Tech startups gain prominence; PSE takes notice

MANILA, Philippines – More doors are opening for tech startups in the Philippines as they gain more and more options for funding to grow their business.

This was evident at the second annual Elevation Pitch on August 26 in Makati. The Entrepreneur’s Organization (EO) event showcased 12 promising start-ups brought together with venture capitalists, businessmen, and representatives from the Philippine Stock Exchange (PSE).

This was the second time Elevation Pitch was held. Rappler was one of the startups featured at the inaugural event last year and was congratulated at this year’s for securing additional funding this year 

Each of the 12 were given the opportunity to pitch their business ideas to the audience and also answered questions from a panel of experts who scrutinized their business models.

One startup that was featured was SALt; a firm that develops off-grid sustainable lamps powered by table salt and tap water, thus eliminating the need for access to the electrical grid.

Another startup gaining prominence at the event was PawnHero, the first online pawnshop in Asia. It offers a solution to expensive credit for emerging market consumers by providing the services of a pawnshop on mobile phones, or via the Internet.

It was deemed the most promising startup of 2015 in Asia at the Echelon Asia Summit held in Singapore.

Reduced risk

“An event like Elevation Pitch helps reduce the risk for entrepreneurs behind the ideas,” said Elevation Pitch 2 chairman Nix Nolledo.

Nolledo, who is also the president of listed consumer tech firm Xurpas Incorporated, shared that he chose the start-ups based on their ability or  potential to expand quickly and internationally from a very early stage.

“Events like Elevation Pitch 2 helps the people behind start-ups increase their chances of executing on their vision because suddenly you match them with very successful business owners and entrepreneurs who can not only provide them with capital but also access to their networks,” he explained.

PSE presence

Aside from venture capitalists and businessmen, a notable presence at the event was Philippine Stock Exchange President Hans Sicat, who was invited to encourage founders to consider publicly listing their firms as an option for getting funding.

The PSE head’s presence was notable as although SMEs and startups account for 99.7% of total registered business with the Security and Exchange Commission (SEC), only 3 firms classified as SMEs are listed among the 263 listed firms on the exchange.

“We want the PSE to be part of the entrepreneur’s menu of capital as part of their game plan,” Sicat said.

The PSE has also been making an effort in recent times to encourage SMEs and the younger crowd to participate. (READ: PSE: Market ripe for more SME listing)

One particularly successful avenue to connect with a younger demographic has been retail trading.

“What we’ve done over the past year is put up a facility wherein the PSE is actually a sponsor of a web-based products for web-based trading and access,” Sicat shared.

Basically, it makes it easy for users to access the market and trade using mobile phones and computers.

The venture has proven successful as recent reports show that online accounts and the 18-35 demographic are the two fastest growing categories based on PSE statistics. (READ: Online stock market accounts surging -PSE study)

Updating regulations

In a bid to attract new firms to the exchange, Sicat said that the PSE regulatory board is in the process of updating some of its “outdated rules” to make them more friendly towards “new economy” firms.

“We need to educate ourselves on what SMEs, and in particular tech startups, need as when you look at the PSE, its primarily old economy firms such as real estate and banks,” Sicat explained.

Some hindrances to SME listing on the PSE include the profitability category, wherein a firm needs to be profitable for two out of the last 3 years.  Another is the track record requirement. Sicat conceded that both are not startup-friendly.

“Under our current rules for example, you couldn’t have listed Alibaba, the world’s biggest ever IPO, on the PSE because it does not have positive net income moving forward,” he said.

Sicat mentioned that the PSE is in the process of updating its rules and is taking the needs of tech startups and renewable energy firms into particular consideration.

Nolledo, who’s firm Xurpas was the first Southeast Asian consumer tech firm to be listed in December 2014, said that there are different options in changing regulations to make tech startups eligible for listing.

One possibility, he shared, was to have a high revenue or high growth requirement to offset the absence of profitability.

“A firm could be growing at 300% consolidated year-on-year with a minimum revenue of P50 million ($1.07 million) on the initial year to be counted for example,” he shared.

Rising tide of investment

A lot of the startups may seem quite mundane at first, Nolledo shared, until you see the huge upside they can have by disrupting a particular industry.

Take the case of PawnHero, he explained. “There are more than 15,000 pawnshops in the Philippines but suddenly you’ve turned every cellphone into a pawnshop. Now you have a 100 million pawnshops; that can be very disruptive.”

He said the cost structure is different as there is no rent to pay “so  capital expenditure is smaller and they can charge consumers much lower rates.”

Nolledo also cited SALt’s lamps running on salt and power which “essentially means free electricity for most of the homes that don’t have access to the grid. Imagine the value of that.”

“Does PawnHero fulfill its vision of creating a nationwide pawnship network? Will salt be able to provide free electricity to the people base of the economic pyramid? These will take years to answer and will largely depend on entrepreneurs behind the firms,” Nolledo said.

But as more and more tech pioneers such as Xurpas do well, it creates a cycle wherein each success attracts more and more angel investors, venture capitalists, and now even the PSE to reach out to startups.

This is one of the reason why successful tech entrepreneurs always try and give back to the community in from of events like Elevation Pitch, Nolledo explained.

“A rising tide, after all, lifts all boats,” he said. – Rappler.com

$1 = P46.71

(Editor’s note: Ayala and Nolledo are both members of the Rappler Board)