How to Invest in Venture Capital & Private Equity Funds in the Philippines – Grit PH (2024)

Last Updated on – Nov 5, 2023 @ 12:44 pm

Picture this scene:

Pre, this is it! Ang ultimate bathroom companion!

You: Baka yung USB-powered bidet na naman yan ah, kalimutan mo na tol.

Hindi pre, eto na talaga. Eto maglalagay sa Pilipinas sa mapa ng mga sikat na imbensyon!

Presenting…

… ang unli-soap!

Ang sabon na hindi nauubos!

Intrigued (and highly doubtful), you test it out. Wonder of wonders, it really lathers and cleans but doesn’t melt one bit!

You: Ayos to pre ah!

But he has a problem: He needs some money to manufacture, distribute, and to market his unli-soap. And he’s asking for your financial help in exchange for a stake in the company once its in operation.

Ano pre, game ka?

Would you put your money on the world’s first ever unli-soap?

I know I would.

It’s a soap that never melts—-think about it! On your daughter’s debut speech, she’ll thank her loving sabon for 18 years of loyal service. “Soapy” is a part of the family.

I’m 99.9% sure that most people would find it useful.

As an investor, I imagine my money multiplying ten times over (or even more) once the company hits the big time.

Uhm and of course, I get to help my friend.

Beats betting on the lottery any day if you ask me.

This, my friend, is how investing in start-up companies pretty much looks like. Have you ever watched an episode of Shark Tank? It kinda works the same way (for the most part, at least).

And today, we’ll take a closer look at two very similar ways that people and companies invest their money:

Through Venture Capital and Private Equity funds.

But we’re getting ahead of ourselves. Let’s unpack this stuff slowly and start by answering the most obvious question:

What are Venture Capital firms and Private Equity funds?

Related: 12 Best Investments under P100,000

What is Venture Capital Firms (VCs)?

Let’s use our example earlier. What if a group of folks approached your friend and said:

“Sir, we’re willing to provide you with a million pesos to start your unli-soap business.”

Friend: Really? I’m interested! What do you want in exchange?

“In exchange, we want 40% ownership of your business and a seat in your board of directors. And you’ll also have to pay us 2% management fees every year.”

Now whether or not your friend takes the deal, it’s obvious that an offer like that can sound really tempting.

Imagine, some folks are willing to give you the capital you need to kickstart your business.

No need to go to banks and beg for a loan! Because in reality, banks are very strict in granting loans to new businesses in general due to the high risk it comes with.

Venture Capitalist firms, (or simply Venture Capitalists—-VCs), operate the same way. They collect money from a bunch of investors willing to fund start-up businesses.

The pooled money is called Venture Capital. In return, they get to earn from their shares when the business gets successful, starts generating revenue and then either get bought by a larger company at a higher price or go public—-shares of the start-up’s stock gets sold in the public stock market (IPO).

Either way, they earn when the initial stocks they bought (their equity) increases in value and gets bought at a higher price. VCs also earn from management fees and carry on interest (earnings on gains),

It’s risky business, but one that promises uber-high returns for their investment.

Speaking of Uber, Chris Sacca, one of Uber’s earliest VCs, invested roughly $300,000 in 2009. Fast forward to 2019 after Uber went public (IPO), his estimated stake in it sits at $1,900,000,000 (2.5% equity).

That’s a lot of zeros right there. Sure, Uber is considered a “unicorn” in the world of start-ups. But it just goes to show you why these VCs are willing to take such high risks: the returns can be massive.

But because of the high risk, there’s a high rate of failure and loss of investment among VCs. For every Uber, Facebook, Pinterest, AirBnB, Spotify, and Twitter, there are thousands of start-ups that crashed and burned—-and along with it, all of their investors’ money.

Venture Capitalists usually have their own committees for making investment decisions.

Their job is to identify emerging companies and then pool investor money to fund these businesses in exchange for a portion of ownership in the business (equity).

Most VCs don’t usually look for newly-hatched business ideas to fund. Rather, they try to look for those businesses who are at that stage where they are ready to commercialize.

Aside from seed money, VCs can also help start-ups with setting up their facilities, office space, human resources, and provide valuable advice in running the business.

They can also open doors and build connections that will help the start-up reach their goals faster.

Nurturing a start-up’s growth is a VC’s main focus. Their goal is to help the business succeed, because if it does, then it means their investment is set to produce tremendous returns.

