After acquiring four companies in four months since its initial public offering (IPO) in the Philippines last December, tech startup Xurpas Inc, is in for more investments both onshore and offshore.
Besides raising $30.4 million (P1.37 billion) in its IPO debut, Xurpas ended 2014 with a 60 per cent growth in net income. It has so far spent $6.7 million on four consecutive company acquisitions and investments in game development studios, content creators, and distributors.
“We really want to blanket Southeast Asia,” said Xurpas president and CEO and co-founder Nix Nolledo, in an interaction with DEALSTREETASIA, even as he recalled his startup firm’s humble beginnings as a commercial technology company that later became the first listed startup in the Philippines.
Nolledo shared Xurpas’ plans regarding the spending of the raised funds, the company culture, and his own opinion as an angel investor on what the local startup community needs in order to attract more investors.
After the company’s 21.7 per cent ($740,800) stake purchase in Singapore company Altitude Games in December, Xurpas invested in three more companies in the first quarter of 2015. These include buying of a 49 per cent of PT Sembilan Digital Investama (SDI), which is the owner of Indonesian mobile content company PT Ninelives Interactive; 51 per cent stake in Storm Flex Systems Inc; and most recently a 31.52 per cent stake in MatchMe Pte Ltd (MatchMe), a Singapore-based mobile and web tournament games platform.
What is Xurpas and how did the idea come to life?
Xurpas is an e-commerce company focused basically on digital goods, now moving on to physical goods. It started in November 2001. That time there were six million cellphones, two million PCs in the country and the cost of acquiring a cellphone was cheaper than the PC. There were two drivers of Internet access, the cost of access and the cost of the device that can access the Internet. You can’t sell toothpaste without people having toothbrushes, therefore in an emerging market like the Philippines, the future is mobile. There is always two core services of the cellphone, calling and texting. Send the message over the network, download a sticker, play a game. So it’s e-commerce for digital goods.
Could you share your company’s journey?
We’ll hit our 14th year by November of this year. We started the business with P62,500, the minimum required by the Securities and Exchange Commission (SEC). We didn’t raised money at that time. It’s not that we didn’t want to, there was just no options. We didn’t have any physical assets and so it was really hard to provide collateral to get a loan. The marketing venture capital system was hardly there. Today, you have the telcos, a lot of angel investors, private institutions starting to pour funding in technology startups. Fourteen years ago that kind of system did not exist. So our business is a B2B to B2C business model.
Also read: Xurpas acquires Indonesian tech firm SDI
We worked with the telecom companies to sell digital goods to consumers. We were very patient. We make sure that our capital will be preserved until revenues would start coming in. We didn’t raise our salaries. And none of us had families, so we lived at home and did not need to pay any rent. Our lunches came from our homes as “baons” (food supply or allowance) and thankfully there weren’t too many coffee shops back then to spend on, so we were able to raise the capital.
We took our computers from home to bring it to the office, my father’s tiny apartment. There was no CAPEX to buy laptops, PCs. So just grit, guts and perseverance, and managing expenses.
Once we started getting connections directly from the telecom operators, revenue traction happens and we started hiring people and expanded our portfolio content and then we stared doing mobile marketing services to a lot of brands.
The last four or five years, there was really an inflection point reached when the number of Internet users in the Philippines grew 400 per cent or more. That’s when the business really started to take off. And then we started to expand beyond our shores and did an IPO on December of last year. Since then we have made major investments in the four companies in the region. Prior to that, we never raised money, no VCs, angel investors. But now it’s the whole public. Now we have hundreds of investors, from institutions to individuals.
How do you intend to use the funds?
It is mostly about expanding the reach of our content. How to open up in different markets for our business. We really want to blanket Southeast Asia. The second one is content. So MatchMe is perfect for emerging markets where Internet speeds tend to be slower but MatchMe can deliver a very fast gaming experience. And we are always on a look out for exciting new investments.
So are you just focused investing in tech companies?
Technology is really our industry. I can’t see a scenario asking why we did not invested in a non-tech company. I’m not saying we would never. But right now technology is our space.
How much do you spend on research and development?
We are 85 in total at Xurpas and 65 of us are engineers or in the software and computer science. That part of our salaries is pretty much the R&D. We don’t really have a separate R&D as an individual bucket on our budgeting system. But at the same time, if we find a very interesting technology we will not hesitate to invest in that technology or company. We’re not only dependent on our engineers’ abilities to develop a product or any service. The products are sourced in-house. Some of them will be built, some will be partnered, and some will be through acquisition or investment. Holistically, it’s about how we find the best product to deliver to our customers.
How is the company culture at Xurpas?
First is we’re very good in managing capital and expenses. Not having to raise money for the last 13 years prior to our IPO, we are very, very careful to make sure we don’t unnecessarily deploy our sources in a way that is not consistent with our long term plans. Second will be, a very disciplined approach to product development. Third is that there’s a lot of trust and respect among the key stakeholders of the company. When we decide to enter into something, there’s a lot of healthy debate, but at the end of the day the person who is spearheading the product line or project is allowed to do the experiment.
What do you think of the startup space in the Philippines?
It’s growing. The telcos are obviously the main drivers of venture capital. We’re starting to see bigger names (VC firms) coming into the market looking for opportunities. There are a lot of great promising startups showing traction headed by very bright and persevering entrepreneurs.
I think it’s a big advantage that we have 44 million Internet users in the Philippines. Average age is 23.5. And we speak English and so a lot of western content don’t need much localisation. At the same time, we’re ethnically Southeast Asian. So we still have that space. But I think the Philippines is a very strong launchpad. I think most of the startups should have the perspective of building a global enterprise and not limiting their operations just to this market.
Being an angel investor yourself, what are the things that you look forward to in a startup?
That startups execute, and are able to learn from their mistakes. When times are hard, they persevere. There are certain management skills that a younger startup founder might not necessarily have and for a mentorship perspective we’re able to provide additional value aside from providing capital, such as hiring, growth hacking, customer acquisition, operations, and marketing.
What’s the effective pitching strategy for you?
It really depends on what stage the startup is in. Typically there are four stages that investors go through. The first one, the seed stage, where the investor takes a product risk. Can the startup founder deliver the product that they promised? Second stage is customer risk. Meaning, are there customers that really like the product? The third stage is business model risk. Can the startup monetize the customers who like or use their products? And the fourth stage is what you call scale risk. Can they grow from 10,000 users to a million users?
What type of mindset do you think every startup founder should have?
Coaching ability, visionary, resiliency, a daily proven track record, and has the humility to listen to his teammates, to understand that there are certain skills that may be absent in the group. Hard worker and trust worthy.
But at least, the ones I noticed that have gotten a lot of investments are those that show a lot of traction. It’s really different when a founder approaches you and says “I have an idea” versus “I had 10,000 paying
customers in three months.” Very different!
How do you think the Philippine startup community can attract more investors?
Hopefully Xurpas is stepping in the right direction. It has somehow created recognition in the Philippines that a consumer technology company has been able to list [in the stock exchange]. The best way to attract VCs is to prove you have a winning product and a lot of traction. Performance. No amount of PR or marketing will drive the VCs here unless there is substance to the products and stories of the startups. So success drives more success.