September 18, 2017
Paul Pajo – Private Sector Investment in the Tech Startup Scene
September 18, 2017
Derek is joined again by Paul Pajo and they talked about private sector investment, Angel infrastructure, seed rounds and how it’s happening in the Philippines.
- The telcos started this and invested heavily in startups at the beginning and that sent a signal to the other institutions that this can be done on a national or even a regional level.
- Everyone started asking how they can be involved in hackathons and events.
- People saw in Singapore that Hackathons are being used to solve problems like a problem-solving exercise.
- People started appreciating the idea that they can utilize developer events to solve their own problems.
- Five years ago, according to Paul, there weren’t many events and Hackathons but now they have six, seven events happening on the same weekend.
- One model for them in the Telco is an incubator-accelerator. The other model is; people who own BPOs which are relatively successful become angels. So, they start investing in these companies. And it’s currently happening in countries like Malaysia and Singapore.
- Mature developers go to events and competitions with better prizes while neophyte developers prefer the less competitive events.
- There’s talk of 500 startups starting their own fund in the Philippines. According to Paul, that could happen this year.
- A super angel gives out around 50 to 100 thousand US dollars for a seed round.
- Paul encourages people who have extra money laying around to be part of an emerging market play.
- Jessica Mah outsources her developers in the Philippines.
- Paul said that people who are listening to this podcast can learn more wisdom and hacks and skip a few steps.
- Nowadays, Hackathons are being utilized as a problem-solving exercise which attracts more people to get involved.
- The cost of a startup largely are the salaries allotted for building up technologies.
- A super angel gives out around 50 to 100 thousand US dollars for a seed round.
- According to Paul, there are foreign angels now.
Welcome to another episode of Outsource Accelerator. My name is Derek Gallimore. This is episode number 53 and I am joined today by Paul Pajo. He is very connected in the tech scene here and specifically connected with the Hackathon scene and you know very in the know with the grassroots of growing technology. So, I have previously interviewed and spoken to Paul Pajo. If you haven’t heard those episodes then I encourage you to do so, they are episode numbers 32 and 44. In this episode, we talked to Paul about private sector investment into the tech world so we know there’s the whole angel infrastructure. There’s seed rounds, there’s VCs and Paul goes into this in great depth and how it’s happening in the Philippines whether it’s any different. And also, actually how there’s a lot of crossover and bleed over into the, I suppose the mothership of funding which is the Silicon Valley scene. So, some really interesting takeaways here and I will leave you to enjoy.
Derek: Okay, joined again by Paul. Hi Paul.
Paul: Hi, Derek
Derek: And so, now I wanna quickly, we’ve spoken about Hackathons and the fertile environment and we’ve spoken about governments as well but also the private sector really getting behind a lot of the big telcos, a lot of the big banks are really supporting this fertile ground yeah. And also there’s now a growing Angel investor platform. So, you’re involved in Smart, is it?
Derek: One of the telecoms. And what is from your perspective, happening in terms of the big corporate and smaller investors getting on board and supporting this.
Paul: So, well the telcos meaning they were the ones who started this and invested heavily into startups at the beginning. But I think that sent a signal to the other institutions that this can be done actually on a national or even a regional level. So, one of the benefits is when you do this event it’s like you’re actually doing it in a city level. We have one in Makati and we have one in Cebu. And this gets the attention of the mayors, the provincial leaders and before.
Derek: That’s all good PR.
Paul: Yes, before you know it then everyone starts saying how can we be involved in this. Because they see like for example in Singapore they actually use a Hackathon to settle their own problems on a city level. Not just a technology Hackathon but they bring the think-tank’s from sanitation maybe transportation finance everything or all, they’ll spend like three days.
Derek: So, it’s a problem-solving.
Paul: Yeah, it’s a problem-solving exercise. I say hackathon is the opposite of complaining. So instead of complaining, you do Hackathon. So, you solve it. Right. So, I think what happened is people now are appreciating the idea that they can use these developer events to have new insight on how to solve their own problems. Meaning they hire people who do these things again and again right. On a constant basis. But what happens is these people when they have no outside input they get into a mode of thinking which is kind of they’re just thinking the same way. When you do these developer events and ideation exercises they get to see oh I can actually approach this problem from another perspective. Which is actually something companies want and are willing to put.
Derek: It’s actually a skill and discipline isn’t it, to work around issues and solve them.
Paul: Yes. And for a lot of them are dollars and cents. Right. Meaning if you solve a certain problem there’s a certain causality meaning if you solve this problem you make more money. There’s an actual benefit from solving these problems. So now people are seeing that there’s a way we should invest more in this.
Derek: With so many corporates getting on board then is it becoming a competitive environment for them. They’re offering better and better incentives and funding.
Paul: Well I mean in the sense that they were competing before for talent even before they did this event. So, whoever does a first-mover advantage or maybe differentiate their developer events means this is where people go. So, like saying before like we didn’t have this many events before like five years ago. Now we have like five six, seven events happening in the same weekend. So now developers have to actually choose where they wanna go. Right. So, it becomes like the more mature developers go to the competition who have better prizes which means the new ones are trying it out go to the less competitive so in this segment everyone wins right.
Paul: So, I think it’s an emergent thing and then more and more companies even nonprofits government. Like I’m wearing this shirt now like I think open help. So, the Department of Health and meaning our technology server
Derek: Everyone’s getting onboard and everyone is finding an application for their own.
Derek: But people can harness these.
Paul: These technologies.
Derek: And then the investments started things when it goes from maybe an idea to a more through a startup. There’s the Angel side of things and Sinnek community very well-supported and funded.
