MANILA -- Philippine ride-hailing service Micab and its Singapore-based counterpart Grab both debuted in 2012. But while Grab has become Southeast Asia's biggest unicorn, with a valuation of around $14 billion and plans to raise $2 billion more this year, Micab aims to top a modest $2 million in its first major funding round.
This contrast has not been lost on Philippine policymakers and venture capitalists, who are wrestling with how to nurture tech startups or risk being left behind in the growing digital economy.
Philippine startups raised a total of $28.8 million from venture capitalists last year, the smallest tally among Southeast Asia's major economies, data provider Preqin says. Singapore saw $4.9 billion in fundraising, while Indonesia, home to unicorns -- unlisted companies worth more than $1 billion -- like ride-hailer Go-Jek and e-commerce app Bukalapak, drew $1.6 billion. Myanmar also did better with $32.8 million.
Whereas Grab is lining up fresh funding from powerful international backers including Japan's SoftBank Group, Micab had drawn capital from mostly local sources.
Micab CEO and co-founder Eddie Ybanez believes the company would have grown faster if he had more cash to spend, echoing the 88% of Philippine startup founders who consider "capital requirements" as their biggest challenge, according to a 2017 survey by accounting group PricewaterhouseCoopers.
"Until recently, there has not been a coordinated effort to lay the foundation for a vibrant startup ecosystem in the [Philippines]," said Yinglan Tan, founding managing partner at Insignia Ventures Partners in Singapore.
The Philippine Congress recently passed the Innovative Startup Act, which awaits President Rodrigo Duterte's signature. The legislation proposes varied support for startups such as 10 billion pesos ($192 million) venture fund, tax breaks and easier processing of business permits and visas for foreigners. The country also enacted a law that lets one person set up a company.
The startup act represents one of the most important moves yet by the country in its bid to catch up with Southeast Asian neighbors, but venture capitalists say they need to see more before making a bet. They also see a lack of promising Philippine startups to invest in.
Kickstart Ventures, the largest local investment company funded by Globe Telecom, a leading Philippine mobile carrier, says pitches have improved since its 2012 launch but a few make the cut.
"The experience we have is a lot of people who come here are looking at solving for the Philippines," Kickstart President Minette Navarrete said. "The ambition is not to conquer the world or expand in Southeast Asia. If that is the limit of their ambition, they won't get funding."
The issue could be attributed partly to cultural and economic factors. Many Filipinos aspire to earn big paychecks as employees here or abroad -- as seen in the country's 10 million overseas workers -- instead of starting their own businesses. Enterprises are largely meant to augment household income rather than introduce novel or disruptive ventures.
"Risk taking is not common," Navarrete said. "There is a desire for many to take a secure and stable path."
The Philippine economy is geared toward the service sector, highlighted by its $24.5 billion outsourcing industry in which many fresh young graduates seek employment as call center agents and back-end software engineers.
Attempts to rebalance the economy have attracted investments in areas such as manufacturing, but only recently did the government start touting the need to invest in disruptive technology. A state-led startup road map was launched only in December.
Big conglomerates, which remain focused on traditional industries like banks and real estate, are supposed to be natural early stage funders. But Francis Simisim, founder of enterprise solutions startup Social Light, said conglomerates see startups as traditional small enterprises and are seeking immediate returns.
"It's a bit difficult to explain that this is 'go big or go home,'" he said.
Micab's Ybanez once pitched Micab to a local tycoon, but his pay-for-hail business model was shot down.
"Are people willing to pay 5 pesos to get a ride?" Ybanez recalls the skeptical tycoon saying. Years later, Grab entered the Philippines, and Filipino commuters were paying as much as 95 pesos for a ride.
Restrictive Philippine investment rules also discourage outsiders. The country limits foreign investment to 40% in sectors like transport and telecom, and bars any foreign ownership mass media and certain other industries.
"The government's stance and regulatory attitude are important factors in sending a message to foreign investors that the country is ready to open up," said Tan,who called for easing foreign ownership restrictions and business processes.
Philippine transport regulators denied Go-Jek's bid to enter the country's ride-hailing market early this year because of the company's ownership structure. Last year, regulators ordered Angkas, to stop ferrying passengers because motorbike transport services were not permitted. That case has reached the Supreme Court of the Philippines.
The continuing government pressure on Rappler, a news website critical of Duterte, also could repel investors. The government has piled up criminal cases against Rappler and its founder, Maria Ressa, over the use of Philippine Depositary Receipts, an instrument used by foreign investors, to accommodate funding from U.S.-based Omidyar Network.
"If you are cautious investors and want to invest in e-commerce -- which is not political -- you will worry that the instrument is not sufficient to protect you," Navarrete said.
Many investors are interested in e-commerce, seeing the 100 million Philippine population as a huge opportunity. But Philippine retail rules protect local enterprises and so complicate investments.
"Rules are opaque," Navarrete said. "Rules change. Government interpretations can change from one year to another."
Singapore-based Cocoon Capital Partners invested in Philippine e-commerce startup Poundit in 2017, a deal that took six months to complete, Simisim said. In some cases, exasperated investors just opt not to proceed, Navarrete said.
Successful startups that were launched in the Philippines like fintech firm Lenddo and health tech company mClinica have set up their headquarters in Singapore, where doing business is easier.
But when it comes to finding a model for how liberal policy can boost investment, Manila can look to its own financial technology sector. Foreign investments flowed in after the Philippine central bank liberalized its fintech regulations, including on cryptocurrency despite the ban imposed by other Asian countries.
Last year, a group consisting of China's Tencent Holdings, U.S. private equity firm KKR and the World Bank Group's International Finance Corp. collectively acquired over half of Philippine fintech group Voyager Innovations. Alibaba Group Holding affiliate Ant Financial Services acquired 45% of Mynt, also a fintech operation, in 2017. Voyager and Mynt were established by telecom companies PLDT and Globe, respectively.
Indonesian unicorn Go-Jek in January acquired coins.ph, a bitcoin trading and payment platform founded by expat Ron Hose, for a reported $72 million -- a deal hailed as one of the country's most successful exits.
"If we have more of these types of exits wherein founders are rewarded, they will be inspired to start their own company," said Rene Meily, president of the accelerator IdeaSpace. "We need more success stories." Kickstart and IdeaSpace were among the early backers of coins.ph.
Local incubators and venture capitalists are keen to support more startups. IdeaSpace this year expanded its annual competition to offer equity-free funding to 20 startups, from 10 previously. Kickstart says it is prepared to invest more in new companies or those within its portfolio.
Investors hope to find more signs of a maturing Philippine startup sector.
"If investors think there is opportunity, in the form of investable, high-growth and high-potential startups, then they will come," said Justin Hall, a partner at Golden Gate Ventures in Singapore.
Insignia's Tan expressed optimism about the potential. "With its population and growing middle class, the Philippines definitely has a large enough market to produce a unicorn," he said.