What are Private Equity Funds?

Private Equity (PE), is defined as ownership of shares in a private business (shares not sold publicly in the stock market).

A Private Equity fund, at its core, is a pool of money collected from accredited investors for the sole purpose of investing in equities of a company.

A Private Equity firm is an entity that creates and manages the PE fund. Private Equity, therefore, is company ownership by a specialized investment firm (PE firm).

A PE fund typically has a lifespan of 10 years and is established using a Limited Partnership (LP) framework.

Private Equity Firms source funding from various types of accredited and institutional investors. A PE firm can use the PE fund to buy several companies at a time, depending on its strategy and overall financial capacity.

To be clear, they can buy all or a portion of both private and public companies.

When a PE firm buys out a public company (whose stock is sold in the stock market), it “delists” (removes) the company from the stock exchange, making it “private”.

Why do this? Why not simply “fix” the company even with its public status?

The main reason is this: public companies (whose shares are sold in the stock market) has its shares owned by, well, the public (anyone who bought its stock).

And stock market investors, in general, want revenue on their investments, as often as they can, and as early as possible.

Private Equity firms, on the other hand, are willing to play the long game. Usually, part of their game plan is to implement new and alternative strategies to save the company and make it profitable again.

There’s one caveat, however, and that’s these strategies usually do not sit well with stock market investors who want a quick return on their investment.

And that’s why PE firms buy and delists the company from the market, taking it private.

Once they have full ownership, they can apply methods and strategies with the sole purpose of reviving or improving the company, shielded from the influence of shareholders.

They no longer have please stock market investors and now have complete freedom in running the company.

To illustrate how Private Equity firms work at the basic level, let’s go back to our unli-soap scenario:

After 7 years in operation, Unli-Soap Inc. starts having issues in management and production. They now also have several competitors, taking away most of their market share.

A Private Equity firm approaches Unli Soap Inc with an offer:

PE Firm: “We’re willing to buy your company for Php 50 million.”

Unli-Soap: *After its board and management decide* Okay, we’ll take it.

PE firm puts in 10 million of their own and raises another 10 million from institutional investors (endowments, pension funds, and insurance companies).

They then borrow the remaining 30 million from commercial banks.

PE firm now owns the company and starts implementing strategies to make the company profitable again.

After 5 years under new ownership, Unli-Soap Inc starts generating revenue again. Its overall value starts to climb back up.

And when that happens, the PE firm and its investors can decide to sell the company for a higher valuation compared to when they originally purchased it.

Also, when a PE fund gets established, the contract may indicate a certain percentage that the firm will receive when the business gets sold. For example, a contract may state that the PE firm gets to receive 20% of the capital gain when the business gets sold,

The PE firm also charges an annual management fee for handling the PE fund.

Venture Capital VS Private Equity Funds

While both are essentially in the business of making money by investing in companies and ultimately selling, there are a couple of key differences between private equities and VCs.

Stage

VCs invests in startups (new business) that appear as if they are about to break out (get successful).

These companies are typically a few months to 1-2 years in existence and are about to engage or release a service or business that shows great revenue potential.

On the other hand, Private Equity focuses mainly on existing businesses that have been in operation for some time and are currently experiencing problems in staying profitable and in operation.

They swoop in and buy the business as a whole with the goal of improving it in all aspects and then earning from it once it starts generating revenue again.

I like to compare it to those TV shows where the hosts will buy a badly disfigured piece of property, renovate it, and then either earn from rental money or sell it at a high price.

How they profit

VCs essentially “groom” a budding new business to help it become successful so that it will become valuable, thus increasing the value of the VCs shares (equity).

They profit once the company starts selling its shares. They also charge management fees that get paid on a yearly basis.

Aside from charging management fees and capital gain, Private Equities profit by selling shares (entire businesses in some cases) of the business.

The revenue that a company produces will go to the private equity investor’s pockets.

Level of Engagement

Private Equity investing is generally considered to be a more hands-on endeavor compared to VCs in that they actually take the reigns from the previous owners and run the business.

A VC’s level of engagement typically peaks during the initial phase of funneling seed money.

As mentioned earlier, some VC’s can also lend a hand on other stuff but in general, running the business still mainly falls into the hands of the founders.

