yourself by making this your trademark.
I recently spoke to the founder of Digipay, a mobile digital payments platform that lets you get a microloan, top up your phone data or mobile wallet. A few months back an internet interruption caused a few top ups for electricity and rent payments to not be properly processed. A few customers were impacted and instead of telling them it was not their fault which most companies would have done, they decided to cover the damage to the user and let them stay in a hotel for 2 nights expenses paid. This is so out of the ordinary for their type of businesses that those customers turned into ultra active ambassadors almost literally pushing new users on the platform, resulting in really fast growth a few months later. Having that different way of solving day-to-day issues for The Philippines is now actually saving them marketing investments for their growth.
Startup eco-system
E27 ranked The Philippines last in terms of the startup eco-system in comparison to the other larger ASEAN economies on all aspects. Bain&Company asked investment professionals in the region what the hottest market will be for 2018/19 outside Singapore. Unsurprisingly Indonesia took home almost half of the votes, The Philippines only 5%. On innovation, in general, The Philippines doesn’t seem to do great either. It finished 73rd out of 126 countries ranked for 2018, in the process dropping 11 places compared to the previous measure. In venture funding, E27 counted USD 304.2 million across 13 industry verticals with enterprise solutions, data & analytics and Fintech forming the top 3 areas of investment. In comparison, the same year Singapore registered 7.5 billion in investments and Indonesia.
Why lags The Philippines behind
I don’t know yet. If I did we would try to fix it through The Startup Buddy. I did already read and hear a few things that I think can be the cause and will make a big difference if they can be optimized.
First off, the startup eco-system in The Philippines supporting new entrepreneurs is still very small. PWC in “Off to a great start-The Philippine Startup Ecosystem” on page 41 mentioned 30+ co-workspaces and 20+ accelerators. I am fairly sure that is close to the eco-system gathered in Blk 71 and 79 excluding everywhere else in the city. This is relevant because people in The Philippines clearly are not less entrepreneurial as elsewhere. Look for example at the aforementioned 800,000 sari-sari stores that are mostly run and owned by the founders themselves. It has also been proven that the presence of successful startups leads to more successful startups. The new batch of entrepreneurs can learn from the experienced ones before them, improve on their learnings and make the jump from idea to traction quicker and better. I firmly believe there is no fundamental reason why there can not be as many good startups in The Philippines as there in other parts of ASEAN if a good support system in terms of knowledge, mentoring and funding comes to fruition.
A major driver for startup success is access to funding.
About 45% of startups worldwide never become sustainable due to funding related issues while well-funded startups do much better over time.
Currently, only a few professional investors are active on the ground in The Philippines. A lot of Asian VC’s name the country on their websites for investing, but only some have offices in Manila, Davao or elsewhere. PWC counted 20+ VC’s in its report about the startup ecosystem and another 30+ angel investors in 2017 to be precise. The rest of the investors operate from other places like Singapore, visit conferences and do their research online. Ambar Machfoedy of Rekanext recently invited his fellow investor colleagues to take a closer look at The Philippines and to try and understand it better instead flying in an out.
The Philippines is behind in most statistics to Indonesia, Malaysia and Vietnam but seems to follow a similar development in the adoption of internet, P2P economy and government promotion of the startup ecosystem. Because of this Google and Temasek concluded that indeed the country is behind in the pack but therefore has the “most headroom” for growth in the internet economy which most startups are in with ASEAN. In other words, if nothing happens to totally flip things up-side-down, the potential for startups success and equity investors in The Philippines should be higher in the longer run.
The startup eco-system has to go online
Yes, this is a 100% plug for The Startup Buddy. I firmly expect running more 3 months accelerators programs in a diverse, large and difficult to travel around country like The Philippines will not change the current startup eco-system traction any time soon. To kick start this you need to adapt to the country and entrepreneurs need to be able to leverage on their peers online. The same applies to investors. You can randomly travel around the 7500+ islands hoping to find the next unicorn. You will have fun and see an amazing country. But statistically speaking, the chances of you finding that great founder early in his or her early stages, are minimal. And isn’t that the whole point of using the internet for all other industries, not having to do that anymore?
Teach us!
That’s my first take on the startup ecosystem in The Philippines and how interesting it can potentially be for investors. I am sure in a year‘s time I will need to rewrite this article and be embarrassed by some of my statements or learnings. Please do let me (robin@investeur.co) or our team know what we should redact right away. Are you an investor, entrepreneur or just a randomly in startups interested individual with more experience and knowledge about The Philippines, we like to get in touch!
