Philippine startup community gains more ground in 2015, gears for drastic changes this 2016

The Philippine startup community reached several key milestones in 2015, and might be in for some drastic changes in 2016.

Local startup industry recieved new investments, experimented with new business models, recieved global recognitions, had new incubation hubs, and for the first time, a government policy focused on digital startups.

To have an authoritative account on how the Philippine startup community evolved in 2015 and learn about planned undertakings, DEALSTREETASIA exclusively interviewed the ICT Office of the Department of Science and Technology (DOST-ICTO), and investment and accelerator companies Kickstart Ventures Inc, IdeaSpace Foundation, Software PRoducts Incubation Group (Spring.ph), and Impact Hub Manila.

Startup community milestones in 2015

All interviewees were one in sharing that year 2015 has been a great year for the Philippine Startup ecosystem. They are DOST-ICTO deputy executive director Monchito Ibrahim, Kickstart president Minette Navarette, IdeaSpace executive director Diane Eustaquio, Spring.ph secretary director Arup Maity, and Impact Hub co-founder LizAn Kuster.

“Other than the growth in numbers and activity and interest around startups in the country, 2015 would be known for seeing some of the sizeable investments, listing perhaps if we can count Xurpas, buyouts and a good number starting to become ‘real’ business beyond startups,” Maity said.

Ibrahim said one of the significant achievements in the community was the launching last August of the country’s first ever Philippine Roadmap for Digital Startups, an outcome of the collaboration between the government and startup players intended to boost the startup ecosystem.

“We intend to have at least 50 Philippine startups each with minimum annual revenue of P10 million. DOST-ICTO provided funding for the development of the Philippine Roadmap for Digital Startups. The roadmap defines the role of the startup community players, academe, government, and funders,” Ibrahim said. “Foreign funders are beginning to support local startups. The Philippines has just been named by the The Entrepreneur magazine as one of the Top 3 emerging startup hubs in the world. The other three countries are Vietnam and Morocco.”

Also read: Philippine tech startup roadmap guns for 500 startups with $2b valuation by 2020

Navarrete, meanwhile, noted that some startups have launched themselves in the market with more clarity about the problem space that they are addressing, and target customers.

She said there was a rise of more FinTech (financial tech) startups, whether they are payment solutions for non-credit card holders, or accessible short-tenor loans, or personal financial management. Also HealthTech and related initiatives, whether EMR or hospital/clinic management software, referral systems for medical professionals, or patient-physician data for pharmaceutical companies; then real estate marketplaces evolving beyond pure listings, and there was also mobility and transport-related solutions.

2015snapshot

“They (FinTech, HealthTech, real estate marketplaces) are not the most sophisticated applications of digital technology, but they reflect a better understanding of product-market needs, and have certainly gone beyond the first wave of me-too versions that most startup ecosystems seem to go through,” Navarrete said.

The Kickstart president added a number of startups that originated in the Philippines have gone on to expand to overseas operations. Like in the Kickstart portfolio, it saw Lenddo test North, Central and South America, as well as expand to Indonesia and India, while mClinica expanded to Vietnam and Indonesia.

Also read: Fintech will lead PH to a new digital payments landscape: John Bailon, Satoshi Citadel

Eustaquio of IdeaSpace said she was happy with the traction in the industry, and having encountered more interested government offices that got involved, like the Department of Trade and Industry (DTI).

“From our startups, year 2015 went very well. Ideaspace itself as an ecosystem builder was able to continue with another year of the program. We made P5 million in investments in 10 startups that we’ve chosen, and other startups got an involvement with angel investors,” Eustaquio said.

While Impact Hub Manila only began operations as startup accelerator in mid-2015, it found that more and more people are looking into entrepreneurship with different lenses that has allowed them to think beyond just starting a company to really creating solutions for the benefit of the world.

“Having had over 3,500 visitors in the past six months, we have witnessed an immense growth in the entrepreneurship community in the Philippines,” Kuster said. “We have seen a variety of people go through our doors, each out to make somewhat of a difference whether through their software they are developing, the products they are creating and the services they are offering.”

