Despite a slowdown in venture capital funds, the Philippines saw a record number of funding deals for the tech startups last year, making the country one of fastest growing startup ecosystems in the region, according to a report.

The Philippine Venture Capital Report 2024, unveiled Wednesday, March 20 by Boston Consulting Group and Foxmont Capital Partners, showed that the country saw a record year in terms of the number of deals or a 16 percent increase to 96 deals from 83 in 2022.

However, total funds raised by local startups posted a 14 percent drop last year due to smaller average deal size.  

Jelmer Ikink, general partner at Foxmont Capital Partners, explained that the 14 percent decline in funds raised was relatively modest, especially when compared to a decline of 62 percent in Southeast Asia, with Indonesia and Singapore feeling the largest drops at 68 percent and 73 percent, respectively. 

The decline was mostly attributable to a reduction in growth and buyout deals larger than $5 million (-34% year-on-year or YoY). In fact, there was a significant uptick in smaller-sized deals (+17% YoY), particularly those of $ 1-5 million (+25% YoY). 

While fintech and e-commerce remained among the top three sectors funded in 2023, B2B SaaS startups also received much interest and funding as well.  

In the Southeast Asia region, the report noted that the Philippines continued to take a larger share of the total funds raised. In 2023, the country secured a 13 percent share from seven percent of venture capital funds raised among Southeast Asia countries.  

Among the regional funds that made their maiden investments into the Philippines in 2023, include DSG Consumer Partners through their investment in Pickup Coffee and D2C makeup brand Colourette. Others include Softbank Ventures Asia, Cercano, GSR Ventures and ACA Investments through their investments in HR technology platform Sprout, and SKS Capital through their investment in e-commerce enabler Etaily.  

This, on top of the record high deal volume in 2023, underscores the sustained interest in Philippine startups, the report added. 

Ikink attributed the interest by funders in Philippine startups to three major factors: GDP growth, population, and median age. 

For instance, he said the Philippines had the highest GDP growth in 2023 at 5.6 percent among major nations in the region.

The country’s sustained fertility rates that are significantly above the global and regional averages have resulted in continued growth in population and the lowest median age in the region, the report said. 

The Philippine population continued to increase, although it has slowed down a bit, hitting 117.5 million in 2023 from 115.5 million in  2022. Its median age is 24.5 as against global average age of 30.   

“The Philippines’ young population has the potential to fuel the startup ecosystem,” the report added. 

The growth in entrepreneurship in the country could not have been made possible without government support.  

“Government support played an important role in nurturing this burgeoning ecosystem. Policies promoting digital literacy, easing barriers to doing business, and attracting foreign investment bolstered startup growth,” the report said. 

The report cited the passage of critical legislation such as the 2017 Free Internet Access in Public Places and the 2018 Ease of Doing Business Law that were complemented by the 2019 Philippine Innovation Act and the Innovative Startup Act, which provided grants, subsidies, and expedited processing for bureaucratic processes to startups.  

The culmination of these efforts is evident in the establishment of funds like the Startup Grant Fund and the NDC’s Startup Venture Fund, which provide crucial financial support to budding entrepreneurs. 

There are also 51.4 million estimated e-commerce users in the country last year fueling a robust $16 billion e-commerce market, which is expected to climb to $24 billion in 2025 and $60 billion in 2030.

With a maturing startup ecosystem in the country, Ikink said they see a thousand startups this year with existing ones ready for growth funding.

Anthony Oundjian, managing director and senior partner at Boston Consulting Group, said they are seeing second generation of startup founders. In fact, six out of ten are first time founders.

Bea Mantecon, head of community at Foxmont Capital Partners noted that the specific sectors that are gaining strong interest are agritech, considering the Philippine is an agriculture-based economy, and, cleantech that deals with environmental impact.