Sharmaine Roda M. Abangan (2011-01803) Prof.

Edison Cruz
Individual Paper No. 1 October 1, 2019

1. A unicorn is a term used in the venture capital industry to describe a startup

company with a valuation of over $1 billion. The term was coined by venture
capitalist Aileen Lee, founder of Cowboy Ventures, a seed stage venture capital
fund based in Palo Alto, California. Aileen Lee first wrote about unicorns in the her
article, "Welcome to the Unicorn Club: Learning from Billion-Dollar Startups."
where she looked at software startups founded in the 2000s and estimated that
only 0.07% of them reached $1 billion valuation. Those start-ups that managed to
reach the $1 billion mark were so rare that finding one is as difficult as finding a
mythical unicorn, hence the genesis of the term “unicorn”. Since the publication of
Lee's article, the term “unicorn” has become widely used to refer to startups in the
technology industry like the mobile technology and information technology sectors
with very high valuations.

In the US, one example of a unicorn start-up would be Airbnb. Since its
inception in 2008 Airbnb has evolved into a revolutionary and disruptive force in
the travel accommodations marketplace. Airbnb’s success can be highly attributed
to 3 things - its ability to meet the customer’s evolving needs, excellent leadership
and outside-of-the-box entrepreneurial thinking. The first thing that Airbnb did was
to think of their customers first. Airbnb’s driving force was to revolutionize traveling
for those who needed a new alternative. Secondly, leadership was pivotal.
According to Joseph Michelli, Airbnb’s leaders studied human nature, sought
partnerships with thought leaders and change agents, listened to stakeholders,
and defined the “why” of their business. Those leaders also created a sense of
purposeful urgency for the vision and shared the vision effectively using a multitude
of communication and engagement methods. Lastly, Airbnb took an extra mile by
creating their own niche within an already established (but stagnant) industry.
Craigslist was already a prominent site that was already offering users
accommodation options other than hotels – but the founders of Airbnb learned
about what Craigslist lacked (such as high-quality photos) and built Airbnb to fill
these missing needs. They continually sought creative ways to make their brand
stand out from the rest.

In Europe, BenevolentAI is a British AI start-up which develops an “AI brain”

used as a machine learning platform for drug discovery. BenevolentAI analyzes
the massive body of medical research to speed the development of treatments for
a wide range of diseases. It hit a $2 billion valuation in April of last year after a
$115 million funding to further disrupt the pharmaceutical industry.

In Asia, one of the largest all-in-one transportation service, Grab covers 168
cities across 8 countries in Southeast Asia. Since its establishment in 2012, Grab
has hit US$10 billion valuation in the most recent funding round. In the Philippines,
Grab also launched a personal assistance service, GrabAssistant and offered e-
loading services in its GrabPay platform and Grab Delivery to offer convenient food
 delivery at every household’s doorstep. Grab’s founder Anthony Tan is looking to
spend US$700 million to expand its market in Indonesia by 2020.

2. Entrepreneurial Ecosystem refers to the socio-economic environment that

shapes and fosters entrepreneurship as a strategy for economic development.
Within the system is a set of interconnected elements and stakeholders including
entrepreneurs, firms, banks, venture capitalists, business angels as well as
institutions like universities, public sector agencies and different financial bodies in
order to promote entrepreneurship and value creation. Continuous interaction of
all the key players inside the ecosystem is needed to foster deeper collaboration
and initiatives which can help entrepreneurs including the start-ups to thrive and
scale up. Entrepreneurs become very successful when they have full access to
high human capital, open markets, favorable culture, consistent financial system,
and effective governance and policy measures and robust institutional and
business support.

The case of Silicon Valley is often proclaimed as the ideal model that other
regions and countries can hope to emulate. The Valley has some of the world’s
leading universities (cultural and intellectual capital), a strong venture capital
market (economic capital) as well as some high-profile success stories,
businesses like Google Apple, which decided to stay in the region and have then
attracted others to build an amazing network of individuals and businesses
(strategic as well as network capital). These characteristics have led to the creation
of a cycle of continuous innovation. Indeed, this is a great learning for other regions
and countries in the world in order to execute Silicon Valley-like efforts. Of course,
success will largely depend on how well and how quickly these characteristics can
be adopted and properly adapted to their specific environments in consideration of
other factors such as culture, human capital, policies, markets, infrastructures, etc.