Also read: Impact Hub Manila, LBC Express award 3 startups for innovative ideas in mobility, logistics

Improved startup portfolio, investments, partnerships

Announcing last March a $50 million fund for strategic, growth-stage investments, it was Kickstart’s second and biggest one so far, and it has made two overseas investments. Its first was in Switch.co based in San Francisco, USA. It is an enterprise-grade unified communications platform company that develops and runs products like UberConference and Switch. The second investment was in Israel-based Teridion, a network optimisation and acceleration B2B company, that just emerged from stealth in October 2015.

“We expanded our Philippine portfolio. We invested in InnoVantage Inc,, LoanSolutions, Lifetrack Medical Systems and Squadzip and we’re thrilled to be working with the teams,” Navarrete addded.

For Spring.ph, Maity said they added few more startups to the portfolio of those they are helping. Although some faded out as expected, others became real business with cashflow. They are now focusing on those with higher chance of success by trying to connect them to opportunities and funding.

“In general for IdeaSpace, the invested companies are doing well, and for early-stage companies we’re pretty happy, from multi-natonal companies, ad agencies, to government agencies,” Eustaquio said. “It’s not only a factor beause of IdeaSpace but because of the increase of activities in the ecosystem we were able to forge more partnerhips. And they’re getting also to understand how to support the philippines.”

Also read: Philippines’ Kickstart Ventures scales up startup funding in emerging markets

Angel investors to the rescue

Navarrete said while the venture capital firms and incubators based in the Philippines have been virtually static in 2015, there has been some growth in the number of angel investors in the country.

“One thing that we have noticed, though, is the growing number of overseas investment firms coming to the Philippines to explore potential investment opportunities here. In many cases, these firms are investing at an earlier stage than they normally would have,” she said.

Navarrete added there was a growing number of branded co-working spaces in various cities, a boon to startups who would benefit not only from the available, affordable facilities, but also from the events held there, and the community of like minds that typically circulate in such co-working spaces.

Maity, Eustaquio, and Kuster also shared the same observation of the growth of angel investors.

“Yes it has increased substantially, still far from the fever pitch of cities like Bangalore, but quite a change over the last few years. If we can continue this and start showing some flagship successes we can expect very interesting results. Philippines is very strategically situated for startup success and hopefully the results would show soon,” Maity said.

Eustaquio said a number of traditional businessmen are getting involved in IdeaSpaces’ startup portfolio mostly into technology.

Kuster said the confidence that angel investors expressed further validated Impact Hub Mannila’s goal of creating a pipeline to ensure Philippine entrepreneurs are investment-ready.

Meanwhile, the country’s leading telco firm Philippine Long Distance Telephone Company (PLDT)  forayed into the investment business by launching PLDT Capital last September with $50 million investment fund. The goal is to tie up with global startup ecosystems. It has so far invested in three foreign startups: $10 million in US-based tech firm Phunware to extend digital services in Southeast Asia, $5 million in Singapore-based Ecommerce startup Paywhere, and $1 million in US­based mobile fans app developer Hopscotch.

Also read: Philippine SMEs becoming startup investors, says IdeaSpace

More incubation hubs born

There were also more startup activities in 2015 than in the previous year and new incubation hubs of different types were also launched such as the first Innovation Hub, and first ICT business incubator hub called Palawan International (ICT) Business incubator Start-up Hub or Palawan ITBI.

Patterned after tech hub districts like Block 71 in Singapore, and MaGIC in Malaysia, the Philippines’ Innovation Hub was launched last July led by IdeaSpace and some government departments. It is the first-ever public-private partnership (PPP) in the Philippines. It received a P35 million grant from DOST for equipment and operation of two Innovation Hubs over the next two years in Intramuros, and in UP Diliman.

Also read: Modelled on Block 71 & MaGIC, PH launches first Innovation Hub

And then last December, the first ICT incubator hub the Palawan ITBI was launched meant to help local technopreneurs develop their ideas and products in world-class levels. It is a collaboration among DOST-Mimaropa, Palawan State University (PSU), Palaweño ICT Association (PICTA), and MAD Incubator of Malaysia.

