Foxmont Capital Partners, a Philippine-based early-stage venture capital firm, is looking to make the first close of its second investment vehicle by the third quarter of this year.
The total corpus of the proposed fund is targeted to be $20 million, its managing partner Franco Varona told DealStreetAsia in an interview.
Going forward, the firm is looking to invest in the burgeoning technology startup ecosystem across the country that, per its own estimates, has over 400 startups, 50 angel investors, 40 venture capitalists, and 35 incubators and accelerators.
Foxmont Capital Partners has already secured commitments from the existing LPs of the first fund that raised $4 million in 2019.
The venture capitalist recently made headlines when it participated in the $15-million Series B funding round of Philippine-based live-streaming app Kumu, and led the $1.5-million seed funding round in local cloud kitchen startup Kraver’s Canteen.
Its other portfolio companies include edtech startup Edukasyon.ph, Podcast Network Asia, e-commerce firm etaily, and supply chain services provider Expedock.
Even as the Philippine startup ecosystem ranked 53rd in the world last year and trails behind its Southeast Asian neighbours in terms of deal volume, investors are increasingly betting big on opportunities emerging in the country.
Jesse Maxwell, another partner at Foxmont Capital and Grab Philippines’ first local investor, said the trajectory of the digital economy in the country has never been stronger.
“Coupled with a rapidly accelerating local start-up ecosystem led by entrepreneurial innovation and risk-taking never before seen in the country, Foxmont is in a great position to help unlock the true potential of Filipino startups,” Maxwell said separately.
The venture capitalist, established in 2018, has three general partners – Maxwell and Mark Kooijman being the other ones apart from Varona, who set up Grab in the Philippines.
With the new fund, Varona expects Foxmont Capital to wind up with 15 portfolio companies by mid-2021. So far, the firm has announced as many as seven investments in sectors such as digital media, edtech, F&B and cloud kitchen solutions, AI, and e-commerce solutions.
“We remain hopeful that our portfolio companies continue to grow exponentially, and look toward the next stage of all their startup journey,” Varona.
Edited excerpts from an interview with Varona:
What is your take on the burgeoning VC landscape in the Philippines? How has it changed over the years and what do you expect in the years ahead?
I see exponential growth in the coming years. We did start to track VC investments in 2020, through our inaugural Venture Capital Report. Just on a practical level, we see a marked difference between 2020 and 2021, as we do receive many more calls this year from our friends at foreign funds looking for potential investment opportunities in the Philippines.
I think that’s a clear sign of things to come, as foreign-based funds are beginning to realize what we’ve known for the past three years: that it will be soon time for Philippine startups to emerge onto the international scene.
Next year will see even more deal activity in the Philippines, as one or two local “champions” become internationally known. It is interesting to note that we’ve also seen regional funds hire more Filipino analysts this year – that alone should see more regional deal activity coming shortly.
On the startup side, we see much more activity in 2021. There are many more pandemic-born businesses this year. I think we will look back and see 2020 and 2021 as a boom in Philippine entrepreneurship.
What sectors are you currently focusing on and what would be the interesting trends for this year?
We are sector agnostic, and more region-specific. We recognize that the Philippines presents a wealth of opportunities and wants to focus specifically on empowering the Filipino entrepreneur.
Nowadays, we are seeing globally competitive Filipinos and foreigners that are choosing the Philippines as their preferred location to start their business. That said, we believe that addressing inherently Filipino challenges will give birth to strong startups.
We are keen to see strong startups emerge in the healthcare/medtech space, fintech, vertical e-commerce, social commerce, logistics, and insurance industries.
As one of the few PH-based VCs, what difficulties do you face in raising funds and getting liquidity?
As one of the pioneering independent VC firms in the country, we did encounter some familiar early challenges in fundraising.
The Philippine investment scene has historically been populated with angel investors and corporate venture capital firms. So, we first had to make sure that we explained our investment thesis and how we want to fund startups with the intent of unrestricted growth. Second, we did have to show our LPs that we are fully aligned with the fund and committed a large percentage of the first fund with our own commitments.
However, we are very fortunate to have LPs today that are very supportive of our investment strategy. What’s best is that they often help to build our startups through connections within their own businesses.
Could you throw some light on the country’s tech ecosystem? What are the key challenges?
