PH tech startups see brighter days ahead

Despite feeling threatened by the economic blow dealt by the COVID-19 pandemic, tech startups in the Philippines remain optimistic about how quickly they can bounce back from the crisis—provided that they receive the right amount of support, especially from government.

This was one of the key findings of the “2020 Philippine Startup Survey: COVID Edition,” which was discussed recently in the webinar “Mind the Gap: Bridging the Needs of PH Startups during COVID-19 Crisis.” The online event was held by tech startup incubator QBO (taken from the word “kubo,” which is Filipino for hut) Innovation Hub, a public-private collaboration among business incubator Ideaspace, J.P. Morgan, the Department of Science and Technology (DOST) and the Department of Trade and Industry (DTI).

The survey, done by PwC Philippines together with QBO and DTI, was conducted among 90 startup founders from April 12 to 26, with the goal of understanding how the health crisis has impacted this specific sector, and what they need as the country loosens lockdown measures. A similar study was conducted earlier this year, but with the COVID-19 outbreak, PwC felt the need to update the data, says Mary Jade Roxas-Divinagracia, deals and corporate finance managing partner of PwC Philippines.

According to the study, while almost half of respondents (48 percent) feel threatened by the impact of COVID-19, 21 percent also say the crisis has had a positive impact on their business, and are experiencing an increase in demand.

For those who are worried, financial impact (62 percent), potential global recession (56 percent) and funding difficulties (49 percent) are their top three concerns, the report says. During the enhanced community quarantine (ECQ), most startups resorted to reducing the level of their operations (51 percent); offering a new product or service (49 percent); implementing cost reductions, other than employee costs (36 percent); and preparing a business continuity plan (36 percent).

And while some also had to defer expansion plans (33 percent), tech startups, by their very nature, are built to withstand crises such as this pandemic, Divinagracia says.

“Startups are naturally wired to weather this crisis. They are digitally enabled and can pivot when needed,” she adds. “Given the right support, startups will not just survive the crisis, but will thrive thereafter.”

But exactly what kind of support do startups need now? Financially, they would need around P5-million additional funding to “normalize” operations, according to 64 percent of respondents. Such resources would mainly be allocated for working capital requirements (59 percent); the improvement of company technology (50 percent); and hiring of new employees (32 percent).

The report adds that less than 20 percent of startups have enough cash and capacity to sustain their business for over a year—and that government aid would help them immensely. In fact, over two-thirds say they plan to tap government grants in the next few months to get back on their feet, while only 29 percent plan to avail themselves of bank loans.

Moreover, the survey identified these needs which would best be addressed by the public sector: government loans with a longer grace period and relaxed credit requirements (70 percent), tax incentives (66 percent), incentives that would help startup investors accelerate fundraising activities (60 percent), equity financing (53 percent), and wage subsidies (42 percent).

“The government is spending a lot to be able to cope with the [pandemic]. Financial assistance to the marginalized sector is helpful in the short term. However, if the Philippines is to grow, government must provide support to the startups to generate more jobs and improve the economy,” says Rodec dela Cruz, CEO of iPark, which offers integrated parking solutions.

Outside of financial support, access is of utmost importance to tech startups’ sustainability post-ECQ. Access to customers is the top need (76 percent), followed by access to talent (61 percent), free consulting services (52 percent), suppliers (31 percent), better IT solutions (27 percent), and free workspaces (26 percent).

Challenges aside, hope springs eternal for Philippine startups, with both consumers and businesses realizing the importance of digital tech amid this global crisis.