But prior to all new startup hub launches, leading high-impact entrepreneurship movement Endeavor, made the Philippines last January 2015 as its third Southeast Asian country affiliate.

Yet year 2015 also saw the creation of a new local and overseas annual startup conference called SlingshotMNL, meant to get the small businesses in the front and center of global and regional trade. It also debuted last July led by the government, local startup community, and Asia-Pacific Economic Cooperation (APEC).

Also read: Philippine govt launches first global ICT biz incubator hub

More startup events

In the event space, Ibrahim shared entries to the Ideaspace Startup Competition and the Philippine Startup Challenge DOST-ICTO and PSIA (Philippine Software Industry Association) have more than doubled with more entries coming from the regions, and Startup Workshops, and Lean Startup 101 Bootcamps were held in six cities.

“DOST-ICTO conducted the first Alpha Startup Bootcamp in Cebu in collaboration with 1337 Ventures of Malaysia and funded the participation of the Philippine team to the International Olympiad on Informatics held in Kasakhstan where it garnered a bronze medal,” Ibrahim said.

The Geeks on a Beach, the Philippine international event for tech startups held its third-year run in August, the biggest attendance yet with about 400 participants both foreign and local.

DOST-ICTO also contnued to financially support the PSIA Launchpad, Founders Institute and Startup Week/Weekends initiatives.

“Startup events are not just focused in Metro Manila and Cebu anymore. Startup Weekends were done in Pangasinan, Cagayan de Oro and Dumaguete,” Ibrahim said.

Also read: Malaysian accelerator 1337 Ventures invests in 3 PH startups

Drastic changes to be made

Navarrete said the Philippines indeed is still playing catch up in having a healthy startup community like in Singapore, and India, but experiences in the field has identified the problems which call for a better policy environment, one that recognises and supports the growth of a digital economy in the country.

Navarette stressed the Philippines has yet to achieve three significant milestones ― “a critical mass of significant exits, category leaders at a global or even regional scale, and sustained profitable growth or at least sustainable monetisation.”

“The government and the private sector need to understand that digital startups are not the same as micro- small- and medium enterprises (MSMEs), and putting them in this classification misses the unique role of digital startups as innovation drivers, and not just small businesses,” she said.

“We need simpler processes for startups to deal with the bureaucracy ― registration and de-registration with the Securities and Exchange Commission (SEC) for example; or securing permits from the local government units (LGUs) as well as with SSS, BIR, etc. The startup community appreciates all the work done by the various public and private sector organisations working with the National Competitiveness Council (NCC), especially with respect to the ease of doing business. The simplification of business registration announced by the DTI in June 2015 is a good start; and we look forward to more improvements to get the Philippines to world class,” Navarrete said.

Eustaquio, however, believes that local crowdfunding could offer a lot of opportunity in the startup community for 2016. Yet she and Maity both shared the same sentiment that startups should not fall into the pit of raising money and not really building good products.

“We need to encourage the startups to go beyond the hype phase and look at their business as something that is suppose to feed them and generate value for their users, not just an idea to pedal around to VCs and friends, hoping for some magic exit,” Maity said. “We need the numbers, all activity that helps generate more numbers of startup is great to have, both encouraging local startups and inviting new ones coming from outside the country to tap its potentials.”

Navarrete also stressed improving the scope of visa residency is a vital factor that could propel further the startup ecosystem.

“We need entry, exit, and visa, residency and permit policies that recognise that certain types of people are key startup ecosystem members – founders, investors, mentors, talent, media. These individuals should be welcomed into the country even if they might be more entrepreneurial, self-employed rather than institutionally-employed,” Navarrete said. “Today, our visa and residency processes are not well understood by foreigners, and there is a pervading belief that it is difficult for founders to set up and get permits to stay and work on their own business in the Philippines. And while the SIRV works well for larger investors, its requirements are too large for digital startups.”

Aside from improving policy coherence, Navarrete added there should be clarity around the investments negative list, easing up of restrictions on investments and capital, and tax systems that incentivise startups.

“The Competition Law that was passed in 2015 was a good start. We look forward to a more specific Startup Law in 2016,” she said.

Also Read: 

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