Local startup ecosystem ranks 53rd in the world, up 17 places from three years ago
By Patricia B. Mirasol
The first half of 2020 saw total investments in Philippine startups reach an estimated $183.8 million, a 384% increase from the 2019 year-round estimated value of $37.9 million, according to the Philippine Venture Capital Report released by Foxmont Capital Partners, a venture capital fund.
The first half of 2020 raised this record capital with a little over half the number of deals (14) versus the same period last year (24), the report added.
Fintech, information technology (IT) and software, and transport and logistics grabbed the most investment capital, with COVID-19 accelerating growth of the top sector. Fintech has transaction values forecasted to increase by 24% at the end of 2020.
The Philippine startup ecosystem currently ranks at 53rd in the world—17 positions up from its ranking three years ago. It has more than 400 startups, 50 angel investors, 40 venture capitalists, and 35 incubators and accelerators.
The fintech sector accounted for over 80% of the total announced invested capital in startups, signaling a pivot from traditional financial services toward tech-driven platforms. The report noted the Philippines’ strong English language skills and its established outsourcing industries as creating a favorable environment for these startups.
IT and software is the second biggest startup sector, accounting for 8% of total deal value for the same period. Most of the IT and software activities related to telecommunications and business-to-business (B2B) software development as corporate entities opened up to technology that startups built. Transport and logistics comes in third, comprising 3% of the total deal value. Investment activity in this sector is driven by rising e-commerce demands—a sector with 2% of total deal value.
E-commerce gross merchandise value (or the total value of merchandise sold over a period of time through a customer-to-customer exchange site) is projected to reach $12 billion by 2025, on track to becoming one of the fastest-growing sectors in Southeast Asia.
Despite the spread of COVID-19 in the Philippines, the report said that the country’s startup activity matured in a short period of time due to access to more mentors, the entry of new funds and investors, and the rising number of successes.
CHALLENGES TO A PROMISING FUTURE
This year’s Philippine Startup Survey revealed that both founders and investors expect a promising future. Ninety-six percent of founders are confident about their prospects for revenue growth over the next two years, with 95% aiming to enter new territories in the next five years.
Seventy-eight percent of investors, meanwhile, are confident about their prospects for revenue growth over the next two years, with 73% wanting to inject up to $5 million in Philippine startups in the next three years.
“Today, capital is not only flowing into businesses with the purpose of regional expansion—it’s pouring into original ideas and energetic founders,” Franco Varona, managing partner of Foxmont Capital Partners, said in a statement. “It’s an exciting time to be a problem solver in the Philippines.”
To capitalize on future prospects, the country needs to overcome a set of challenges, among them a lack of external funding and a scarcity of initiatives to boost startups in the growth stage toward becoming unicorns (as the majority of support systems such as government legislation and incubators are focused on early-stage efforts).
Promising startups remain under the radar of offshore capital, the report added. Further challenges include the need to match the technical talent pool of neighboring regions like Singapore, traditional career aspirations hindering entrepreneurship, and the persistence of brain drain.