According to James Lette, executive director of Manila Angel Investors Network (MAIN), much of the Philippine startup ecosystem is close to the point of bankruptcy or closure.
“A collapse in consumer demand, an inability to provide services during the Extended Community Quarantine period, and soaring corporate late payment rates as cash flows tighten have significantly affected startup revenues and compressed their runways. A generation of Filipino startups could be wiped out without further specialized liquidity support,” he wrote in a column for SparkUp, BusinessWorld’s news and knowledge-sharing hub for Philippine startups.
In this episode of B-Side, Mr. Lette expands on his piece and speaks with SparkUp editor Santiago J. Arnaiz about why and how the Philippine startup ecosystem must be saved. “Without action, the Philippines will be left behind, and startups domiciled in other ASEAN countries will capture our home market,” Mr. Lette said, as he called for the “establishment of a blended finance facility to issue bridging finance, alongside private sector funds, in the form of convertible loans, to technology startups impacted by COVID-19.”
Startups cannot take advantage of the support that is available to MSMEs (micro, small, and medium enterprises) because they are, by their nature, experimental and risky. To address this, Mr. Lette recommends bridge financing, which incentivizes individual and corporate investors holding on to their cash reserves to back Filipino early-stage technology companies.
The advantages of bridge financing are myriad. According to Mr. Lette, it:
• does not prop up unsuccessful companies or investors,
• limits the risk of the government spending taxpayer money on poor businesses,
• is structured to give taxpayers upside, and is, in effect, a loan, and
• requires skin in the game from the private sector.
Women founders are disproportionately hit by the current crisis.
Less than a quarter of startups in the Philippines are founded by women. MAIN calls for greater support for women-owned or led startups during this crisis, and recommends that a higher level of leverage be provided by the proposed fund.
If we don’t save the startup ecosystem, the Philippines stands to lose an important part of its innovation economy. “If nothing is done, … the startup economy of the Philippines will be severely weakened and it will take years to claw its way back up to pre-COVID levels,” said Mr. Lette.
Mr. Lette enumerated what will happen if the startup ecosystem isn’t saved. The country will:
• lose talent,
• lose a key driver of economic innovation which develops new products and helps power exponential growth,
• and lose all the hard work from a generation of investments made into the startup ecosystem.