From the editor: When it comes to early-stage investing, few venture capital firms can match Wavemaker Partners. Headquartered both in Los Angeles and Singapore, they’ve raised over $600 million over the last 18 years, investing in more than 400 companies, with well over 60 successful exits.
Eric Manlunas, group founder and managing partner of Wavemaker, sits down with the Independent Investor to discuss the road ahead for Southeast Asia’s early-stage ventures, highlighting the trends, forces, and opportunities for innovators in the Philippines.
Guided by his own experience launching tech startups in the early 90s, seeing them through their acquisitions, and supporting hundreds of firms as a global early-stage venture capitalist, Manlunas shares his insights on how entrepreneurs and investors can better collaborate towards building a stronger, more vibrant region.
Eric Manlunas, founder and managing partner of Wavemaker, in his own words:
The Independent Investor: First and foremost, congratulations on the two awards your firm recently won at this year’s Singapore Venture Capital and Private Equity Association Awards. This is the first time a VC firm has won both VC Exit of the Year (with TradeGecko) and VC Deal of the Year (with GrowSari). How does your team feel about this historic double-victory?
Eric Manlunas: While getting awards isn’t our goal, it’s rewarding nonetheless to be recognized for the hard work that our team has done. Of course, neither of these awards would have been possible without the founders and team members of both TradeGecko and Growsari. So in reality these awards are really all about them. The founders are the real “Wavemakers” and it’s always been all about the entrepreneurs. They’re the true problem solvers who are constantly putting their necks on the line to improve their respective industries. We’re merely the capital allocators that were fortunate enough to have been part of their respective journeys.
That said, these two awards have validated our fundamental thesis from the very beginning that Southeast Asia is very capable of producing legitimate and valuable technology businesses. Therefore, our bullishness on the region has been bolstered and as a result we intend to continue backing exceptional entrepreneurs who are determined to solve important industry pain points based on their profound and unique insights.
TII: Speaking of the region, industry experts are hailing the next decade as Southeast Asia’s golden age for growth and opportunities. But while scores of startup success stories in Singapore and Indonesia paint a glowing picture for the region, other countries like the Philippines generally struggle to keep up. As a venture capitalist involved in Southeast Asia’s startup ecosystems, what are the key challenges that come with investing in the region?
EM: While Southeast Asia is considered one economic bloc, its cultural and historic diversity does not make it a homogeneous economic market. In spite of its common denominator of rapid economic growth across the region, this trading bloc lacks commercial uniformity. Its diversity translates to ten different ways of doing business, sometimes even more even if it’s within the same country. This lack of homogeneousness or lack of commercial uniformity is the biggest challenge facing venture capitalists or any other investors looking to invest across the region. Therefore, it’s quite imperative for venture capitalists to understand this nuance.
Localization, and sometimes even hyper localization, is key to enhancing the likelihood of success for businesses that are addressing the needs of each market. “One size fits all” types of approaches will not work! This applies to both the different types of entrepreneurs and the different types of business models across the different countries in the region. Any investor who doesn’t believe this will be in for an economic shock.
TII: In the recent e-Conomy SEA 2021 report from Google, Temasek, and Bain & Company, the Philippines was found to be the fastest growing market in Southeast Asia. The country’s 2021 GMV surged 93% year-on-year to an expected total value of $17-B. By 2025, the Philippines’ total internet economy is expected to reach $40-B dollars. With all that projected growth driven by the internet economy, what do you feel that means for the Philippines’ early-stage venture ecosystem in the next 5 and 10 years?
EM: These tailwinds will hopefully become a source of inspiration for Filipino entrepreneurs to band together to figure out technology solutions for the most pressing problems that need better solutions. Since the Philippines is coming from a relatively low base, there’s absolutely nothing but upside from here so we expect more technology business formations to happen in the next decade now that there’s supporting data that the local market is large enough to support these new business formations. The data suggests that “rising tides will lift all boats” so studies like these can truly jumpstart and inspire a whole new cohort of creative and innovative entrepreneurs.
That said, business owners of any size, if they haven’t yet, should seriously consider onboarding technology tools to enhance their competitiveness. The ones that don’t and ignore the power of technology will become irrelevant. They should focus on finding the appropriate automation, analytics, and business intelligence software to not only create efficiencies but give them unique insights on how to improve their businesses.
“One size fits all” types of solutions will not work! … Any investor who doesn’t believe this will be in for an economic shock.
