Philippine SMEs becoming startup investors, says IdeaSpace

IdeaSpace Foundation president Earl Valencia

Technology startup incubator and accelerator IdeaSpace Foundation has observed a new investment trend in the Philippines — that of small and medium-size enterprises (SMEs) becoming startup investors.

IdeaSpace president Earl Valencia said there are a number of SMEs who are mulling an investment in startups, as an extension of their revenue source.

“If you rate it at the core expertise, I think the white knight, the people that will be in our [portfolio’s] next round of funding is not even large companies or venture capital firms, and not even angel investors. I think it could be small and medium size enterprises that are found or led that will invest in a startup as an extension for the revenue,” Valencia said.

In an interaction with DEALSTREETASIA, Valencia gave further details on the country’s investment climate, updates on IdeaSpace’s startup portfolio, the technology and business gaps worth solving, and also his personal advices to startup founders and investors.

IdeaSpace is the tech incubator and accelerator arm of the MVP Group of Companies founded three years ago and has grown its portfolio to 38 startups. Among its popular ones are SAlt, MobKard, ZipMatch, PinoyTravel, TimeFree, PortfolioMNL, among others.

Selected excerpts from the Interview:

What is IdeaSpace’s present status?

Our commitment fund is still around half a billion pesos ($11 million). For us really is how to get the startups from idea prototype into commercial end product. Our focus really is our acceleration program. When we take through our competition like 10 ideas out of the now thousand applicants, we give them a package, something like $25,000 to $30,000. But then we have a provision to co-invest after. Our intention is to have someone else to co-invest with us in the next round. So that is still our strategy and we also work now with the government to think about how to increase the capacity of the very early stage.

Also read: PH’s IdeaSpace awards top 10 teams of 2015 tech startup competition

How big is your startup portfolio right now?

Adding the 10 new ones, we have 38 investments. About 15 of them have commercial partnerships, and a number of them have revenue. Actually I focus more on companies that generate some sort of revenue rather than just investment next round. Because at the end of the day, we’re trying to build more sustainable enterprises.

Also read: IdeaSpace to incubate 23 new startups in PH

What are the latest investment deals?

We actually have two potential deals, MobKard is gonna be kind of invested with a digital advertising SME. That’s quite large. The other one SAlt is gonna be invested in by a hardware manufacturer. Now why? That’s because both investors think about how do I extend my product portfolio beyond what I have now. And both of them are SMEs, they are very large medium enterprises but still not the mega large ones like the top 500 Philippine corporations. That’s the white knight. The founder-led medium-size enterprise I think will be the best next round for our companies.

Also read: Philippine online realty ZipMatch raises $2.5m from Monk’s Hill Ventures & 500 Startups

Are you zeroing in a particular niche?

IdeaSpace has no niche. But the basis is science, technology, and innovation, and global potential. So even our top 10 now, eight are in hardware, six are Internet of Things (IoT). I didn’t dictate that but apparently that’s what people need and want. That’s what people think they can make an impact on people’s lives with these types if investments. So one of the things that we’re thinking of is how to support the hardware-based startups more in the country but really connect it with the digital life. And so hardware and digital combined together I think will be a powerful combination for the Philippines.

Also read: PH startup MobKard eyes Asia expansion

What do you think of the investment space in the Philippines?

I think the investment space for the early stage is still not that ideal, honestly. We still need to stimulate people who take risks at the early stage. I think there is money if you go when there’s already revenue for the company. More people will get interested and understand the business. But if it’s pre-revenue and even pre-profit, people kind of get scared. I think we need more adventure capital. I like that word rather than just pure play venture capital.

Also read: 2GoTravel taps PH startup PinoyTravel

Does IdeaSpace contribute to R&D?

We don’t do R&D ourselves but we’ve kind of stimulate R&D. That’s why we’re working now with a lot of universities, university presidents to think about how can their research be commercialized. We’re teaching them how to talk the industry, how to spin off companies. I know PLDT does some and Voyager too but that’s more of the D and not R. So the R can really come from the industry, in fact the DOST (Department of Science and Technology). Our partners actually with the DOST to think about how to potentially commercialized the ideas in the portfolio of DOST.

Also read: SALt wins People’s Choice award at SNS

What do you think are the tech challenges and gaps worth solving here in the Philippines?

We have to think about how can both hardware and software solve exactly gaps in the Philippines and I think there are still large gaps like how to modernize agriculture, access to healthcare in the provinces. Large gaps on how to not just prepare but react to disasters. And even for a retail perspective, how can we get more smart about retail? There are so many malls but there’s still a lot to be done not just on Ecommerce but also on smarter analytics. How do you mirror the offline world and online world to get better information? So all those things have not been really focused on and I think we must make sure we can be good at it because someone else will figure it out. In fact Singapore just announced they will focus on these types of innovations. We’re ahead. IdeaSpace has been investing three years ago in these innovations and we can’t lose our edge.

Also read: TimeFree Innovations gaining more traction in eliminating queueing

How do you find starting up a business here in the Philippines?

I don’t wanna say it’s easy or also difficult. I know there’s a lot of government initiatives to do it. But I think people just need to figure it out. I think creating the product is the harder part. All these other things are important but the focus they should have is how to create a great product for a big need. If you don’t have a product and customers there’s no business.

Also read: PortfolioMNL launches digital hub for creative pros in PH

What do you think is the right mindset for startup founders?

Don’t just think about what’s the sexy industry. I think what you need to think about is what is the industry that needs disruption or easy to disrupt. Instead of crowding into one space, you can address an industry that is multi-billion and like only 10 of you are addressing it. That’s a very interesting situation right? So these are the areas you have to think of and not crowd yourself with what everybody else is doing. Yes, there have been successes in other places but then there are still normal, huge industries that hasn’t been changed for more than 50 years and those are the best types of industries to disrupt.

Also read: 5 Startup Ideas that won PH Challenge

What is your advice to startup investors?

Invest in companies that you feel strongly about. At the minimum you should understand the need for dissolving. That’s why in some of the SMEs or founders who have invested in our startups, they just understand the customer and they realize that the customer habits are changing. Some also realize that a specific type of technology can help the lives of the customers that they already have. So take advantage of that. I’m not telling people to invest in extremely risky assets but at least think about how their technology can help their customer and then invest in that customer that they are already familiar with.

Also read:

Philippines, APEC form new startup conference ‘SlingshotMNL’

5 USeP students awarded for mobile apps design in PH

Vizeum’s startup search program debuts in PH, eyes SG, AU

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.