As a companion piece to Maoi’s blog article on the Philippine startup ecosystem , we want to take a closer look at the Innovative Startup bill which we spent a lot of time working on. The bill *should* have been passed into law as of this writing. Maoi speculates on possible delays towards the end of this post.

Much like the heated discussion that occurred recently in the #StartupPH group, there was a lot of discussion between legislators and the private sector about what a startup really is. Both houses of legislation agreed that an innovative startup is any person or registered entity in the Philippines which aims to develop an innovative product, process, or business model. Whether a new business is an “innovative startup” (and therefore eligible for the benefits in this bill) or an SME (which has other benefits in law and policy) is determined by implementing agencies such as the Department of Science and Technology (DOST), Department of Information and Communications Technology (DICT) and the Department of Trade and Industry (DTI).

We have a long history of #Filipinnovation, and we’ve got an old video to prove it!

There have been vociferous opinions from members of the startup community in the Philippines that this degree of specificity is too lax for several types of businesses to fit into. We think this is fine. The role of government is to provide an enabling environment for startups to thrive in the ecosystem. It will be up to DOST, DTI, and DICT to decide which startups will be provided with support and which thrust or advocacy they want to champion aligned with the prevailing needs at that time. It’s always better not to legislate with specificity, that way the law can be flexible. We can’t put a hardline definition on a startup because this definition can vary over time.

We can easily change policy, but we cannot easily amend laws. This definition should only bother startups which need support from the government. This is especially true in the life sciences. Even if we export many agricultural and aquaculture products, 68% of the Filipino poor are farmers and fisherfolk. That’s because a lot of the tech that they need is stuck within universities. There are other viable avenues for startups or SMEs that don’t make such heavy use of technology or are in fields like IT and AI which do not need government regulatory bodies to approve their products.

Many legislators voiced concern that the composition of the government agencies involved in this bill isn’t inclusive enough and that several departments should also be included as host agencies. We disagree — focus is key here.

Another piece of legislation, the Innovation Act of the Philippines, has a more inclusive composition of partner agencies. It literally includes every government agency possible. We echo what a fellow investor said at the technical working group meeting for that bill: “You can be optimized for inclusion or be optimized for success. It’s not that the two parameters are mutually exclusive, but such a large innovation council will be unwieldy.” It would certainly violate the Bezos’ Two Pizza Rule. The Philippines is being outpaced by our ASEAN neighbours. This is the time to speed up our efforts to become competitive in the innovation scene. We can’t be bogged down by the bureaucracy of trying to convene 17 government officials and 7 high ranking private sector members.

Thankfully the Innovative Startup bill has only 3 host agencies involved: DTI, DOST, and DICT. This leverages the existing relationships between these agencies. All three have been assisting the startup community for many years. This legislation just solidifies and empowers the different departments to include in their thrust the support for #StartupPH. Also, this bill does not exclude any agency from implementing its own startup strategies.

With this bill, DOST and DICT are given the ability to provide grants to enable startups, and DTI can now invest in startups through their government owned and controlled corporation (GOCC): the National Development Company (NDC). Other agencies can appeal through DOST, DICT and DTI to fund a specific startup they think needs support, but these agencies can also foot the bill through their own allocated budget. It then falls to other members of the ecosystem — academia, investors, corporations, and entrepreneurs — to use Freedom of Information requests to make sure that startups that get funded are legitimate startups and not some shell company. The last thing we need is a Napoles-style business model from our more enterprising political leaders.

For years now, DOST has been having to defend their projects to the Commission on Audit especially when they try to fund startups as the quickest way to get funding from DOST is through a project proposal — which is meant for research. CoA is built to be risk-averse and to provide Terminator-level due diligence on government spending. If a government project is successful, the gains on the project are reported to CoA as the benefit. However, in the spirit of a grant, sometimes it isn’t clear how the money comes back to the government or how it benefits the government. ( We think the measure of government spending is how it benefits the Filipino people and that it’s not the government’s job to make a profit but to make a difference… but hey, what would we know? ) Giving DOST and DICT the specific provision to provide grants to startups and startup enablers (e.g., incubators), expands the remit of both departments to cover startups and not just R&D or IT infrastructure.

National innovation systems around the world have government spending as a linchpin just to bridge the valley of death.

This is evident in the pivot of KSA (Kingdom of Saudi Arabia) to move away from oil investments to become more sustainable or Israel’s success in their own government starting its own venture fund , which catapulted Israel as the leading innovation hub in the world.

But what makes government investment necessary to catalyze the startup ecosystem? The fact that it de-risks the startup for the private sector. With clear programs such as the Startup Development Program, the government can bridge the gap in funding for a technology to effectively transfer to a scalable business model. From there, the government can directly invest in that enterprise to bring in other investors to support it.

However, for the government to properly invest in the right companies, they would need a vehicle to hold the equities they are entitled to when making an investment. At the same time, they would also need to have the right skills and talent in investing as other members of the private sector investment ecosystem. Having the NDC (under the DTI) start a venture fund, gives the department the ability to hire capable finance managers at market competitive salaries since NDC is a government-owned and controlled corporation (GOCC). The SVF will have an initial fund taken from General Appropriations under the DTI and will invest that money for the government. Under this bill, the SVF aims to co-invest the government’s money and have match funding with approved private sector investors with the startups.

