Digitalization in the Philippines has accelerated steadily over the past two years, due to higher rates of internet usage and the effects of the COVID-19 pandemic. Filipinos have enthusiastically embraced a “new normal” driven by digital technology, with a reported 73 million internet users and a 24% growth rate in internet economy CAGR both in 2021.
Consumer demand for more efficient and advanced digital technology amidst COVID-19 lockdowns has led to an increase in awareness and the number of start-ups in the Philippines, particularly in the areas of fintech, e-commerce, and logistics. But with vaccination rates ramping up across the archipelago and the easing of pandemic restrictions, start-ups are now being challenged to create innovative solutions amidst an increasingly competitive landscape.
The Current Start-up Landscape
Start-ups are defined by the Philippines’ Department of Trade and Industry (DTI) as introducing “innovative products and creating new business models that address changing societal and market needs.” A report by venture capital firm the Gobi-Core Philippine Fund estimates that the number of start-ups in the Philippines has grown to 700 in 2021 from just 442 in 2019, with around 238 start-ups headquartered in the country’s National Capital Region.
When it comes to the breakdown of industries within the start-up ecosystem, Brett Zambarrano, a Manager from YCP Solidiance’s Manila office, offers his insight: “The ones that have already been growing—and I think this is a proven pattern in pretty much every country, at least in Southeast Asia—they usually start off with fintech, e-commerce, and logistics.”
The Gobi-Core report backs this up by referring to the three industries as the pillars of the start-up ecosystem, citing that the COVID-19 pandemic has significantly increased both consumer awareness and funding from several sources like incubators and foreign investors.
Zambarrano agrees, citing the rise of mobile wallets PayMaya and GCash (Mynt, its parent company, is the country’s only unicorn), and logistics provider Entrego—but also observes that the Philippine landscape offers immense opportunities for start-ups to create offshoots that build on these three spaces, especially as the country transitions out of stricter COVID-19 measures.
“The start-up space has infringed on entertainment in the Philippines. Kumu has been very interesting in that space,” he says, citing the social media and livestreaming platform that offers a “wallet” feature to allow users to pay for virtual gifts, an example being the platform’s partnership with local television network ABS-CBN that allows users to pay for votes for its Pinoy Big Brother reality program.
Aside from entertainment, Zambarrano sees immense potential in agritech start-ups. “As a country, we are focused on agriculture. I think soon before long, one of the big production conglomerates and a start-up might see some sort of collaboration in the future that might propel it.”
Helping Grow the Start-up System
Zambarrano also encourages budding founders and smaller start-ups to utilize the benefits of the Philippine government’s Innovative Startups Act.
The act, or RA 11337, is a partnership between DTI, the Department of Science and Technology (DOST), and the Department of Information and Communications (DICT) that “aims to strengthen, promote, and develop an innovative and entrepreneurial ecosystem and culture in the Philippines” via benefits, grants, and other support programs. Its central program is the creation of the Startup Venture Fund, which is valued at an initial PHP 250 million to finance start-up growth. Amidst slowdowns due to the pandemic, the government also launched the Startup Grant Fund Program, specifically aimed at funding start-ups providing economic solutions for pandemic-specific problems.
When it comes to outside funding, Zambarrano says that investors are uniquely attuned to the growth of the space and encourages start-up companies to not be afraid to reach out to larger investors and collaborators. “A lot of investors have shifted their investments from traditional investments to more tech, to more start-up,” he says. “Right now, it's a very opportune time—people are very interested in taking on start-ups, and investing in startups, and incubating startups. So if you're interested in building a start-up, or if you have a start-up idea, there will be people there who [can] help out and try to flesh it out.”
Recommendations for PH Start-ups
With the start-up space in the Philippines becoming more competitive, it can be difficult for smaller companies to stand out and find their niche, especially as consumer demands grow more complicated. Zambarrano has the following recommendations for potential start-up founders and even larger corporations to embark on success in the Philippine market:
- In creating a start-up idea, buck current trends and look at alternative spaces. “So many other industries have yet to see penetration from start-up and tech,” he says. Aside from entertainment and agritech, Zambarrano offers the case of blockchain start-up BreederDAO, an NFT generator that received Series A funding from US-based backers in early 2022.
- Build a name for your start-up by pitching partnerships with larger companies. “One of the hardest things for a start-up, especially a small one, is to acquire credibility. And one of the best ways to get that, aside from getting big investments or working under a well-regarded incubator, is by working with a reputable company in the Philippines.” He gives Kumu’s partnership with ABS-CBN as an example, which helped elevate the former into a household name.
- For larger businesses, look at working with start-ups to improve your existing solutions. “There's a lot of potential that hasn't been tapped. I do think businesses are in a good position to align their own business capabilities with the solution of a start-up. That would entail examining ‘What are the gaps where you can improve?’ and looking at the solutions out there to match it.”
Ultimately, the most important thing, Zambarrano says, is just to take that first step—whether it’s a start-up learning about a government grant, a large company entering a partnership with a new start-up, or a founder pitching an idea to investors. “It's very important to set a precedent, and that incentivizes every other player to do it. There's a lot of benefit to being the first to try and take on a new solution to something.”
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