Percentage of Ownership

In general, Private Equity funds own more in terms of shares of a company versus VCs. This is because their strategy revolves around owning the entire business and taking it private.

You’ll need to own the majority of shares to be able to provide that directive.

Types of Businesses they Invest in

Venture capitalists typically invest in technology startups, whereas Private Equity funds are more flexible and can invest in various types of businesses.

How they provide funding

VCs provide funding via a series of investment rounds. Each round represents funding for a specific stage or milestone of a start-up. Here’s a quick look at what happens on each round:

• Seed Stage – (Est: $150,000-750,000) Funding for the earliest stages of the company when they need capital to continue developing their product and grab their initial customers
• Series A – (Est: $1M-$10M) Stage wherein the company has been able to create a product that addresses a particular need in the market. Need additional funding to scale the business
• Series B – (Est: $5M-$25M) Company should have been able to show measurable results (revenue, market share, growth engine) with a focus on scale and grabbing the majority of the market
• Series C – (Est 10M-$100M) Late-stage where the company is now capable of large scale expansion and developing new services and products.

Also Read: Top 12 Industries to Invest in the Philippines

Top Venture Capital (VC) Firms $ Private Equity Funds in the Philippines

1. Investment & Capital Corporation in the Philippines Venture Partners

Considered as one of the pioneers when it comes to VC investing in the Philippines, the company has been operating for more than two decades.

They facilitate growth-stage funding and provides start-ups with their network and resources to promote its growth.

The industries they invest in include:

• Core Technology
• Value-Added Services
• Software
• Consumer Products and Services
• Early Stage VC Funds
• Construction & Engineering

2. Kickstart PH

This VC firm funds early to growth stage start-ups since 2012. Spun out of Globe Telecom, their early portfolio included nine seed-stage companies using their US$2.5 seed fund

The industries they invest in include:

• Enterprise Solutions
• Media & Content
• Financial Technology (FinTech)
• Health Tech
• Lifestyle & Consumer
• eCommerce
• EduTech
• eProperty
• Internet of Things (IoT)

3. Original Pitch

Founded in 2016 by businessman JJ Atencio and partners, this VC firm invests in both offline and online businesses from seed to growth stage.

Per their site, their focus is to back individuals and companies with a sustainable competitive advantage and offer original, real-world solutions to high-growth markets.

Founded in 2016 by businessman JJ Atencio and partners, this VC firm invests in both offline and online businesses from seed to growth stage.

Per their site, their focus is to back individuals and companies with a sustainable competitive advantage and offer original, real-world solutions to high-growth markets.

The industries they invest in include:

• FinTech, Advertising
• Fashion & Sports Brand
• Hospitality
• FoodTech

4. Narra VC

This Venture Management and Advisory group was established in 2002 to invest in high-tech companies showing potential for accelerated growth.

The industries they invest in include:

• Semiconductors (and related products),
• converged communication systems
• computing platforms
• software services
• design services
• information systems.

5. Core VC

Core Capital was established in 2018 as a VC providing early-stage funding to local technology companies.

They created and currently manage the Gobi-Core Philippines Fund along with Gobi Partners (another Asian VC).

The industries they invest in include: Education and Health Tech

6. First Asia

One of the earliest Venture Capital companies in the Philippines, First Asia was originally established as a management consultancy firm which later shifted to VC operations within 6 years.

According to its website, the company now operates as a direct investment holding company with a portfolio covering various local industries.

The industries they invest in include:

• Freight Forwarding
• Real Estate & Asset Management
• Publishing
• Electronics
• Education
• Hotel & International Hospitality Management
• Security Services
• Construction

7. Morningtide Capital

According to their website, the company’s goal is to, “To provide SMEs with a data-driven, financial backbone for their funding request using the FDEA framework.” Their focus is on Philippine SMEs that need funding to finance its growth.

The industries they invest in include:

• Manufacturing
• Retail, E-commerce
• Pharmaceuticals
• Transportation
• Energy
• Cosmetics
• Construction
• FinTech & Microfinance
• Food & Beverage

8. Gideon Venture Capital

This VC firm’s focus is to provide funding for high-growth industries like FinTech, Business Services, and Media. All three founders (Geoffrey Nuval, Anson Uy, and Edison Tsai) are seasoned tech entrepreneurs with years of experience across various industries.

