Every January, our team at Kaya Founders revisits our investment strategy, vis à vis the key structural trends we’ve observed in the market and the entrepreneurs we were privileged to meet in the preceding year. In 2024, we spoke to a total of ~650 start-ups, eventually investing in 14 of them.
Reflecting on these investments, we feel that they can be clustered into three overarching themes, which capture the opportunity set we see today:
Theme 1 - Frictionless Business
AI-Powered B2B Platforms Transforming the Philippines’ Largest Industries
B2B platforms continue to be a key focus area for us, and we are extra bullish on companies that are leveraging AI to drive efficiency. We have strong conviction that AI wields transformative potential akin to the internet during the 1990s and to mobile in the 2010s. Indeed, while we are still in the early days of its application, we firmly believe that AI represents the defining technological shift of our times. We detailed our perspective in an AI report published last August, where we underscore that, within Southeast Asia, the application layer will likely be the primary driver of innovation.
In parallel to this technological shift, the ongoing generational shift in business leadership is contributing to a more open embrace of digital solutions. Younger, digitally native leaders are adopting technology to improve processes, especially in areas like customer service, content development, and supply chain management. This trend is accelerating the adoption of AI-powered B2B platforms across large Philippine industries — from healthcare and automotive services to commerce and real estate — enabling businesses to improve productivity and streamline operations.
Nevertheless, challenges such as limited data infrastructure and talent gaps still persist. Solutions like the “humans as the API” approach — leveraging human input to supplement AI processes — are emerging to meet these needs.
Theme 2 - The New Filipino Consumer
Tech-Enabled B2C Models for the Country’s Emerging Middle Class
Even as we scour the market for B2B solutions, we likewise find abundant opportunity in tech-enabled consumer ventures. It is no secret that the Philippines is a largely consumer-driven economy, with household consumption representing 71.6% of GDP, as compared to 55% to 60% across Southeast Asia. There is much value to be captured in harnessing the spending power of this emerging middle class, but winning in this space requires startups to have a more nuanced understanding of the different segments of consumers and their characteristics.
As the recent Lightspeed Southeast Asia: Resetting Expectations report highlights, there are two key segments driving the growing consumer class: “power users,” who prioritize convenience and are willing to spend on experiences, and “value-focused users,” who are price-sensitive and primarily driven by discounts. Our portfolio is positioned to meet both segments’ needs through innovative digital shopping experiences and models like social and live commerce. These platforms cater to an increasingly digital-savvy audience and align with shifting shopping expectations, particularly among younger generations.
While challenges such as price sensitivity, payment infrastructure, and logistics complexities exist, we see ample opportunity to deliver affordable yet aspirational products, combined with seamless digital shopping experiences, to an increasingly savvy consumer segment.
Theme 3 - Embedded Credit
Foundational Infrastructure Fueling SME Growth & Empowering Consumers
This past year, we built renewed conviction in embedded finance, particularly in lending, as this space continues to demonstrate strong revenue potential. The recently published Google-Bain-Temasek e-Conomy report shows that lending, at 22%, remains to be the main revenue driver of digital financial services across Southeast Asia, and is growing at a rate of 35% year on year.
Underlying this trend is the large credit gap that still exists across both MSME and consumer segments. By some estimates, the Philippines has the largest MSME credit gap in the world when measured relative to the size of its GDP, at 76% or a whopping $221 billion. Meanwhile, three fourths of adults also still lack access to formal credit in the country. Fortunately, digital lending models are beginning to fill this void — in part, by offering scalable, embedded finance solutions that integrate seamlessly into everyday platforms. By making lending more convenient and contextually relevant, embedded finance models are driving growth for both SMEs and consumers in underserved markets.
The progress of portfolio companies such as OneLot and Netbank (which we have since doubled down on) — as well as significant funding rounds secured by non-Kaya startups such as Salmon, First Circle, BillEase, and ProCredit in the past year — are a testament to the strong potential of embedded credit as a business model in this market.
Southeast Asia is coming of age
Reflecting on these themes and the broader trends in Southeast Asia’s tech ecosystem, we remain optimistic about the potential for sustained value creation in the region.
Venture funding in Southeast Asia has expanded steadily over the past decade, with $72 billion deployed in the last five years, or three times the volume of the preceding five years. This influx of capital signifies that Southeast Asia’s tech ecosystem is not only growing but also maturing even amidst high interest rates.
In fact, it is largely due to the increase in the cost of capital in recent years that startups across the region have been forced to increase capital efficiency and focus on profitability — a silver lining amidst headlines that only seem to portend doom and gloom. Southeast Asia’s digital economy experienced double-digit profit growth of 24% from 2023 to 2024. In key sectors such as eCommerce, travel, transport and food, and online media, EBITDA margins are steadily improving. Startups are employing tighter commissions, targeted incentives, and diversified revenue streams.
These funding and profitability dynamics highlight the region’s ability to scale sustainably, pointing to a future of responsible growth even in a more conservative funding environment.
In the Philippines, we’ve seen large category leaders increasingly attract late-stage institutional capital, notably in contrast to a broader global trend of decreased late stage funding activity. Recent funding rounds include IFC’s investment in Salmon, ADB’s stake in Lhoopa, and TPG’s backing of Billease. Meanwhile, in the early-stage segment, more and more credible founders with deep expertise are building, creating an ideal environment for investing at the Pre-seed and Seed stages.
The fundamentals of value creation in SEA bear a strong resemblance to China’s tech growth trajectory, suggesting that tech ventures will increasingly influence the regional economy. Digital adoption has progressed from early-stage to widespread usage, signaling a broader, more lasting effect on the economy.
Overall, we believe that a confluence of factors underlying the present environment make it an optimal time for Kaya Founders as an early-stage fund, and we are excited to meet more founders and deploy more investments in 2025. As always, don’t hesitate to reach out if you have a company aligned with any of the themes above!