The Philippines’ tech ecosystem is very young. Very few champions have emerged that are not backed by conglomerates. However, that is quickly changing and can be best symbolized by the country’s three Y-Combinator graduates this year (NextPay, Avion School, DashLabs.ai). Prior to this, we had only two YC grads in the history of the programme.
The key challenges previously are also what will determine the success of the ecosystem now: the digital infrastructure is just starting to catch up, government support is also just beginning to take hold this year, and now there is access to capital through Foxmont Capital, its domestic peers, and regional venture funds.
Based on recent funding deals, PH fintech startups are getting noticed by investors. What is your view on the trend?
In mid-2020, half of the entire Philippine population remained unbanked. But 10% of the country’s GDP remains to be foreign remittances from OFWs. How do we get those remittances to the right hands quickly? That alone is a huge gap that needs to be filled. Furthermore, it’s projected that over 75% of the population will have smartphones in the next three years. It makes sense to financially empower all those smartphone users now. Philippine regulators as well are showing signs of increasing support for Philippine fintech – establishing targets of percentage of transactions conducted digitally.
Markets like Singapore, Indonesia, and Vietnam are getting a lot of VC investments. Where does the Philippines stand? What do startups in the country lack to attract investors?
There was a big gap in the Philippine ecosystem previously – wherein entrepreneurs did not know where to go after raising [capital] from friends, family, and angels. Historically, the founders would have tried to approach some local corporate venture capital firms, or try their luck with regional firms. But then they would have been too early for those investors.
This gap is where I believe Foxmont fits is to be able to provide founders with capital. We can help in verifying startups and founders to corporate and regional venture capital funds, so that there’s a stronger level of trust built between early-stage founders and larger venture capital firms.
What is the status of your current fund? How much of the corpus has been deployed so far and what are your plans for exits?
The pandemic has truly shown a surge of high-quality founders and startups in the Philippines, and we will probably wind up with 15 portfolio companies by mid-2021. We remain hopeful that our portfolio companies continue to grow exponentially, and look toward the next stage of all their startup journey. We have announced seven investments to date, and expect to announce 7 or 8 more in the next 2 months. We are very excited about our portfolio, which includes digital media, edtech, F&B and cloud kitchen solutions, AI, and e-commerce solutions. We look forward to announcing investments in fintech, logistics, healthcare and fitness, and vertical e-commerce.
The Philippines has been heavily impacted by the pandemic in the region. Has it altered your investment thesis?
The pandemic has really shown the resilience of the Filipino. How, despite the most adverse conditions, people continue to work through it and find the best possible outcomes. We find that this is the case within the startup economy – that some of the best entrepreneurs and startups have actually been born of the pandemic.
Our entire population has been forced to digitally evolve, and it has fundamentally changed the way the Filipinos eat, watch media, buy and pay for items, and even exercise. We want to invest in all of them because these businesses represent the future of how Filipinos consume.
What made you invest in cloud kitchen startups – Kraver’s Canteen and Kumu?
In 2018, the Kumu founders sat in front of us, opened the app, gifted a live streamer and we were immediately marveled at how that live streamer squealed in joy at this simple gesture. That reaction on screen – along with the founders’ passion for their business – made us realize that Kumu was about to teach the Philippines a new way to consume media.
Kraver’s Canteen answers a very simple problem: how are Filipinos going to eat in the future? Filipinos love food, and constantly have changes in tastes and trends and – due to the rise of the middle class – have shown increasing interest in niche concepts.
Cloud kitchens – and the simple concept of having good food delivered within a very reasonable time – just makes sense considering our current state of lockdowns and our future state of heavy traffic.
Aside from fintech, what other sectors do you see will have the potential to attract investors?
Healthcare, social commerce, insurance, and logistics all come to mind.
How long do you think will it take for the Philippines to be able to produce its own tech unicorn?
I think it will be much shorter than many think, and I believe that the pieces are in place already for that to happen. What will be more interesting is the second and third unicorns. Because I believe that those will come in quick succession after the first. Once that first champion is identified, and a ‘mafia’ is formed around it, then the network effects will be massive. This mafia, which will provide mentorship, angel investments, or even start up their own companies, will create a significant influence on the startup economy in the Philippines. This, combined with increased local funding (from Foxmont and our domestic peers) and regional attention (and therefore foreign capital), will really kickstart the ecosystem and we will be able to identify and rally behind the champions very quickly.