Ever wondered what happened to your favorite local shop? Did it close due to staffing shortages or limited growth potential? The small business landscape continues to expand, but the biggest challenge remains: longevity.

The Philippine Statistics Authority (PSA) reported over a million businesses in 2022, mostly micro, small, and medium enterprises (MSMEs). Organic growth is tough, but there are often-overlooked options in the Philippine market.

At the Business Manual Growth Con PH 2024, founders, leaders, and investors shared their journeys, discussed sustainability strategies, and highlighted the roles of angel investors and venture capitalists.

Angel investors vs. venture capitalists

Alewijn Ong, Assistant General Manager of the National Development Company (NDC), believes business investors are sometimes overlooked despite the rise of startups in the country. Angel investors and venture capitalists (VCs) can be crucial for sustaining business growth.

"Many are still unfamiliar with available options... It's a gap we're trying to address," said Ong, who is also the chair of the NDC Startup Venture Fund Investment Committee. He noted the growth of Cebu-based startups lacking investor support.

VCs finance businesses aiming for rapid growth and needing substantial capital. They act as stakeholders, providing funding, strategic guidance, resources, and networks. Angel investors fund smaller amounts with a hands-off approach, ideal for early-stage startups.

Ong highlights that businesses relying on physical inventory often need this kind of support. "One gap is that Philippine startups often lack access to formal credit due to stringent requirements. They need at least three years of profitable operation, and most are just scraping by."

MSMEs’ funding challenges

This difficulty in accessing traditional financing is particularly acute for MSMEs. Many lack the necessary collateral or credit history to secure bank loans. Furthermore, a big portion of MSMEs operate informally, hindering their ability to meet the documentation requirements of financial institutions.

A recent study by the Asian Development Bank found that over 60 percent of MSMEs in the Philippines cited access to finance as their biggest obstacle to growth.

Where to find investors

Growth Con PH 2024 featured Kaya Founders, Foxmont Capital Partners, IdeaSpace Ventures, and Gobi-Core Philippine Fund, all open to investing in startups.

Despite this, the NDC is concerned about limited investor access. "We have very few angel investors and institutional VCs in the Philippines. We want to attract more," Ong stated.

He explained that VCs face a "winter" – a period of reduced investment due to a tightening funding environment. However, the NDC is working to attract foreign investors.

"Hong Kong and Dubai are very liquid and unaffected by the VC winter... They're ready to commit, pending a memorandum of understanding (MOU) with us," Ong said. "NDC is becoming a conduit for this foreign investment."

More startup support

Aspiring entrepreneurs can explore the NDC's Startup Venture Fund (SVF), a partnership with the Department of Trade and Industry (DTI) investing in locally registered startups.

Ong also highlighted the Innovative Startup Act (Republic Act 11337), which attracts foreign investment in domestic businesses. "It encourages VCs and startups from other countries to consider the Philippines and boosts our competitiveness."

Key points of Innovative Startup Act

This act provides a range of incentives for foreign investors and startups, including:

• Tax incentives: Income tax holidays, reduced tax rates on capital gains, and exemptions from certain import duties.
• Visa facilitation: Simplified visa processing for foreign investors and startup talent.
• Regulatory sandboxes: Controlled environments where startups can test innovative products and services without being subject to full regulatory requirements.
• Startup grants and subsidies: Financial assistance for research and development, market expansion, and other growth initiatives.

Countries like the US, Singapore, the UK, and Australia offer VC visas.

"We anticipate more startup investments in 2025 to 2026 as confidence grows, fueled by infrastructure and investments," Ong shared.

Success stories

Several Filipino startups have successfully leveraged VC and angel investment to achieve significant growth. For example, PayMongo, a fintech startup providing online payment solutions, secured funding from investors like Y Combinator and Stripe.

Another example is Zennya, a health and wellness platform, which raised capital from Foxmont Capital Partners and other investors to expand its services across Southeast Asia. These success stories demonstrate the potential for Philippine startups to attract investment and scale their operations.

Alternative funding sources

While VCs and angel investors play a crucial role, entrepreneurs should also explore alternative funding sources such as:

• Crowdfunding: Platforms like Kickstarter and Indiegogo allow businesses to raise capital from a large number of individuals.
• Microfinance institutions: These institutions provide small loans and financial services to micro and small enterprises.
• Government grants: Various government agencies offer grants and subsidies to support business development in specific sectors.

Role of tech in accessing funding

Technology is playing an increasingly important role in connecting investors with entrepreneurs. Online platforms like Investagrams and SeedIn provide avenues for startups to showcase their businesses and connect with potential investors.

Fintech solutions are also streamlining the investment process, making it easier for businesses to access funding and for investors to manage their portfolios.

Moving forward

Last year, the NDC aimed for five co-investment partners, expanding to eight by 2024. "We wanted to increase our portfolio by 50 to 60 percent and brought three more on board. Of the eight, four or five are active... We're promoting the Startup Venture Fund," Ong explained.

"With our new strategy, we aim to double our startup investments next year."

The NDC has six to seven new ventures in the pipeline, some awaiting approval and others awaiting fund deployment. "We can accelerate investment by allowing the private sector to handle due diligence and groundwork."