Improving outlook for local startups

We need to support our local startups because these young, innovative companies hold the future and could potentially transform into the country’s biggest companies, employing thousands of Filipinos.

For example, in the United States, IT (information technology) companies account for around 27 percent of the S&P 500 index.

Because of their rapid growth, tech companies that are relatively young such as Amazon, Google, Tesla and Meta are now among the top 10 biggest companies in the United States.

However, one of the major challenges facing startups in the Philippines is the lack of external financing.

According to the 2020 Startup report, 78 percent of founders consider funding requirements a major challenge.

Moreover, according to a study by Prequin, venture capital investments in the Philippines amounted to only $28.8 million in 2018, a far cry from the total amount raised by startups in Singapore ($4.9 billion) and Indonesia ($1 billion).

Nevertheless, local startups’ ability to raise external funding is improving.

In 2019, the Innovative Startup Act was signed into law. This created a Philippine Startup Development Program that provides benefits and incentives, including a grant fund, for selected companies.

The government also recently passed laws that make it easier for foreign investors to buy shares of local companies and do business in the Philippines.

For example, because of amendments to the Foreign Investment Act, foreigners can now own small and medium-sized enterprises with a minimum capitalization of $100,000 provided that the business utilizes advanced technology, is a startup or a startup enabler, and employs at least 15 Filipinos.

Meanwhile, the CREATE (Corporate Recovery and Tax Incentives for Enterprises) law provides generous tax benefits for startups in the tech industry.

Finally, the pandemic resulted in the explosive growth of digital payments, e-commerce and digitalization, in general, increasing the attractiveness of the Philippine market to tech businesses.

For example, according to data from the Bangko Sentral ng Pilipinas, the share of digital payments to the total volume of retail transactions jumped to 30.3 percent in 2021 from 20.1 percent in 2020. Because of the strong growth momentum, the central bank expressed confidence in achieving its goal of digitalizing 50 percent of all retail payments this year.

Meanwhile, e-commerce gross merchandise value in the country increased significantly from only $3 billion in 2019 to $14 billion in 2022 and is projected to reach $26 billion by 2025.

Because of these factors, the amount of funds raised by local startups increased significantly, from $152 million in 2019 to $1.1 billion in 2022, according to a study by Foxmontcapital and Boston Consulting Group.

Hopefully, the favorable changes in regulation and the rapid growth of the local market will encourage more investments in the startup space, helping the Philippines create several unicorns catering to both the local and regional markets. INQ