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6 takeaways from Gobi-Core Philippine Fund’s report on the Philippines’ thriving startup ecosystem

Written by Stephanie Pearl Li Published on     4 mins read

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The number of homegrown startups in the Philippines has almost doubled in the last three years.

The Philippines is experiencing the fastest growth in its digital economy among Southeast Asian countries. According to the latest e-Conomy SEA report by Google, Temasek, and Bain & Company, the country is expected to become a USD 17 billion digital economy in 2021 after experiencing a 93% growth this year, with the potential to reach a USD 40 billion value by 2025.

Powering this growth are new internet users. The Philippines saw 12 million new citizens using the internet for the first time since the beginning of the COVID-19 pandemic. Yet, despite the meteoric rise of digital consumers, the country has to clear an array of roadblocks before fully capturing the digital boom, according to the Philippine Startup Ecosystem Report 2021 by the Gobi-Core Philippine Fund, a joint venture between Gobi Partners and Core Capital.

The report signals that the local startup landscape remains underinvested, while the Philippines has the lowest GDP per capita among ASEAN’s six biggest economies. This translates into the region’s lowest internet goods and services spending per capita—just USD 145 against the region’s average of USD 337, excluding Singapore.

“While a lot of Filipinos are now online, many are not yet purchasing goods and services through it, especially in smaller cities that have yet to be penetrated by startups and tech companies,” the report highlights.

To unpack the dynamics within the Philippines’ startup ecosystem and provide a glimpse of the country’s situation regarding its e-commerce, fintech, and logistics sectors, here are six takeaways from the Gobi-Core Philippine Fund report.

#1. Local e-commerce players have carved out niches to meet local demand

The Philippines e-commerce sector is dominated by foreign giants such as Sea Group’s Shopee, Alibaba’s Lazada, and fashion marketplace Zalora, which is backed by the country’s oldest and biggest conglomerate, Ayala Corporation. These companies benefited from being the first movers in the Philippines, having entered the country as early as 2012.

Yet, according to the Gobi-Core report, a total of 35 new e-commerce startups were founded in the Philippines in 2020 and 2021. Currently, there are over 81 e-commerce startups in the country. Local marketplaces that are seeing major growth include beauty products e-tailer Beauty MNL, flower delivery platform FlowerStore, and Galleon, a platform that sells products not available locally.

#2. Logistics sector logged negative growth in 2020, but investments bounced back in 2021

The onset of the COVID-19 pandemic had put the global supply chain to a halt due to lockdowns and stringent border controls. However, the number of investments in the logistics space showed signs of recovery, with pledged capital in the local warehousing and logistics industry jumping nine-fold in 2020 to USD 740 million.

The sector has seen at least ten new logistics startups in 2020 and 2021, accounting for 4.3% of new startups over the past year and a half. The report highlights that new logistics startups face challenges to offer competitive pricing and ensure fleet flexibility, as many of them are operating at smaller scales and without VC funding.

Currently, the sector is led by regional unicorns such as Grab, Ninja Van, and J&T Express, as well as corporate-backed startups such as Entrego and Quad.

#3. Homegrown fintech giants snapped big-ticket fundings

Fintech is a particularly popular sector among Filipino entrepreneurs, with 11 fintech startups being founded between 2020 and 2021, accounting for 4.7% of the total new startups. Local fintech startups bagged a total of USD 342 million in the first half of 2021, up 149% from 2020’s USD 137 million. These figures were sustained by the two mega-rounds of USD 175 million and USD 167 million raised by Mynt, the operator of mobile wallet GCash, and by PayMaya, respectively.

Mynt also raised additional USD 300 million in the second half of the year from investors such as US-based Warburg Pincus and Insight Partners, becoming the first unicorn born in the Philippines. The firm is currently valued at over USD 2 billion.

#4. The number of startups has almost doubled in the last three years

With over 700 startups operating in the country as of 2021, the Philippine startup ecosystem has seen a 29% compound annual growth rate in the last four years.

Globalization and wider internet accessibility were two factors leading to a greater number of local entrepreneurs venturing into tech or tech-enabled businesses, according to the report. The Filipino government has also supported the local startup ecosystem with programs such as the  Innovative Startup Act and the Startup Research Grant Program, among other initiatives.

#5. Philippine startups are predicted to raise USD 2 billion in the next three years, more than the total amount raised in the last five years

Before 2021, the highest funding stage a Philippine startup has ever reached was a Series A. However, this funding hurdle has been overcome thanks to the emergence of local VCs and the rising interest among foreign investors and angel investors.

As a result, three Series B and one Series C fundraising rounds were announced in 2021. Live streaming and social commerce app Kumu first raised a USD Series B in March, while in October, the company became the first homegrown startup to raise an undisclosed Series C round led by General Atlantic. Kumu has so far raised USD 100 million from investors. Other notable fundraising rounds were e-commerce enabler Great Deals USD 30 million Series B in May, followed by B2B marketplace GrowSari’s USD 30 million Series B in June.

Amid the funding boom, the report predicts that the startup ecosystem in the Philippines will experience a growth of 20% to 30% in the near future.

#6. More female entrepreneurs have taken the lead

The percentage of female founders in Philippine startups has risen from 17% in 2015 to 36% in 2020, while the number of male founders dropped from 83% in 2015 to 64% in 2020.

Notable female-led startups in the archipelagic nation include cloud restaurant CloudEats, co-founded by Kimberly Yao, play-to-earn firm Yield Guild Games, co-founded by Beryl Li, and social commerce platform Kumu, launched by Clare Ros.

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