3. Innovations do not thrive in nothingness. The progress and growth of

innovations is highly dependent on what its ecosystem can support. To fully
capitalize on the opportunities for the Philippines , we have to deepen and foster
collaboration and interaction between all key players in the entrepreneurial
ecosystem. And today, this is where the challenge comes in. Unfortunately, our
country’s current entrepreneurial ecosystem remain largely fragmented in terms of
scalability hence the few number of Filipino unicorn start-ups in the country today.
When we look at it into bits and pieces, each key player in the ecosystem is still
struggling and is faced with a lot of issues. While there are some partnership
activities among ecosystem players, many of them implement activities in isolation.
The issues can be attributed to various cultural and economic factors specifically
first on cohesion between actors working towards providing support for
entrepreneurs; and second, between the national government agencies tasked to
support entrepreneurship - DTI, DICT, and DOST. To date for example, there is
no clear leader (e.g., public or private sector) facilitating the growth of the
entrepreneurship ecosystem and connecting the existing stakeholders. This
fragmented ecosystem has led to uneven support for startups, lack of information
flow on startup support initiatives which resulted to confusion about the roles and
responsibilities of government bodies in supporting the entrepreneurs.

In terms of human capital, many Filipinos aspire to earn big paychecks as

employees here or abroad instead of starting their own businesses. Enterprises
are largely meant to augment household income rather than introduce novel or
disruptive ventures. Clearly, taking risk is not common here because Filipinos are
so used to taking the secure and stable path. Moreover, the supply of scientific
and technological knowledge, a niche area for innovation, is somehow lacking.
Based on World Economic Forum’s Global Competitiveness Index, the country
posted the weakest performance in university-industry R&D collaboration, country
capacity to attract and retain talent, research institution quality, scientists and
engineers’ availability, and government technological procurement capability
compared to China and Malaysia. In addition to this, ICT skillsets in the Philippines
lag behind high-tech innovation driven economies. Also, there is a clear mismatch
between technical skills taught in schools and the actual market needs. The lack
of a pipeline of good talents with the right skills poses challenges in reaping job
creation potential in high-technology sectors as well as creation innovation-based
start-ups in the country.

The next challenge comes in relation to infrastructure, The Philippine

economy suffers from large infrastructure gaps and high utility costs. Both
households and firms suffer from the large infrastructure gaps. Filipino firms face
some of the highest utility and trade costs in the region due to limited infrastructure
and weak market competition in infrastructure markets. For instance, at $0.15 per
kilowatt hour, Philippines has the highest cost of electricity in the region. The high
costs generated by these infrastructure markets discourage private sector
investment and job creation. Furthermore, Infrastructure connectivity is average
when compared to peers. Speedtest's Global Index for October 2017 shows that
the country ranks 7th with a download speed of only 13.5 mbps in comparison to
Singapore which has a download speed of 148.62 mbps.

High cost of innovation, and insufficient financial resources (capital) remain

to be an issue as well. A 2017 startup survey showed that access to finance is one
of the biggest challenges facing startups in the Philippines, with 88% of founders
naming it as their top challenge to doing business. The lack of access to capital
prevents the startups from growing and expanding.

In terms of government regulations and policies, currently, ease of starting

businesses in the Philippines also remains burdensome, Securing business
licenses and permits usually take a longer time and the process is very
bureaucratic. There should be improvements in tax exemptions and incentives,
ease of doing business and easier access to capital and funding.

Lack of competition and investor protection mechanisms also limit the

growth of the private sector, access to capital, and by extension, access to
 knowledge in the Philippines. Current restrictions in foreign ownership is a major
barrier to capital access for startups, as well as knowledge transfer. Companies
operating in specific industries in education, real estate, finance, and land require
40% Filipino ownership or more, while ‘media’ category requires 100% Filipino
ownership. As a result, Filipino-owned startups may be disincentivized to register
their business in the country. Investors likewise may prefer to have their business
established abroad, not only in order to fully invest in or acquire a startup, but also
because an environment with these types of restrictions is not one many investors
want to do business in.

4. Ultimately, the most significant factor in order for Start-Ups in the Philippines
to scale up is to improve the existing entrepreneurial ecosystem. It is not enough
to only look and invest in one sector or stakeholder. All key players and actors
should work together in nurturing and developing a competitive and scalable start-
ups. In order for this to happen here are some recommendations:

First, culturally speaking, the population see entrepreneurship as highly

risky. One has to be able to withstand certain social pressure to start his or her
own company. As such, the number of tech startups in the Philippines does not
commensurate with the fact that it has a tech savvy and tech enabled population.
So this where should the government come in by pushing success stories and
promoting them. Successful examples have the ability to change the psyche and
create emotional support for budding entrepreneurs to pull through the various
structural challenges like lack of access to capital. We actually have existing
government programs efforts to ensure this happens and this is really
commendable. Programs such as P3 Program, Kapatid Mentor Me Program, and
those provided by QBO Innovation Hub are actually helpful in supporting start-ups
in scaling. The role of private sector is also equally important. They can Support
incubators and accelerators so to help them identify what the early stage ideas
they can pursue. The private sector can also be involved by acquiring companies
that are cutting edge, and fit their overall strategic objectives. Case in point would
be the enterprises in Indonesia. Their entrepreneurial ecosystem really started to
take off once the big corporates started getting more interested in doing things in
digital. If the large companies can embrace this idea of constant disruption, doing
experiments, funding small teams, then everyone will win.

