The once-overlooked Philippines market is starting to lure foreign VCs

Manila, Philippines. Photo: David Milmont/unsplash

After years of struggling to attract foreign venture capital investments, startups in the Philippines seem to have finally caught the attention of global tech investors.

In 2020, eight of the 13 venture capital deals in the Philippines with disclosed deal values were backed by foreign investors. This year, so far, 10 of the 19 venture investments saw participation from global VCs who seemed to be hunting for bargain deals.

Foreign VCs were also involved in $170 million worth of fundraisings in the past 21 months, proprietary data from DealStreetAsia – DATA VANTAGE shows.

In 2019, foreign VCs were involved in a mere 15 deals that raised a total of $25 million.

While the numbers are dwarfed by funding activity in Singapore and Indonesia — which accounted for 42.6% and 39.2%, respectively, of the $8.6 billion raised by Southeast Asia-based startups in 2020 — local startups and industry insiders all point to a growing interest in the Philippines’s promising, yet overlooked, market.

“There is much interest in the Philippines now, the market is superheating up!” Franco Varona, a managing partner at Foxmont Capital Partners, a domestic early-stage venture capital firm, told DealStreetAsia.

PH venture capital

The right ingredients

The Philippines has all the right ingredients to create a potentially successful startup, especially in the fintech and e-commerce space.

The current population of the archipelago is about 112 million and 70% remains unbanked. The country’s middle-class continues to grow and 70 million Filipinos are expected to be using smartphones by 2025.

Government incentives are also helping fire up interest in local startups. Before the pandemic, Philippine President Rodrigo Duterte signed into law a measure seeking to provide tax breaks and remove barriers to the founding of startup companies. The measure goes into the books as Republic Act No. 11337, or the Innovative Startup Act.

Ramon D Escueta, a director at the Philippine Chamber of Commerce and Industry, earlier told reporters that the new law sends a message to MSMEs and the whole world that “the Philippines is willing to adopt a culture of innovation and devote its resources to innovation that will make it competitive in the world markets”.

But attracting foreign investors has long been a struggle for local startups, who have drawn but a meagre share of the burgeoning venture capital dry powder in the region over the years. Failing to find the funds to fuel their growth, a huge majority of startups did not take off.

“Unfortunately, Filipino startups have failed because they were unable to secure funding — even worse, many aspiring entrepreneurs ended up foregoing their venture plans altogether,” Nichel Gaba, founder and CEO of cryptocurrency exchange Philippine Digital Asset Exchange (PDAX), told DealStreetAsia.

PDAX is among the growing number of local startups that have piqued the interest of overseas tech venture investors.

In August, the cryptocurrency exchange announced raising $12.5 million in a funding round backed by foreign investors including a UK-based venture capital firm, Hong Kong-listed fintech firm BC Group, and existing investors Ripple, Beenext Ventures, and CMT Digital.

“Most foreign VCs have always found the Philippines intriguing. We have a large, young population with rising incomes and who are very receptive to new technology. However, it’s also a challenging market for startups to emerge and flourish,” Gaba said.

Pandemic push

The global pandemic has been responsible for showcasing the potential of the Philippines market. As Filipinos endured a 3.5-month lockdown last year, people had to learn how to transact online.

“The Philippines, all of a sudden, became a viable market for tech-enabled businesses,” Foxmont Capital’s Varona said.

PH Venture Capital

International investors have unique ways of looking at their markets, with some focused on B2C e-commerce, while others look at logistics and supply chains or at businesses that empower SMEs, according to Varona.

“The best part about the Philippines at this moment is that there are startups emerging to answer all types of Philippine challenges. Anything that empowers the Filipino vis-a-vis the internet is extremely promising at the moment,” he added.

For instance, Tonik, the recently launched first neobank in the Philippines that targets the huge unbanked population, raised a total of $38 million in its Series A and pre-Series B funding rounds.

Tonik’s foreign backers include Sequoia Capital India, Insignia Ventures, Altara Ventures, iGlobe Partners, Credence Partners, and Point72 Ventures, among others.

The first half of 2021 also saw three startups raising Series B rounds — Kumu, Great Deals, GrowSari — cornering $75 million in aggregate.

Kumu, a live streaming app, raised $15 million in its Series B funding round backed by ByteDance investor SIG and Temasek-backed Openspace Ventures. Great Deals E-commerce Corp, an e-commerce enabler, raised $30 million in Series B funding backed by PE major CVC Capital Partners.

E-commerce platform GrowSari raised a total of $30 million in funding from foreign investors Wavemaker Partners, Pavilion Capital, Saison Capital, Tencent Holdings, IFC, and a host of local VCs.

Bringing more than money

Overseas VCs bring valuable experience from seeing similar companies in other parts of the world scale up. They can help accelerate the growth of local startups, and provide access to valuable resources — not just cash, but advisors, team members, etc., said Joan Cybil Yao, vice president of investments at Kickstart Ventures.

“They also provide funding in the tens or hundreds of millions, which few funds in the Philippines today can provide,” Yao added.

Overseas and local VCs can complement each other in building successful startups, she said.

“Growing a startup is a team effort: local and strategic investors strive to add value through local relationships and industry and regulatory know-how, while overseas VCs can provide a broader perspective and diverse networks,” according to Yao.

The entry of foreign venture investors in the Philippines also creates an effect on the entire ecosystem of all local founders, Foxmont’s Varona said. “We are firm believers in the concept that a rising tide lifts all ships… Knowledge gets passed on quickly here, and we are excited for that to continue with the entry of new investors,” he stressed.

Startups are also ecstatic.

“Hopefully, with more capital flowing into the country, we will see more promising startups emerge from the Philippines,” said Gaba of PDAX.

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.