The industries they invest in include:

• Technology
• Business Services
• Digital Lifestyle & Commerce
• Social Impact

9. Navegar

Managed by Honorio Poblador and Javier Infante along with Brummer & Partners, this Philippine-based private equity fund has over $120 million in committed capital.

Aside from providing funding for established businesses to help them grow, they also assist in financial, operational, and strategic aspects of the companies they invest in.

The industries they invest in include:

• Health Care
• Food & Beverage
• Business Process Outsourcing

10. Argosy

This Philippine-based private equity and advisory firm has multiple partners across Asia.

Per their website, Argosy, “Identifies attractive businesses with high growth potential and long-term competitive advantage, Argosy is focused on creating new businesses to fill market gaps.”

The industries they invest in include:

• Property & Financial Services
• BPO
• telecommunications
• power
• industrial companies

11. Primeiro Partners

Primeiro is a top advisory firm that advises companies in Capital Raising, Mergers & Acquisitions, Project Financing & Restructuring, and Asset Management (VC and Private Equity funding).

The industries they invest in include:

• Consumer
• Technology
• Energy
• Industrial
• Media/Telecom
• Real Estate
• Specialty Finance
• Transportation

12. Sierra Madre

This private equity group specializes in bringing multi-stage investment experience across start-up, high-growth, carve-out, leveraged buyout and buy & build situations.

The group prides itself for having extensive local business and management networks which they built over decades in operation.

The industries they invest in include:

• Semiconductor
• Food & Beverage
• Health
• Transportation & Logistics
• Retail
• Consumer Goods
• Business Services

Top Reasons Why You Should Invest in the Philippines

PwC’s excellent “Philippine Start-Up Survey” report highlights the country’s developing startup ecosystem.

In it, they noted that the country’s startup scene has started to gain traction over the last few years and is now primed for magnification especially now that both private and government bodies are doing their part to foster meaningful growth.

Whether you are an investor or a start-up founder/member (or basically anyone interested with business in general), the following factors are worthy of consideration as legit reasons to invest in the Philippines.

1. New Policies and Projects Set to Help Start-Ups and Entrepreneurs

The number of Filipinos who wish to set up or are already managing their own businesses have been rising in the last few years.

To help foster growth and strengthen the ecosystem, the government launched several programs for helping both traditional and tech-based industries.

These projects include the P3 Program, QBO Innovation Hub, Go Negosyo Act, Slingshot Philippines, SME Roving Academy, Go Lokal!, Kapatid Mentor Me Program, and Shared Service Facilities.

Also worth noting are the proposed Philippine Innovation Act and Innovative Start-Up Bill which are aimed to help startups with tax incentives and funding.

2. Access to World Class Talent

The Philippines boasts of a high literacy rate that hovers between 96-98% over the last few years.

We produce some of the world’s most efficient and competent workers and professionals because of this.

Also, Filipinos are well-versed in English, which helps a lot in eliminating communication gaps with foreign investors and companies.

3. Better Infrastructure

The current administration’s Build, Build, Build Program can indirectly help through the creation of new airports, railways, roads, bridges, and seaports that will significantly help with travel and logistics in the country.

It also helps create jobs that aid in further growth for the economy.

4. More Affordable Business Costs

A 2012 DFA report reveals that foreign companies estimate around 30-40% savings in business costs.

On average, wages are typically a fifth of what counterparts in the US earn.

5. Founders Need Capital

The emerging start-up scene along with increased support from private and local sectors means more individuals will be more inclined to pursue their ideas and build a start-up.

And while this recent positive boost is great, the biggest resource that everyone needs to start is capital.

And lots of it.

Founders need capital, which means it’s the perfect time for investors to extend a helping hand while at the same time have the potential to cash in when their picks turn a profit. In the end, it’s a win-win situation.

6. The Philippine Start-up scene is yet to fully mature

While it has been showing signs of momentum and growth, there’s still plenty of opportunities and markets that need innovation.

This opens up plenty of chances and possibilities to anyone looking to create solutions for existing problems and issues.

Minimum Investment Required to Invest in Private Equity Funds

Buying entire companies requires a massive amount of capital.

And unlike other popular investment vehicles (stocks, mutual funds, REIT) which are accessible to most investors, Private Equity investing is typically reserved to large investment houses and individuals with large sums of capital.

A typical PE investment firm in the US, for example, are looking for investors that are willing to spend a minimum of $250,000.