Paul: So, the model for us in the telco was we had like our own incubator accelerator. And so that’s one model. And then the other model is some of the people who like own BPOs and all this outsourcing business that are relatively successful they become angels. So, they actually start investing in these companies. And then what’s happening is like countries like Malaysia and Singapore which have a lot of government money sloshing around in their different cabinets right. They start the regional funds. So, you hear people like 500 Durians you know like 500 “tuktoks” you know. That’s all you know. And what happens is they started like a hundred-million-dollar fund wherein they get limited partners from different countries like.
Derek: So, a distribution partner.
Paul: So, some of them, so, maybe started as an angel and you know you like investing and you get a good return and then but you wanna do it a little bit more professional. You know you want more inflow. You know a little bit more management so you’ll probably get invited as a limited by this micro VC platform meaning it’s a hundred million dollars investing maybe in 50-80 startups in the next two to three years.
Paul: So whatever extra cash you’re like as a diversification principle you now push it out to as a limited partner. So, this is happening. That’s actually.
Derek: It’s pretty mature pretty.
Paul: Yeah, as we speak. So, for example. Yeah. There’s talk now of like maybe 500 startups starting their own fund in the Philippines. Maybe that will happen this year. There’s a rumor, right. So, but you know those rumors probably have some foundation on it’s because they have their own fund in Vietnam and they have their own fund in Malaysia. They have their own fund in Korea. Right so it’s just gonna be more and more rationalized as we speak.
Derek: And things like the cost of a startup largely is the salaries. Yeah. In building up technologies.
Derek: So, what is a typical seed round investment sitting at in the Philippines. You’d assume it’s a little bit cheaper.
Paul: Yeah, I mean I know a super angel give out around 50 to 100 thousand US dollars for a seed round. So, you can get that from one investor or they can go as a syndicate as a group, right. maybe that’s a $100,000 round but that’s like 10 people going into it and the one leading it is whoever is prominent and in the most trusted. So, it looks like smart money.
Derek: And is that a pretty streamlined process now? Like it’s.
Paul: Well if you’re part of a micro VC, they automate the deal flow and that means if they’ve then 50 to 80 investments like the last three years that means they’re looking at a certain sector. They already have a founder somewhere there, three or four founders that know something about that particular category. So, they can actually have more insight whether something might work or have a chance. So that’s one.
So, when you have this structure you know there’s an angel looking at 10 deals a year right. You have like 50 to 80 then you have. You have the ability to say whether this can work or not. And then of course when they say we want to invest in you because they have all the paperwork automated then the money comes to you a lot faster. And of course, because they’re doing this regional thing, right. The deal flow is much, much bigger. So that’s happening now as we speak that’s not theoretical it’s happening now. These ones are going around the region. They’re doing cycles. In fact, some of them are double dipping like they go. They do a competition in Vietnam once, Thailand once and KL once, Singapore once. But they’ll do two cycles in the Philippines. Yeah.
Derek: More. There’s more.
Paul: Yeah, yeah, yeah more options for them so they probably do one the first half of the year they’ll do another one the second half of the year just to capture all the value.
Derek: And so, a lot of our audience is sitting in the US, UK and they’re thinking about outsourcing and exploring outsourcing. Is there any opportunity to outsource their angel funding? People want to get involved in funds, deals here. They’re
Paul: Yeah, I mean.
Derek: Are you seeing a lot of foreign angels?
Paul: Yeah, what you need to do is look at the VCs and micro VCs. Like maybe like 500 Golden Gate and all these regional funds. So that means by regional reach they already diversified and then you’ll probably have about like out of the 100 deals they have they have maybe 22. Like I heard last night they’re like maybe 22 to 25 portfolio companies here in the Philippines. Then you can like apply to be a limited partner. So now you can be part of the action. But basically, they risk a lot of that already. So, if you have extra money laying around and you want to be part of an emerging market play. That’s the way to go.
Derek: And if there’s people with ideas sitting in the U.S. Do you see any opportunity for them to find co-founders here where they can help build out a startup?
Paul: Yeah sure. A good example will be InDinero. Right. So, Jessica Mah of Berkeley Y Combinator company and then all her technologies in Silicon Valley. And then by happenstance, they outsource their finance to the Philippines and in Cebu actually and then they basically found out that they could actually outsource their developers. So now, most of the developers are here.
Derek: It’s a creeper. And then you start with the counseling and you figure you might as well get a, or something and actually you just do the whole thing.
Paul: Yeah, so you know that. Now that you’re listening to this podcast right. So, you have more wisdom right so you can actually skip the process and go straight here.
Derek: It’s a hack to that.
Paul: it’s a hack because you now know the Y Combinator. If Jessica Mah has done that before. Why not. Why not just set up a company get some traction in the U.S. and get some seed funding and then outsource your devs here. Then you have of course people who want those jobs to stay in the States might be a little ticked off but you know that’s how global economics works. You know.
Derek: Yeah, it’s inevitable, is it? But also, the company is still housed within the US.
Paul: Yeah, yeah. The benefits still go to the U.S. company anyway. You get taxed there so.
Derek: Fantastic. Thank you, Paul.
Paul: Yeah. Thanks, Derek.
Derek: And actually Paul, how do people get in touch with you?
Paul: I’m on Twitter, Pageman, P-A-G-E-M-A-N and then I’m on LinkedIn also Paul Pajo. And then on Facebook just look for me it’s Paul Amerigo Pajo.
Derek: Perfect, thanks, Paul.
Paul: Thanks, Derek.
It’s a great episode from Paul Pajo. If you want to get in touch with Paul go to our show notes for more information. And that is at outsourceaccelerator.com/podcast/episode53. And if you want to ask us anything here at Outsource Accelerator just drop us an email. It’s that easy. Just email us at email@example.com.