Philippines start-ups: Cultural baggage

If the Philippines is to follow the Indonesian road to a robust technology space led by a host of $1 billion-plus unicorns, brand-name financial sponsors and global strategics will have to be part of the equation. The most talked about deal in the country this month has certainly fueled hopes that this process is underway, but still, something feels missing.

KKR and Tencent Holdings led a $175 million investment in financial technology company Voyager Innovations in a deal that cemented many expectations that Chinese corporate muscle would underpin the kind of ecosystem building environment that produced Jakarta's Tokopedia and Go-Jek. The missing ingredient, however, stems from the deal's relative lack of risk and grassroots entrepreneurialism.

This is because Voyager is a unit of local telecom giant PLDT, not an independent start-up. The distinction is important because so many of the ecosystem creation headwinds the Philippines faces are tied to conservative preferences for the corporate establishment. Minette Navarrete, president at Manila-based Kickstart Ventures, sees the problem in part as a cultural hang-up based on deep-seated risk aversion and a high power-distance index that preconditions people to conform to the status quo rather than challenge incumbents and authority.

"These behaviors were critical to survival in the centuries of colonialism and occupation by the Spanish, Americans, and Japanese, and in the decades of authoritarian rule under the Marcos regime -- and given the life-or-death consequences then, it is understandable that behaviors have become deeply ingrained," she says. "However, these survival mechanisms are also inimical to the ambition, risk-taking, and meritocracy that help drive innovation and entrepreneurship. Companies that can buck these cultural tendencies – whether start-ups or large enterprises – can break out of average performance and become truly game-changing."

Seeking inspiration

The topic of social barriers in the Philippines' start-up space is beginning to heat up as expectations pique around a breakthrough moment. The idea is that the country now has more than enough capital to support the relatively few companies with global scaling potential, and while regulatory issues such as a restrictive tax structure could be improved, they are not deal-breakers. As a result, culture is now in the spotlight as possibly the last major hurdle. In order for the Philippines to produce an ecosystem-inspiring unicorn, the company in question will have to be nurtured from an iconoclastic base where entrepreneurialism percolates from the bottom up.

Manny Ayala, a managing director at mentoring services provider Endeavor Philippines, echoes this philosophy with a view that national development is best approached as a business networking process where entrepreneurs can multiply their ranks in a supportive community. To this end, Ayala confirmed at the AVCJ Philippines Forum this month that he was in the process of launching the Venture Capital & Private Equity Association of the Philippines (VCAP) that would be headed by ICCP SBI Venture Partners executive William Valtos. 

"I think we're close to that point where the people who have been building companies for the last 5-6 years will have that iconic transaction. I think that within the next 1-2 years you will see that," Ayala said, noting that a local champion was needed for both international messaging and confidence building at home. "My worry is that some of these young entrepreneurs end up selling out way too early. I would hate for that to become the norm because so much value gets created by being able to tell the story of somebody who started from scratch and brought it all the way to this big iconic transaction."

One fix for this problem appears to be developing in the form of more investor interest in later-stage deals. That observation underpins much of the feeling that the Philippines is on the cusp of a quantum leap. But the fact remains that the slow uptick in Series C and Series D activity to date continues to leave founders prone to selling companies early, which in turn results in a lack of encouraging homerun stories. This inertia has also dissuaded regional VCs from entering the country, thereby exacerbating a mutually aggravating complex between funding gaps and ecosystem morale.

"When we started investing in Indonesia, years ago, literally every single founder was extremely proud that they were an Indonesian company, and you might say, for a VC, it doesn't make any difference," says Michael Lints, a partner at Singapore-based Golden Gate Ventures. "In the end, it does make a big difference because it tells me that they're really invested in building this. If someone doesn't show the passion and the eagerness, there's just a little sensor in my head that says maybe there is not enough there for them to stick through the tough times."

Time for school     

There is a growing consensus that networking schemes and education are required to address the market forces driving deal making between start-up sellers and buyers. There have been several experiments on this front, including an attempt by Kickstart to run a venture building program, where entrepreneurs are teamed up and channeled funds with the view of building viable businesses in a more systematic way than traditional incubator or accelerator methods.

The difficulty has been that local entrepreneurs in these scenarios appear to slip into the role of the salaried employee, and if the experiment fails to produce economic results, they can easily move on to jobs with other companies. This is the opportunity cost problem with Filipino talent: strong English and technical skills present the country's best and brightest with a world of more immediately compelling career options both offshore and at home in mainstream businesses. The hunger, drive and competence are all in place, but it will take time to dispel the climate of fragmented apprehension.   

"I do think we have some cultural obstacles to get that national pride you see in other places. That sense of identity is a lot more dispersed here than in other countries. Because we're an archipelago, we're also extremely tribal, so a lot of Filipinos tend to identify themselves with dialect groups as opposed to proudly waving the Filipino flag," says Dan Siazon, a senior vice president and treasurer at Kickstart.

"It will happen gradually, a little after Indonesia, but it will come."

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• Topics
• Southeast Asia
• Technology
• Financials
• Venture
• Philippines
• TMT
• KKR
• Tencent
• Golden Gate Ventures