Philippines Remains a Key Market for 1982 Ventures

March 23, 2020

Article reprinted.  

Original link: e27

Written by: Sainul Abudheen K

'Access to institutional VC funding is a major concern in Philippines': Herston Powers of 1982 Ventures

The fintech regulatory environment should remain stable and may be more progressive to help foster a post coronavirus recovery, he says

Fintech is just getting started in Southeast Asia with half a billion customers waiting for financial services. The sector’s promise is underpinned by Southeast Asia’s growth story of continued strong economic growth, large and growing middle-class population and rapid tech adoption.

“Fintech will be the backbone of Southeast Asia’s new economy, and the region’s digital economy needs fintech to keep growing. Plus, financial services need to catch up to provide access to the underserved,” Herston Elton Powers, Managing Partner at 1982 Ventures, tells e27.

Headquartered in Singapore and started in December last year, 1982 Ventures is a seed-stage fintech fund exclusively focused on Southeast Asia. The firm is looking for deals in various fintech verticals, such as insurtech, digital banking, lending, payments and remittances. It will also invest in fintech that leverages blockchain technologies.

In this interview, Powers talks about the region’s fintech landscape, how the Philippines is growing and how Covid-19 is affecting the startup sector.

Edited excerpts:

1982 Ventures is an unusual name for a VC fund. Why this name and what does the number stand for?

Both Managing Partners were born in 1982 and this is how we came up with the name 1982 Ventures. The market feedback on the name and brand has been extremely positive and we are happy people are interested in finding out more about 1982 Ventures and what we stand for.

Can you share details about the fund? What is the corpus? What is the investment thesis? Does the fund also cover crypto, blockchain, etc.?

1982 Ventures is the first seed fund exclusively focused on fintech in Southeast Asia. We have coverage across the region and fintech verticals. Our focus makes us the first port of call for fintech founders and the first money in.

Our core mandate and thesis are straight-forward: seed-stage fintech in Southeast Asia.

Have you made investments from the fund yet? Have you identified any companies for potential deals?

Our ticket size ranges from US$100,000 to US$500,000. On average we expect our initial investment into a great startup to be US$250,000, which will allow our LPs the opportunity to co-invest alongside us in the appropriate deals.

We are working on a few investment deals now. We expect to invest in about 40 companies across the region.

You have a special focus on the Philippines’s fintech market. What opportunities does the market offer? How is the overall fintech ecosystem growing?

The fintech ecosystem in the Philippines has continued to grow and we expect the growth to accelerate once the dust settles from the Coronavirus and lockdown.

We see similar opportunities around fintech business models that have been successful in other markets.

We’re not the only ones seeing this; the Philippines has attracted more and more foreign founders who see the market as the most opportune place to launch their startup.

The broader ecosystem is beginning to realise that startups can create more value when they are supported and have the chance to grow. With that said, this hasn’t always been the case and we still see instances where founders end up with term-sheets that strangle the company.

We see less of the cliched ‘Series B gap’ now. Access to institutional venture capital in the Philippines, especially in the seed-stage, is a major concern for founders and investors.

In short, we expect the Philippines fintech opportunity to need a bit more time to hit scale for foreign late-stage investors but the time to plant seeds is now. We are looking past the current global macro situation and looking for opportunities when this storm passes.

What do the government and private sector do to boost fintech in the Philippines?

The government and private sector are both currently moving in the right direction and fintech in the Philippines will continue to grow. There are millions of consumers and SMEs waiting for financial services and this will drive the positive development of the fintech sector.

The regulators in the Philippines have been integral to fintech development in the country. A great example is a recent approval from the Bangko Sentral ng Pilipinas (BSP) for Southeast Asia’ first pure-play digital bank Tonik.

Our viewpoint is that the regulatory environment should remain stable and may be more progressive to help foster a post coronavirus recovery.

Both the government and the private sector will need to increase their efforts to not only support fintech development but to ensure workers, startups, SMEs and larger companies will be able to prosper once things return to normal.

Ever since fintech came to the fore, there has been strong resistance from banks against adopting it. Many argue that big banks are designed to resist change, and instead of undergoing a digital transformation, these establishments are setting out to compete against fintech to kill change. How do you look at this argument?

We do not subscribe to such a broad statement and see banks or other incumbents’ approach fintech in different ways. We have seen strong partnerships between banks and fintech firms with regards to channelling and lead generation to provide financial services to client segments that are difficult to service or acquire.

Innovation and adopting technology will not happen at the same pace for every bank. What we learn from other markets is that the banks that embrace technology and healthy relationships with fintechs emerge as winners.

We have seen banks across the region successfully establish corporate venture capital arms to invest in and support fintech VC funds and fintech startups.

In the Philippines, Union Bank has made bold and progressive moves by launching its fintech and innovation arm, UBX Philippines.

The main argument big banks have against collaborating with fintech is that it creates risk. Do you agree?

Often the perceived risk is with an individual at the bank, who is scared to make a decision out of the box. Of the many banks that fail each year, we don’t see cases where that failure was a result of having partnered with a fintech.

Digital banking licence is currently the most exciting trend in Southeast Asia, particularly Malaysia and Singapore. Is it a good trend? Will it bring in a positive change? How far will it go to bring in financial inclusivity into these markets?

Digital banking as an investment opportunity is a core focus for 1982 Ventures. The first bank account for the majority of Southeast Asians will be a digital bank.

Singapore digital banking applications have skewed towards established and larger players in the market. As a seed-stage investor, we are focused on the early-stage fintech startups across Southeast Asia that will either launch and operate these neo banks or provide technology to enable a broader and more robust open banking environment.

How is Southeast Asia picking pace with the global fintech trends?

In our view, fintech is just getting started in Southeast Asia. We have seen how strong fintech has become in the West, China, India and even Latin America. This includes the number of fintech unicorns, exits and number of successfully launched fintech business models in those markets.

Southeast Asia has the right combination of economic and demographic conditions, including high technology adoption, coupled with the massive opportunity to bring in millions of people and businesses into the financial system. We expect the impact of fintech to be as significant or even stronger in Southeast Asia compared to the rest of the world.

Do you foresee a decline in startup investments given the rapid spreading of Covid-19?

Historically, there have been declines in startup investments after a crisis. The duration of the Covid-19 situation and impact on the business environment will be the major factor on if we see a decrease in startup investments in the region.

While the environment will be challenging, as an investor we see a great opportunity to back founders now along with valuations in certain sectors coming down a bit. We are focused on how to best to position ourselves and our stakeholders once the situation stabilizes and markets begin to return to normal.

What is your advice for your portfolio companies to tide over the Covid crisis?

The Covid-19 situation will undoubtedly hurt many of the startups across the region and we expect startups that were on the brink of low on cash to have a tough time surviving this crisis.

Founders may need to switch their mindset to from a “peacetime” to “wartime” CEO, which will mean making tough decisions on headcount, cutting costs and delay expansion plans.

While the environment will be challenging, we see that great companies have been seeded in the past crisis and there will be opportunities for nimble and lean teams to create significant value over the next few years.

When we speak to founders we are also concerned about their well-being (including their families) and how this crisis may be affecting their mental health and well-being.

These times will test our spirits and we want to ensure that we listen to founders if they need to vent, ask for support or begin to think about strategic plans and opportunities for when this storm passes. We have seen founders focusing on uplifting their communities during these challenging times which inspires us.