STARTUP tech fundraising declined in 2023 due to adverse market conditions, according to Gobi-Core Philippine Fund, which provides early-stage venture capital (VC).
In its Philippine Startup Ecosystem Report, Gobi-Core said that the year-to-date fundraising in the Philippines is running 40% below the year-earlier level.
“Fundraising for startups experienced a stark 40% decline, reflecting a conservative investor approach,” Gobi-Core said.
Gobi-Core founding partner Carlo Chen-Delantar said that he only expects 50 to 60 deals for 2023, down from over 100 deals closed in 2022.
“This shows that the market downturn is now already affecting not only the ASEAN region but globally,” Mr. Chen-Delantar said on the sidelines of the Opening Ceremony of the Philippine Startup Week 2023.
The report, which was released on Monday, cited a 21% decline in deal count so far in 2023, indicating a shift in investor sentiment amid lower returns from debt investments and increased stock market uncertainty.
“The average deal size mirrored these challenges, plummeting by 37.5%, signifying a cautious approach by investors navigating an environment marked by fluctuating interest rates and financial market volatility.”
However, Mr. Chen-Delantar said that the decline should not be a cause of concern because investments are available.
“It is just a question of both inflation market dynamics and what things would look like for 2024. As you know, the Philippines is also reliant on the global markets, most especially the US,” he said.
The report said startups will continue to navigate the difficult fundraising landscape.
“Additionally, the uncertainty in the stock market further contributed to a more risk-averse investor community, emphasizing the need for startups to adapt and strategize in order to secure funding in this dynamic and challenging environment,” the report added.
Mr. Chen-Delantar said that it is costly to build startups right now amid the high inflation environment.
“If you are going to build a startup right now with inflation and the cost of labor, the cost of capital would be around 12.5% to 25%. It is 12% to 25% more expensive to run a business mainly because of the macro conditions,” he said.
The five biggest challenges that founders or startup owners face, said Gobi-Core, are inadequate infrastructure, talent and manpower shortages, government and regulatory hurdles, access to funding and cultural challenges.
“The government’s increasing support in recent years signals a positive direction, yet there is still a need for further collaboration,” it said.
Strengthening support programs, simplifying regulatory processes, and enhancing infrastructure can further improve the positive impact of government backing on the startup ecosystem,” it added. — Justine Irish D. Tabile