Less than 20% PH startups have cash to sustain business for over a year: PwC survey

Manila Bay, Manila, Philippines. Photo: Eugenio Pastoral/unsplash

Cocotel, a Philippine-based travel tech startup that provides budget resort/hotel room accommodation in gateway destinations in the country, was en route to a $1-million pre-Series A funding with a Hong Kong investor.

The contract with the initial tranche was signed last March 15 and the team was ecstatic because summer, a peak season for the travel industry, was approaching, according to Rafael Jouwena, Cocotel’s co-founder and chief financial officer.

That was until the coronavirus of 2019 (COVID-19) pandemic crawled in, resulting in global lockdowns that have affected all industries, including travel and tourism where Cocotel operates.

“We had reached our fundraising target. We already signed the MOA and contract. When COVID-19 broke out, our investor decided to delay the funding indefinitely,” Jouwena told DealStreetAsia.

The coronavirus pandemic has shut down the startup’s partner resorts and hotels. Currently, resorts are still not allowed to open in the Philippines. This forced Cocotel to furlough 20 per cent of its employees and refund at least 5 million pesos ($100,000) to pre-booked customers.

“Our business is the most affected by COVID-19, worse than the airline industry. We lost potential sales of 10 million pesos ($200,000) per month during summer,” Jouwena added.

Cocotel is just one of the Philippine startups that have been threatened by the coronavirus pandemic. According to a survey conducted by PwC Philippines, together with tech startup incubator QBO and the Department of Trade and Industry, nearly half of respondents, all startup founders, said they feel threatened by the impact of the virus.

The survey was conducted among 90 startup founders from April 12 to 26, with the goal of understanding how the health crisis has impacted this specific sector, and what they need as the country loosens lockdown measures.

2020 Philippine Startup Survey: COVID Edition / PwC

About 89 per cent of the respondents founded their startups in the last six years and 80 per cent are engaged in B2B and B2C businesses.

The founders identified financial impact, potential global recession, funding difficulties, and decline in demand as their top five concerns during the pandemic, according to the report.

These prompted 51 per cent of startups to reduce their level of operations during the implementation of the enhanced community quarantine (ECQ), a situation where businesses, unless essential, are forced to shut down or implement work-from-home operations.

About 49 per cent of the startups have also started offering new products or services during the ECQ, while 36 per cent said they implemented cost reductions. Another 33 per cent said they deferred expansion plans.

“We were planning to complete our nationwide expansion this year to move to another country by next year but the lockdown has affected our sales and R&D and the overall operations,” said Dexter Baño Jr. founder and CEO of startup OrbitX, the first spacecraft company in the Philippines.

In a chat with DealStreetAsia, Baño said the company was raising Series A and had already approached major VCs abroad to fund its expansion and R&D. When the COVID-19 pandemic broke out, however, investors called off the possible funding.

That did not stop OrbitX from operating though. According to Baño, the startup has partnered with GM Calibre Transport Services to move parcels and supplies in and out of Metro Manila. The partnership also supplies PPEs 10 hospitals around Metro Manila.

“While COVID-19 is here, we will help in the distribution of PPEs by fueling cargo trucks with biofuels,” Baño said.

According to the PwC report, startups were optimistic that government support will help them normalize operations after the ECQ. According to the report, 64 per cent of startup founders believe at least 5 million pesos ($100,000) in additional funding will help them get back on their feet.

The funding would be used for working capital requirements, improve the company’s technology, hire additional employees, rehire employees that had to leave during the ECQ, refinance existing obligations, and for other purposes. About 64 per cent of founders said they will seek government grants or subsidies to meet their funding needs.

2020 Philippine Startup Survey: COVID Edition / PwC

Additionally, the founders said the government can help startups by providing loans with a longer grace period and relaxed credit requirements. Providing tax incentives, equity financing, wage subsidies, and assistance in accelerating fundraising activities, are also areas that the Philippine government can look into.

“Less than 20 per cent of the startups have enough cash and capacity to sustain the business for more than 12 months. They will need the government’s help in keeping their businesses,” the report showed.

Many fintech companies prefer government grants and equity financing. Ecommerce and travel startups will rely on government grants, equity financing, and bank loans while startups who will depend on private debt include those representing enterprise services, e-commerce, and fintech sectors.

On a positive note, 21 per cent of the respondents said COVID-19 is positively impacting their business and are experiencing increasing demand.

Most of the startup founders also feel capable of returning to normal operations within three months after the ECQ, with over 60 per cent of media and entertainment startups expect to recover the fastest at less than a month. Most of those in travel and hardware believe it will take as much as 12 months to normalize their business operations.

Jouwena, the co-founder of Cocotel, told DealStreetAsia that he is hoping to reopen the business over the next two months.

“We are lucky that our other business is in medical supplies, which is doing well during the pandemic. We have enough cash to survive and we are looking at reopening (Cocotel) in August,” he said.

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.