Startups should be encouraged – ADB

The Philippine startup ecosystem has improved significantly in recent years, but more can be done to spur innovation and sector growth, according to a new report from the Asian Development Bank (ADB).

The ADB report, The Philippine Ecosystem for Tech Startups, released on Friday, notes that there are currently about 700 startups in the country, defined as “a young company that innovates or applies existing technologies in innovative ways to deliver a new product or service.” – from only 100 in 2015.

“Fostering innovation is seen as a key strategy for the Philippines to recover from the pandemic, accelerate growth and achieve high-income country status by 2040,” the report says. “Through their innovative capabilities, startups can play an important role in these processes.”

The market is currently dominated by fintech and e-commerce startups, but the report highlights the need for businesses in agtech (agriculture), education tech (education), cleantech (environment), and health tech (health). which are considered to have a major impact on development.

The current startup ecosystem has proven to be favorable and the government is said to have implemented policies and programs such as the Innovative Startup Act and the Philippine Innovation Act. Many incubators have also been established and grants are available.

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Against this backdrop, “politicians – and other non-government players – can continue to strengthen the ecosystem to spur the growth of start-ups and thereby contribute to economic dynamism,” the report recommends.

At the highest level, he called for an annual review of the Innovative Startup and Philippine Innovation Laws, and the appointment of startup leaders to the National Innovation Council.

In terms of programs and regulations, it was stated that requirements for grant programs need to be streamlined, and a co-financing scheme should be established to support local governments in building ecosystems.

At the same time, it is necessary to improve the quality and management of incubators, and to promote the creation of accelerators. The digital infrastructure also needs to be improved along with digital literacy.

In terms of procurement and approval, start-ups should be aware of opportunities in the public sector, endorsement of health technology start-ups should be encouraged, and the government should make decisions for start-ups.

Meanwhile, startup investors should be given their own system of tax incentives, and the government should reduce the need for foreign registration of startups to attract venture capital.

Finally, talent can be encouraged through a voucher system to encourage students to choose science, technology, engineering, and mathematics (STEM) degrees. The report says that STEM elements in agriculture courses should also be increased.

In a statement announcing the release of the report, ADB highlighted the financial constraints faced by start-ups.

Venture capital provided by large corporations remains the main source of funding for start-ups in the Philippines. There are reportedly at least 40 venture capital firms in the country, but most investments are focused on fintech, media and entertainment, and e-commerce.

“Investors need to be attracted to agtech, cleantech, education tech, and health tech to give these sectors a better chance to grow,” ADB economist Paul Vanderberg said in a statement.

“Investors need to understand the sector before they feel comfortable,” he added. “If they don’t know the sector, it’s considered riskier and they’re less likely to participate.”

Many of the startups interviewed for the report reportedly joined incubator programs that provide them with mentors and networking opportunities.

“Incubators cater to early-stage startups, while advanced-stage startups seek more personalized mentoring and support,” ADB said.

“There is currently no established accelerator in the Philippines that offers this kind of customization.”