Eric Manlunas, Founder and Managing Partner of Wavemaker
These technology tools can improve customer experience, expand operating margins and create conducive work environments, which means a win for the customer, a win for the business owner and a win for the employees. Those “triple wins“ made possible by technology could lead to breakthroughs that could create durable competitive advantages.
We are still in the early stages of this digital transformation tailwind, therefore we expect more technology tools to be adopted by all businesses of all shapes and sizes. Technology tools that enhance efficiencies should be a must. Without them, a business won’t have a shot at sustainability. For instance, a technology solution to acquire customers more efficiently and an analytics tool that gives a business the ability to understand its customer lifetime value should be the norm for any business. Knowing where to find your customers, how to acquire them in the most cost effective way and what their long term value is are critical to commercial viability and sustainability for any business.
TII: Compared to other regional economies like Latin America, Southeast Asia is notoriously fragmented due to the diversity of languages and cultures across—and even within—different countries. What key challenges do you see here that are specific to the Philippines?
EM: The Philippines is notorious for over regulation and redundant business formation requirements so streamlining these would be a huge help in easing the burden for aspiring entrepreneurs. There’s really no reason there has to be multiple layers of permitting process when it comes to getting a commercial enterprise up and running. Regulatory overreach and redundant business requirements are costly tailwinds that unnecessarily slow down creativity, innovation and commercialization. Streamlining all these may just be the catalyst needed to jumpstart a startup boom.
TII: As an investor focusing on early-stage ventures, you take on relatively higher risks than other VCs. How does your team at Wavemaker assess entrepreneurs, specifically first time founders?
EM: Whether they’re repeat or first time founders, understanding the clarity of their vision and imagining the scale of their ambitions are two things we spend lots of time assessing. A founder with lots of relevant knowledge and experience can inspire lots of confidence and being able to clearly articulate their unique insights on how to create an exponentially better solution is a huge plus.
On the flip side, we try to avoid founders who rely too much on buzzwords and those who overly index on hype to tell a story. In our experience, nothing good ever comes out of those. The bottomline is, we’re constantly on the lookout for credible founders with compelling visions based on their unique insights on how to disrupt and improve their respective industries. Most importantly, we prefer to back founders that can and will succeed with or without us.
TII: From the perspective of a founder now—what should an entrepreneur be looking for in an ideal investor? What red flags might you encounter as an entrepreneur that signal you could be entering the wrong deal for your startup?
EM: Founders should spend a lot of time getting to know their investors. They should conduct due diligence on their potential investors the same way their potential investors evaluate them. Taking on outside capital is something that should be taken quite seriously. Not all financial capital is equal! While taking on capital is a form of a transaction, this exercise should not be considered “transactional” in nature. Just like a marriage, they should pick a partner they know they can get along with in good times and in bad. And more importantly, there has to be chemistry.
Founders should know the temperament of their investors to get a sense on how they would behave in all kinds of situations. They should try to determine if their potential investors are comfortable being uncomfortable since there will most likely be rough times ahead. You don’t want a panicky investor or someone that easily gets discouraged. Those are the worst types of investors. Finally, founders should pick an investor that has built a tangible business prior to becoming an investor. That is the best indicator of an empathetic financial partner. Entrepreneurship is a lonely journey so pick your companion carefully.
TII: Corporate VCs and conglomerates hold a ton of influence over the Philippine tech ecosystem, owning and shaping vast swathes of the space. What effect do you see that having on the future of our early-stage venture ecosystem? How would you see more independent funding affecting that?
EM: Whether it comes from corporate VCs (CVCs) or conglomerates, more capital into the nascent Philippine ecosystem is always welcome and always a good sign. However, as mentioned earlier, not all capital is equal. There’s nothing wrong with CVCs and conglomerates flexing their influence across the ecosystem for as long as their motives are pure, meaning that they’re not going to influence a startup’s strategy to just serve their own needs. They have to let the entrepreneur execute on their vision and create a product that is good for a broader set of stakeholders and not just what’s good for the conglomerate.
CVCs and conglomerates that have ulterior motives are bad for the evolution of the Philippine ecosystem. That’s where independent sources of capital can play a crucial role. These capital providers can force the CVCs and conglomerates to play the game the right way. And that is to let the entrepreneur execute based on their unique insights on how to solve a particular pain point.
The bottom line is entrepreneurs need to be a lot more discerning on whom to pick to be their capital partners. The correct one will make the journey much less challenging. The wrong one will not only compound the pain, but can poison a perfectly good concept.
With additional reporting by Marga Manlapig