Profitability Over Growth: Study Paints Gloomy Outlook of Filipino Startups for 2024

Most Filipino startups are not very optimistic about the year ahead, particularly in terms of funding opportunities, according to a new study. Based on a survey of local startup founders released this week, the study found that, on a scale of 1 (very pessimistic) to 5 (very optimistic), startup founders’ average score for funding outlook in 2024 was at a dismal 2.65.

The average economic outlook for the country, meanwhile, was slightly better at 3.40.

According to the Philippine Startup Founders Outlook Report 2024, which was conducted by startup-focused communications firm Uniquecorn Strategies and market research company The Fourth Wall, the overall dour mood of startups is due in large part to a sharp decline in funding for local startups in 2023, which fell 40 percent versus 2022 according to the Philippine Startup Ecosystem Report released by venture capital firm Gobi-Core Philippine Fund last November.

The study also inferred a correlation between the lack of funding and the lack of confidence in startup founders’ own valuation of their companies for 2024. On a scale of 1 (significantly lower) to 5 (significantly higher), founders’ average valuation assessment score was at 2.65, which points to expectations of lower valuations compared to 2023.

As such, given a choice between prioritizing growth or profitability, founders overwhelmingly picked the latter (25 percent versus 75 percent).

“Funding has dried up and we want to be able to survive through profitability,” the study quoted one of the founders as saying.

“Long-term profitability is key to having a sustainable business for our model,” said another.

“We do NOT want to depend on venture capital funding,” added one.

“For the next 12 months, 70 percent have identified profitability as their top priority,” the study said. “The necessity to ensure financial sustainability has forced founders to recalibrate their focus, underscoring profitability as a key objective, which is largely attributed to the dry funding climate and the short runway faced by many startups.

“Meanwhile, improving customer experience and product development are also high on the agenda, garnering 55 percent of responses each,” it added.

The findings of this study mirrors the one released by Gobi-Core to coincide with the opening of Philippine Startup Week 2023. Gobi-Core pointed to “adverse market conditions influenced by a confluence of factors” for the slowdown in funding and deal count. That includes conservative investor approach in the face of low borrowing costs as well as a shift in investor sentiment amid lower returns from debt investments and increased stock market uncertainty.

The Gobi-Core report, which was also based on a survey of startup founders, revealed that the biggest challenges facing startups—in addition to funding concerns and access to capital—are regulatory hurdles and government support, a lack of educational and learning opportunities within the country, infrastructure and resources, cultural issues, and a shortage in talent and manpower.

The Uniquecorn study, meanwhile, found that local startups are most concerned about two external factors that have a direct effect on their companies: the Philippines economic growth performance and government regulations on investments. For instance, on a scale of 1 (very low) to 5 (very high), founders average rating for how helpful government policies have been to their startups at just 2.45. Also, when asked when asked to name what government policy has been helpful to their startups, the majority of the respondents said none, which is an indication of the negative perceptions of startup founders on the role of the government.

Despite the glum findings, a silver lining in the study is that just over half of startup founders surveyed (55 percent) said they expect their startups to become profitable within the next one to two years, while 20 reported that profitability is something that their startups have already achieved.

It’s worth noting that, according to the Uniquecorn report, only 23 percent (23 individuals) of the 100 Filipino startup founders who publicly disclosed receiving funding in 2023 responded to the survey.

The full report can be access here.

SOURCE – Esquire PH.

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