The Philippine startup ecosystem is on the rise, as the country's ranking jumped to 53rd across the globe in 2020, advancing by 17 positions from its rank in 2017 with a large majority confident of revenue growth, according to a venture capital ecosystem study.
The Philippine Venture Capital Report recently released by Foxmont Capital Partners discussed the local venture capital ecosystem. It is one of the first to focus on deal activity in the Philippines.
The venture capital fund firm reports that total investments into startups reached an estimated $183.8 million in the first half of 2020 alone, a whopping 384% increase from the 2019 year-round estimated value of $37.9 million.
The first half 2020 raised record capital with just a little over half the number of deals versus the same period last year—14 and 24, respectively, it said.
The study also showed that 96 percent of startup founders are confident about revenue growth prospects over the next two years while 95 percent are planning top enter into strategic partnerships in the next 12 months, and 95 percent aiming to enter new territories in the next five years.
The industry has also been seeing increasing maturity with the smallest funding rounds, from accelerators and incubators to early-stage funding, contributing more and more to the Philippine total. Whereas in 2018, these rounds in aggregate make up only 12 percent of funds raised, it has gone up to 86 percent of total funds raised in 2019, and to 26 percent of the total in the first half of 2020. The venture capital industry in the Philippines remains relatively small but is remarkably poised for growth across the board
The study also revealed that e-commerce shows promise with e-commerce gross merchandize value projected to reach $12 billion by 2025, on track to becoming the fastest growing in southeast Asia.
Despite the COVID-19, the study noted that the first half of 2020 records $51.8 million in early stage of funding, higher than full-year 2019 of $37.9 million, with fintech, IT and software, and transport and logistics as leading sectors. There has been significant activity that’s been rarely seen before in the Philippines.
Impact of COVID-19 accelerates growth in fintech, with transaction values forecasted to increase by 24 percent at the end of 2020.
As more people turn to online transactions including shopping & bills payment, especially during the lockdown, Fintech sector accounted for over 80% of the total announced invested capital in startups. IT & Software and Transport and Logistics are also seen to grow drastically in as compared to the previous years.
The study noted that Metro Manila ecosystem is valued at $1.6 billion by Startup Genome and ranked 36th for Startup Genome’s Top 100 Emerging Ecosystems.
Additionally, the Philippine ecosystem as a whole jumped 17 global positions from 70th in 2017 to 53rd in 2020.
Foxmont Capital further said that the Philippines is home to 400+ startups, 50+ angel investors, 40+ venture capitalists, and 35+ incubators and accelerators and has seen an estimated 47 known deals in 2019.
The Philippines also continues to experience an increasing level of startup activity across its regions.
Metro Manila, the country’s National Capital Region, recently joined Startup Blink’s 100 cities club to rank 88th among 1,000 cities across the globe and has advanced by an astonishing 830 positions from its rank in 2017.
Meanwhile, Cebu City and Cagayan de Oro located in Visayas and Mindanao, respectively, also made noteworthy developments in 2020 rankings.
Between 2018 and the first half of 2020, total investments into startups in the Philippines amounted to about $547M. Of these, venture capital investments totaled approximately $200M with significant average year-on-year growth.
In terms of startup deal value, the study showed that private equity funding takes up 63% of the total between 2018 to 1H2020, followed by Series A funding at 11%, and Seed funding at 9%.
It is interesting to note that private equity investments, though few and far between, contribute the bulk of invested capital because of the sheer size of each deal value. This explains why the year-on-year total investment values in the Philippines vary substantially.
Despite this, the Philippine startup ecosystem continues to mature with smaller rounds, from incubator to Series B, contributing an increasingly larger share to the overall result for the period. The Seed round, which is the largest round by deal count and third to private equity by deal value, has shown exceptional growth. From US$5.7 million in total value contributed in 2018, the Seed round has grown to $20.4 million in 2019 and to $24.0 million in the first half of 2020.
Seed investments went from contributing only 2% of total deal value in 2018 to 14% in the first half of 2020.
The Philippine startup ecosystem still remains in its nascent stages with 6 deals in the past three years accounting for nearly 80% of total startup funds raised.
This is expected to become less concentrated as the ecosystem matures and becomes witness to successful landmark exits.
The study noted Gojek’s investment into Coins.ph in January 2019, for example, is a noteworthy transaction setting a precedent which is believed to pave the way for more landmark exits to come.
Funds raised saw a spike in Q4 2018 and Q2 2020 because of private equity capital raised by Voyager Innovations in the amounts of $175.0 million and $120.0 million, respectively.
Despite the economic burden that COVID-19 has placed on this country and all others, the study said that startup activity in the Philippines has matured significantly in a very short period of time.
Just within the past three years, the study cited fund managers like Kickstart and JG DEV announced new funds from $250 million to $50 million respectively. It also cited the establishment of Venture Capital and Private Equity Association of the Philippines and the Manila Angel Investors Network.