Rising wave of tech innovators
Updated: 2016-07-01 14:28
By DENG YANZI in Manila(China Daily Asia)
Nora K Terrado, undersecretary of the industry promotion group with the Department of Trade and Industry. She said that the department is encouraging competition between telecom companies to improve the country's Internet services. [DENG YANZI/CHINA DAILY Asia Weekly]
During a startup pitch event in Hong Kong, Artie Lopez was amused as he listened to someone on stage explain how their app could help people cut their waiting time at Starbucks.
"And I was thinking to myself: We're still trying to solve hunger (in the Philippines)," said Lopez.
A startup coach and cofounder of Manila-based incubator Brainsparks, Lopez regularly attends tech events around the region. He understands how Philippine startups can differ from those in more affluent areas, as they are "solving 'real' problems that directly affect people's lives".
Lopez was referring to a group of startups that aim to tackle local problems in the Philippines. The 7,107-island archipelago — better known for its beaches, mangoes and call centers — is experiencing a quiet wave of tech innovations, driven by aspiring entrepreneurs.
For example, Cropital, one of the startups Lopez mentors, is a crowdfunding platform that provides financing to Filipino farmers who have limited resources.
Another is SALt, an acronym for Sustainable Alternative Lighting. The company has developed a lamp powered by seawater (or merely salt and water) which has the potential to light up the households of the 30 million people in the country living without electricity.
The Philippines is also attracting financial technology, or fintech, startups from Malaysia and Singapore, said Monchito Ibrahim, deputy executive director of the Information and Communications Technology Office of the Department of Science and Technology (DOST-ICTO).
"The cost of developers here is relatively cheap, with a very young population," Ibrahim said.
He added that most Filipinos lack access to banks which is an important factor for the fintech sector.
"We are seeing the same trend in Indonesia and Vietnam, but a bigger chunk of these startups are coming to the Philippines."
Diane Eustaquio, executive director of non-profit incubator IdeaSpace Foundation, said the inefficiency of the country opens up vast opportunities for startups with innovative solutions.
The development of startups is vital to the competitiveness of the Philippine economy, Eustaquio believes.
"You can't keep on importing new technology, because it's expensive. The startups are a good way to grow technologies internally and organically," she said.
Still at a very early stage, the startup scene is set to take off.
The Philippine government's newly formed Department of Information and Communications Technology allows it to focus on its ICT agenda as "a key player for national development", according to executive director Louis Napoleon Casambre, as quoted by local news outlet Philstar.
The legislation is evolving in a startup-friendly direction. The Startup Business Bill, being advocated by Senator Bam Aquino, vows to exempt startups from taxes for the first two years of operation, while offering favorable incentives regarding visa and funding to boost the sector.
The country aims for a fivefold increase in the number of startups by 2020, according to the DOST-ICTO. The government body released The Philippine Roadmap for Digital Startups last August, detailing its goal to have an inventory of 500 Philippine startups by 2020, with total funding of at least $200 million.
One of the key challenges the Philippines must overcome to achieve that goal is the lack of funding.
About 70 percent of the Philippine startups are self-funded, research by the World Startup Report, which documents startup communities around the world, showed in 2013. Angel investors are hard to persuade due to their reluctance to invest in the nascent digital sector.
One angel investor, who declined to be named, told China Daily Asia Weekly that the sales value of tech startups is harder to establish than with traditional companies, and he only invests through trusted personal networks.
This mindset is understandable given that the culture of investing in startups is only in its infancy in the Philippines.
Launched in 2012, IdeaSpace was one of the earlier investors in the Philippine startup space. It has contributed 100 million pesos ($2.1 million) per year since then.
Kickstart, also established in 2012, is a venture capital fund for seed and early stage startups that has made 24 investments within the Philippines so far. Both are funded by local telecommunication companies as non-profit organizations.
US investment firm 500 Startups is one of the more active foreign investors, with three investments in Philippine startups as of 2015 — according to data from the DOST-ICTO — out of more than 1,500 investments in its global portfolio.
"The startup scene has an abundance of technical talent and virtually no competition," said Khailee Ng, managing partner of 500 Startups.
More investors are starting to come on board but there are still not enough.
Mober is one such startup trying to raise funds so it can grow. Launched in December, Mober is the Philippines' "Uber for logistics" — an on-demand service for customers to book vans on their smartphones for product delivery.
Currently operating in Metro Manila with 50 registered vans, Mober has received a further 300 applications for van registration.
To tap into the growing demand and further expand to other regions, Mober is seeking $1 million from venture capitalists (VCs) to fast-track its plan.
Even though the company has attracted interest from both local and foreign VCs, Dennis Ng, founder of Mober, has come to realize that being a Philippine startup is not an advantage when seeking investment.
One million dollars is too big an amount for the Filipino VCs he pitched to, Ng said. And foreign investors usually hesitate when they hear the startup is from the Philippines, he added.
"The (foreign) VCs don't know the Philippine ecosystem … even though we are the fastest-growing economy in Southeast Asia," he noted. He hopes that the government can encourage local investors so that startups do not have to rely on foreign VCs.
Weak infrastructure and connectivity have also been a major hindrance for startups in the Philippines, as the country's Internet services are notoriously slow and expensive.
The Philippines has the second slowest broadband speed in Asia at 3.64 megabits per second (mbps). This is less than one-sixth of the global average of 23.3 mbps, Internet metrics company Ookla stated in 2015. It is also one of the most expensive, with an average cost of $18.19 per mbps, triple the global average.
However, the government is currently focusing its Internet connectivity efforts on reaching the general public.
Nora K Terrado, undersecretary of the industry promotion group with the Department of Trade and Industry, said: "Our role at the DTI is to encourage competition, and to encourage the two main (telecom) players — Globe and Smart — to improve their services, which they are doing, by the way.
"There will already be improvement in the next six months. The idea is to go the last mile to improve connection in the rural areas."
Terrado was speaking at a co-working space in one of the DTI buildings on Gil Puyat Avenue in Makati City in Metro Manila. She recently helped renovate it from a library, and will soon open the space to startups for free.
Gil Puyat Avenue, which houses a number of startups and investors as well as 10 DTI buildings, will open to more players in the sector, aiming to become the "innovation alley" of the country.
The Philippines is a long way behind the likes of Silicon Valley when it comes to developing technology companies.
But Terrado was hopeful that the startup ecosystem will gain momentum as the community continues to bring all the stakeholders closer.
"(It's) not a 'valley', but we can start with an 'alley',"she concluded.