Editor’s Note: Here’s a story from our archives we feel is relevant even today and deserves your attention.
Following Globe Telecom’s announcement of its new US$50 million fund for later-stage startups (Series A and onwards), e27 got the opportunity for an in-depth chat with Kickstart Ventures’ (the telco’s VC arm) President Minette Navarrete on the state of the Philippines’ startup ecosystem in 2015 — and Globe Telecom’s place in it all.
Read on for the deep dive:
What is the state of the Philippines’ startup ecosystem?
Navarrete: Let me start with an aerial view of the Philippines ecosystem. There’s been startups in the Philippines for quite a while, and there have been initiatives for many years to offer support to startups. For example, the Ayala Foundation has been running a tech business incubator for about 15 years now. The University of the Philippines has run an incubator and accelerator programme — UP Enterprise — since 2009.
Different parts of the ecosystem have existed and tried to offer systemic support for startups. When you think also about the exits in the past, there have been a number; you can sort of see where it goes — it’s either companies that consolidate or that have been acquired. Usually the acquirers are one of the telcos. The PLDT (Philippine Long Distance Telephone Company) acquired Wolfpack, Level Up!, and Chikka.
In the last three years, there have been renewed efforts to offer support, and one of the developments was the availability of new funds for very early-stage startups. There were also venture capital initiatives; so there have been companies like ICCP (Investment & Capital Corporation of the Philippines) and [other] ventures that have been around for quite a number of years — probably in the 15-20 year horizon.
The challenge in the past has been that there wasn’t a very integrated ecosystem. I remember from my Level Up! days that you had to do everything yourself; you had to find work, funding, explain to corporates that you wanted to work with what kind of a company a startup was, what you did, etc. So the change in the last three years has been an acceleration of the development of the ecosystem.
There are a number of factors that have driven that. One is the availability of new funds for very early-stage companies. The earliest of the recent groups would have been Wireless Wings of Myla Villanueva and obviously the two telcos have made available funds as well. In addition to that, we have tried to involve the angels and get them together in an angels network. In one of his visits we asked Phil Morle, the CEO of Pollenizer, to talk about angel networks like the Sydney Angels. We invited a bunch of angel investors to come to listen to him talk, help him share some insights about the experience from Sydney so that we could try and organise a Manila angel network here.
When you think about the presence of capital for early-stage, that’s certainly a stimulus for the innovation ecosystems. The other thing Kickstart’s tried to do is build bridges across the different players in an innovation ecosystem. We have drawn in corporates from our parent company Globe Telecom, but also from Ayala Corporation; we have brought the Singtel seed network over to Manila and introduced them to the startup community.
We’ve brought big-picture thinkers, so aside from Phil Morle out of Sydney, [people like] the Managing Partner of Innosight Scott Anthony have spoken at one of our events, [which] was very gripping. We have also had the CTO of Amazon Dr Werner Vogels come and speak. What we try and do is stimulate the collaboration by providing opportunities for corporates and startup founders to meet.
We run a monthly networking event called Raid The Fridge in Manila. When we started out we were getting 80-100 people turning out, now we are getting 150-200 people. It’s great. We’ve gotten some good speakers, some very good topics, and it’s been good to see the thinkers come and be responsive. In one of the first ones, Scott Anthony had written an article in the Harvard Business Review on the fourth age of innovation. He talks about the different drivers for innovation: the lone inventor, followed by factory models, followed by in the ’90s the venture capitalists.
He posited that in the 21st century the corporates are a big driver of innovation, and the local community started to react. But I think they hadn’t read completely through the article. I emailed Scott to say, ‘You’ve just written this article, people are reacting, do you want to come and speak to the community?’ And he did. He came over and talked to the community about what the article was about.
Really what it was if you looked at the ’90s, you had startups with a lot of growth backed by venture capital, so VC-backed innovation. That grew the first Internet boom and of course the Internet bubble. His hypothesis is that in this decade it is partnership with corporations that grows innovation. The startups are able to collaborate with a different kind of company that has resources, customer relationships, and assets that are very different from startups. It’s quite a good conversation.
Some time last year, Forbes ran an article about the Philippines being in a tech bubble, in a credit bubble. Again there was quite a lot of reaction. We asked one of the country’s political economists to come and dissect the perspective on whether there was or wasn’t a bubble, and he did a great job. He took up every single argument that the writer had put out there and said, ‘How do you get credit bubble?’
Either if the public debt has increased beyond the capacity to pay, or if private debt has increased beyond the capacity to pay. On the public side, the Philippines is a net creditor globally so it isn’t public debt, and on the private side you have less than 10 per cent of people with credits and less than 20 per cent with any sort of banking relationship. Clearly not a credit bubble. He dissected the article and put forward a point of view that people could discuss with more facts than just opinion.
We have had Bill Luz, who is the private sector Co-chair for the National Competitive Council, talking about the ease of doing business, what makes a country competitive, what makes a city competitive, how does the Philippines rank globally and what are the categories in which we can improve and become more competitive. Events like these help us to produce depth of thought and improve the quality of the conversations, and to help build the relationships across thinkers, doers, funders and founders. It’s a good little mix.