Second, the Philippines should take advantage of its strong human capital
and their capabilities which are vital to support entrepreneurship. Improving the
quality of workforce should be a priority and this can be done by allotting a huge
budget on health and education, curriculum reforms to better meet industry
requirements and technical skills development. Currently, the Philippines is
confronted by a low proportion of enrollees and graduates in higher and scientific
education and needs to raise its stock of labor with higher and scientific education
amid rising demand for skilled workers and widening gaps in lifetime earnings
between college and high school graduates. The government must provide
meaningful support to our researchers, scientists and engineers by boosting
investments in technology and research infrastructure. Repatriating Filipinos can
be a source of knowledge transfer to improve the knowledge base and skills of the
workforce. Repatriating citizens holds some of the top talent, and they contribute
to startup and job creation in the local environment. Many governments in
emerging economies are implementing programs and initiatives to re-engage their
respective its repatriated citizens. For example, in 2008 the Chinese government
enacted the Thousand Talents program to incentivize overseas Chinese “global
experts” (scholars and innovators), particularly in STEM, to work in China through
financial, travel, residency, and a range of other benefits. In India, diaspora
members can apply for the Central Government’s Overseas Citizenship of India
(OCI) status, which entails visa-free access to India, residency, participation in
business and certain educational and financial, but not political benefits. In the
Philippines, Senate Bill 1324 or the “Balik Scientist Act” was introduced in early
2017, which sought to offer benefits, incentives and privileges to returning Filipino
experts to share their expertise and knowledge. The Bill aims to spur scientific and
technological advancements in the country, contribute to nation-building, and
nurture inclusive growth. Furthermore, a climate of trust when it comes to Filipino’s
creativity and innovativeness must be established leading to long-term sustainable
investments. The government should also reduce regulatory burdens to innovation
and establish sound policies related to entrepreneurship. This way, returns and
dividends on innovation investments can be maximized and reaped by everyone.
Overall, I believe that the most important aspect that our government should
cultivate and improve on is the country’s education system. Having an innovative,
nationalist, mass-oriented and competitive entrepreneurial mindset can be instilled
during the schooling years. In this way, the country can leverage on the next
generation, the young talents by creating technology incubators which will help us
tap the undiscovered resources of the Philippines for our inclusive growth and
development as a country.

Third, there should be efforts to improve infrastructure and boost

connectivity. Currently one of the government programs that is commendable is
the national infrastructure plan, “Build, Build, Build”, which currently undertakes 75
flagship projects on infrastructure related to airports, railways, roads and bridges,
seaport, as well as fiber optic cables and wireless technologies to improve internet
speeds. It will be a game changer to see actual improvements in Internet quality
and cost with the entry of the third telco.

Lastly, the government can support startups through a consultative policy

environment, and policy coherence across government agencies. Many economic
and regulatory policies today are carryovers from economic concerns from 70
years ago. Government could work with the startup community, and learn from the
experiences of practitioners here and overseas, to develop progressive, founder-
centric, results-oriented policy improvements. The government should formulate
laws and policies for innovative startups that will enable them to enjoy benefits
such as tax breaks and incentives. Furthermore, the government should put
measures to improve the ease of doing business and help more foreign financial
institutions to enter the Philippines. It’s actually a great move that President Duterte
signed the Philippine Innovation Act, a law which would harness innovation efforts
to help the poor and the marginalized and enable micro, small and medium
enterprises (MSMEs) to be part of the domestic and global supply chain. Through
a startup MSME innovation development program, the government shall mobilize
its various agencies to work together with private organizations to provide technical
and/or financial support programs for the development training of entrepreneurs.
References:

Cruz, J. (2017 October 20). What you should know about the PH startup ecosystem.
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startup-ecosystem

Garcia, A., Akhlaque, A., Cirera Xavier, et. Al. (2019 June 28)“PHILIPPINES:
Assessing the Effectiveness of MSME and Entrepreneurship Support”. World Bank
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