Having startup ecozones as expanded from RA 7916, acts as a sweetener for startups to locate themselves in the Philippines. A lot of successful startups, which had their start in the country, chose to locate elsewhere. Factors contributing to this decision span from the poor ease of doing business, to better tax incentives abroad that make startups more viable to succeed. The government is currently concerned with being consistent with the decision to support TRAIN and simplifying the tax procedure in the country; providing tax-incentives to startups might seem disingenuous. Having startup ecozones is at least a step in the right direction, but the friction points have to be managed first.

We wish there was more attention for scale-ups. It’s not just about starting a business, it’s about surviving the horror of the startup journey. While we don’t want a cadre of grantrepreneurs — who go from grant to grant instead of hustling and building their minimum viable product — we also think there should be incentives tailored to early-stage startups. Maybe in another bill or perhaps we in the startup community can lobby the NDC to help.

With all of the benefits provided, is it enough: for startups to succeed, for the ecosystem to thrive, to reach the first PH-based unicorn? The reality is other countries are still more aggressive in the benefits that they provide and the investment they give to startups and SMEs. But for a low trust and risk-averse country like the Philippines, there’s always the risk that a good law made with the best intentions is paving the road to an eternal macarena type hell. As with all great laws, there are two major execution risks: non-feasance (people not doing their job) and malfeasance. Here’s hoping we didn’t open a pork-barrel alternative Pandora’s box.

Few people understand how bills become laws in this country , which is why one of the things we want to invest in as Ignite Impact is civic tech.

The Innovative Startup bill has already been approved by the bicameral branches last February 7, 2019. This means it should already have been routed to the president for his veto or his signature. However, as of 11 March 2019, 9 am, it was still being routed for signature with the Senate president; more than 30 days passed from its bicameral approval. In a perfect world, this bill upon being approved in the bicameral conference would have already been transmitted to the office of the president the day after it has been approved, thus allowing it for the 3rd and unpopular method of a bill becoming law: letting 30 days pass without the president signing it.

As a daughter of a former legislator, I assure you that once a bill is submitted for a bicameral approval, the average lawmaker can’t wait to take credit for a job well done and transmits the bill to the president as quickly as possible to get approval. The 30 days that this has been waiting for the Senate president for it to be signed, is like being 30 days late for a project submission or being delayed a month with your homework.

The coldly calculating part of me can only think of three reasons why this hasn’t become law:

1 We’re not important: The #StartupPH ecosystem isn’t important enough to politicians because they don’t realize that SMEs are the lifeblood of our domestic economy. Large companies pay taxes wherever it’s convenient — usually in the Cayman Islands. Startups are too busy trying to build a repeatable, scalable business model to do much tax avoidance. We really just pay what we’re told. Our leaders should realize this, but we should also take a more active role. We spend a lot of time talking at other people, but not enough time talking to each other to figure out what we need as a whole.

2Non-feasance: everyone has focused on the elections and both houses of legislation are not currently in session. Ideally, bills should be routed by staff attached to the House of Representatives and the Philippine Senate (ie, not the staff of any individual legislator but one paid by us, the taxpayers). Ideally. Sigh.

3Malfeasance: The President has signed other bills in a speedy fashion, and they were good laws like the universal health care act. While universal health care has been a thrust of multiple administrations — Dr Romualdez during the Estrada administration and afterwards Benigno S. Aquino when he was a senator — the bill that was passed had reelectionist Senator JV Ejercito as its principal sponsor. I don’t know where the bill is in the legislative process , but I wonder who’s stalling it and if it’s because its primary author is Senator Bam Aquino, a globally recognized social entrepreneur even before he became a legislator.

Ultimately, this bill should have become law on March 9, 2019. It has the potential to catalyze the entire ecosystem. There is no material reason any administration should veto this bill. And really, if it’s just a matter of signatures then this is exactly the friction holding the #StartupPH ecosystem from achieving escape velocity.

This story was made with contributions from RP Duterte and KM Magtubo .

RP Duterte is an associate at the Ignite Impact Fund with corporate experience at Isla Lipana & Co., the Philippine entity of PriceWaterhouseCoopers (PwC), with a focus on tariff classification, and technical research and academic street cred as a teacher and a program developer in the Ateneo de Manila High School. He spearheaded the consulting project to assist the Philippine government with the Global Innovation Policy Accelerator funded in part by the Newton Agham Fund of the UK government.

KM Magtubo was a community doctor in remote and underserved areas of the Philippines and was a researcher at UP Manila where she pioneered the use of telehealth devices. Combining medical and academic experience with her training as a Leader in Innovation Fellow (Oxford, Asian Institute of Management, and the Royal Academy of Engineering), KM takes care of health tech and technology commercialization as an associate at the Ignite Impact Fund.

Maoi Arroyo is a multi-awarded serial entrepreneur, impact investor, and educator. She was selected as a Young Global Leader of the World Economic Forum in 2015. She is the principal of the Ignite Impact Fund , the first Philippine -focused impact investment fund. Follow Maoi on Twitter at @maoiarroyo.

For more information on Ignite visit us at igniteimpact.fund