It’s in this context that the fresh funds have come. In the beginning, we had a tiny fund of US$2.5 million that was really a test balloon. It was a very unusual pitch in that when you come from a corporation such as ours you’re used to producing a business case and dimensioning the market. In our case, there were no published credible statistics around the startup ecosystem in the Philippines. We knew from our own experiences that there wasn’t a lot of institutional support, and you could check from the exits at the time.
Globe acquired Entertainment Gateway Group for US$8 million after the company had been around for maybe eight years. PLDT acquired Chikka for US$15 million part cash and part stock after that company had been around for maybe 12-14 years. You could see that there were a few exits, the exits were largely telcos acquiring them, and the valuations were very low relative to what you could see globally and even compared to the region.
That’s kind of what the first three years were. What we discovered was that there’s a lot of talent, but very raw talent. A lot of intensity, but the intentions have to be coupled with quite a lot more experience and expertise. When you look at the ecosystem there is a critical lack of mentors, and by mentors I mean people that who have gone the startup route or are experienced — it’s not the academicians.
There are a lot of people who have academic credentials or corporate experience, but to have risen through the corporate ladder is quite a different experience from starting something out of nothing and organising a team to run a startup. It’s very different from acquiring a startup and running it. We did know that there are a number of critical gaps in the ecosystem, but we also discovered that there is a lot of inventiveness, a lot of growth.
When you look at the Philippines statistics — both on the macroeconomic fundamentals as well as what we can see at the grassroots — you can see that there is an evolution from the first startup weekend Manila ever in the Philippines in 2011. There was a lot of proposals for versions of something successful in another market, or some fairly entertaining but one-off services rather than sustainable businesses. Over the years we could see that people were getting more experience with business models, particularly those meant for emerging markets, or looking at more problems and pain-points with greater depth. That’s one side of the equation.
The other side of the equation for this particular new fund is that as we have begun to understand how we are going to evolve Globe Telecom from what it was — it used to be a pure-play mobile provider, to becoming mobile and broadband, to a full-on player in a data universe — to collaborating more. There is going to be innovation that is generated internally from the core business, but also innovation that must come from outside the company. We’ve worked as a company with a lot more startups.
When you’re a telco you’re used to working with the large OEMs, but if you have a look at what Globe has been doing in the last few years we’ve had great partnerships and great technical integration on the project side with companies like Google, Facebook, Spotify, Viber, Kaokao Talk, LINE, WhatsApp. Globe has run quite a number of projects working with companies like these to offer data services.
We’ve started to work more with other startups for services to improve customer experience, to deepen the data mining capabilities, to strengthen the robustness of our cloud capacity. We’ve got a great partnership with Amazon — and I know these are all large companies — but we’ve also worked with some lesser-known startups… We’ve had the experience of working with some good startups from all over the world and realised that there are capabilities beyond developed elsewhere outside of Globe that are likely to prove very useful, especially in the version of the future universe that we imagine we’ll need to evolve Globe to become. This thinking has helped us understand the potential of startups, and that’s the context in which we managed to pitch and secure approval for this nice new fund.
What will be your typical round sizes and equity stakes?
Navarrete: For this particular fund, we’re looking at more likely Series A, B and beyond in US$1-US$5 million bitesizes… The first transaction out of this [fund] is in a US$15-US$20 million round. We’ve closed that transaction. That’s kind of the round size we’re looking at. So far we’ve made one investment… We have not [disclosed it yet]… We put in about US$3 million for this one.
How hands-on are you with the startups you invest in?
Navarrete: For the earlier-stage ones we have a small co-working space and they can work out of there for free. But [for this fund] they are somewhat more established with bigger teams, and they might not be in the Philippines. In terms of equity, we take a minority position, and the reason for that is that we believe the founders ought to have serious skin in the game. We aren’t out to acquire necessarily.
On the other hand, we are a very active investor and are a very opinionated investor. Frequently when we ask our portfolio companies, one of the things they have valued the most is the introductions that we make — so market access, whether it’s to Globe Telecom, the Ayala Corporation companies, Singtel, or other contacts that we have. In that sense, we are a fairly active investor. Particularly for the seed-stage startups, it’s typical for us to have meetings with regular cadence… The more established companies either [give us] a business update every month or every other month, or a phone call every so often.
It works both ways: it helps us to offer advice, it gives them an opportunity to discuss their business directions, and it helps everyone — founders and investors — to build a deeper relationship and have the conversations that help push things forward. Frequently, when we have these checkpoints we try and invite the other investors as well. We’ve got some investments together with FutureNow Ventures, IMJ Investment Partners out of Japan, and Wavemaker out of L.A. and Singapore… Also because we take a minority position, we can’t insist upon [things], but it helps provide a point of view.
Is Kickstart interested in e-commerce and marketplaces?
Navarrete: We have some investments in that area. Are they a particular point of interest? Not really… If something interesting comes our way, we have made some investments in e-commerce. We’re generally open to digital.