This is just the entry price, as these firms are on the lookout for investors that are ready to put in several million dollars into a PE fund.

In the Philippines, the numbers will be much lower, but the bottom line is that Private Equity investing is usually out of reach for most individual investors.

Minimum Investment Required for Venture Capital

Before you can invest in Venture Capital funds (and PE funds), you have to become an accredited investor first.

Think of it as a title given to someone who was able to meet the requirements set by the regulatory body.

For example, in the US, you need to have an annual income of $200,000 (Php10 million) and a net worth of at least $1 million (Php50 million) minimum in order to qualify as an accredited investor.

In the Philippines, an Accredited Investor can be compared to a Qualified Buyer. Someone who has a gross income (annual) of at least Php10 million and a personal net worth of not less than $30,000,000.

Venture capital firms in the Philippines managefunds that range from a couple to hundreds of millions of pesos worth of assets which come from various types of investors (corporations, institutions, individual investors, government bodies, etc.,).

How Do Investors Profit From Venture Capital and Private Equity Funds?

Venture capitalists and private equity funds earn when they sell the shares of the stock they own at a profit.

It’s basically no different with regular stock market investing in terms of how to make a profit, the only difference being they can directly influence the success of a company they invested in and increase the value of their shares.

At the most basic level, it’s still all about “buying low and selling high”. But instead of passively watching your investments and hoping they grow, VC and PE investing actively help their picks (companies) to get successful and profitable.

Most VCs and PEs invest in multiple companies and start-ups, creating a “portfolio” of funds for companies they invest in.

Aside from the actual gains when the now-higher value stock gets sold, both VC and PE firms earn from management fees for handling the fund.

They also get capital gain profit when the shares of the stocks get sold.

How much can you earn as an investor?

It depends on several factors, but the biggest determinant is the valuation of the company or its market value.

In the example we shared earlier about an Uber VC investor, he turned his $300k investment to almost $2 billion by owning just 2.5% of the company.

And even while these types of wins are once in a blue moon, it proves that the earnings you can get are basically limitless, it all depends on how valuable the company has become.

So to answer this question—there’s basically no limit. And it’s common to get returns by the hundreds of thousands to several million pesos (or dollars).

How to Invest in Private Equity Funds?

There’s still a way though, for regular investors to get in on some Private Equity action— indirectly—-and that is through Private Equity ETF.

Exchange-traded fund or ETF is essentially a collection of securities (stocks, bonds, currencies, etc.,) that tracks an underlying index and can be traded in the market just like your typical stock.

A Private Equity ETF tracks indexes of publicly traded companies who invest in private equities, and any investor can purchase shares just like any other stock.

Some of the PE Firms are actually publicly-traded companies, so you have the option of buying some of their shares.

How to Invest in Venture Capital Funds?

As with Private Equity investing, the large capital requirement makes this type of investment out of reach of individual investors.

However, just like some well-known Private Equity firms, there are publicly-listed Venture Capital firms.

Which means you can instead invest in their shares instead of buying stocks as you would with other companies. However, this technically isn’t investing in Venture Capital (or Private Equity) since you don’t get to actually be an investor on the start-up companies if you go this route.

But don’t lose hope, if you want to directly invest in start-up companies (as an Angel Investor) sites like Angel Investment Network PH acts as a middle man between startups and investors.

For the unfamiliar, an Angel Investor basically does the same thing that a VC does, but they use their own money to invest.

Some startups listed on the site accepts investments for as little as Php10,000 and can go up to several million pesos.

Just note that this isn’t VC investment per se, as you will be investing your own money directly to the company, not having it managed and invested by a VC firm.

Manila Angel Investors Network (MAIN) is a group of Angel Investors who participate in local start-up funding. But instead of acting as the broker (like AIN PH above) between investors and start-ups, they’re the ones who actually invest into businesses.

According to their website, they have a screening process for anyone interested in joining their network.

The recently established Venture Capital and Private Equity Association of the Philippines (VCAP) has the goal of establishing a sophisticated VC and PE market in the country by acting as a platform where members can interact and collaborate, encourage foreign investments, serve as a forum enabling foreign and local investors to share market information, and be a unified voice to represent institutional and professional investors for VC and PE investing in the Philippines.

Whether you represent a corporation or want to join as a private investor, VCAP has its doors open.