How Capital Markets Shape Startup Ecosystems

The Philippine Stock Exchange requires three consecutive years of profitability before a company can list on its main board. Indonesia's IDX eliminated this requirement in 2021. By 2025, Indonesia had executed two technology IPOs exceeding $1 billion each. The Philippines had executed zero.

Between 2020 and 2024, Manila's startup ecosystem generated $258 million in exit value against $2.4 billion in venture funding—a 10.8% realization rate. The constraint is structural: ecosystem exit capacity functions as a binding constraint on venture returns independent of founder quality or market opportunity. Geographies with comparable founder talent but weaker exit infrastructure produce divergent fund performance regardless of capital deployed.

The Constraint Topology

Capital market depth asymmetry eliminates IPO exits as a pathway. The PSE's daily trading volume represents 0.05% of market capitalization—severe illiquidity by regional standards. Indonesia's IDX trades at approximately 0.2% daily turnover. Indonesia removed the profitability requirement in December 2021. Bukalapak listed eight months later at $1.5 billion; GoTo followed four months after that at $1.1 billion.

The OECD identified 411 Philippine private enterprises with assets exceeding ₱5.6 billion that meet size thresholds but cannot list. The PSE demands three years of cumulative profitability totaling at least ₱75 million—a requirement venture-backed technology companies structurally fail. The regulation excludes the asset class it would need to deepen the market.

Strategic acquirer concentration compresses M&A valuations when IPO exits disappear. M&A accounts for approximately 80% of Southeast Asian startup exits, yet the Philippine acquirer pool concentrates among four conglomerates—Ayala, SM, JG Summit, and San Miguel—whose corporate venture arms invest broadly but acquire selectively. Coins.ph—the most significant Philippine crypto exit—required sequential foreign buyers (Gojek in 2019 at $72 million, then Joffre Capital in 2022 at $200 million) to generate liquidity. Domestic conglomerates did not compete for the asset.

Kickstart Ventures alone has participated in 62 funding rounds across nine countries—capital deployment is not the bottleneck. Acquisition incentive is. A single-digit acquirer pool with no competitive bidding pressure allows conglomerates to wait for distressed valuations rather than pay preemptive premiums.

Capital repatriation friction extends fund lifecycles beyond LP tolerance. Approximately 90% of Southeast Asian venture capital originates from foreign LPs, who now prioritize distributions to paid-in capital (DPI) over total value to paid-in capital (TVPI). Southeast Asian funds carry persistently high residual value (RVPI)—paper gains that remain unrealized past standard 10-year fund cycles, compounding distribution pressure on managers.

The Philippines' constitutional 60-40 foreign ownership restriction adds transaction complexity in certain sectors, though recent reforms opened telecommunications and retail to full foreign ownership. The deeper constraint is market absorption capacity: GCash delayed its anticipated $8 billion IPO from 2025 to H2 2026 citing weak market sentiment, not regulatory barriers. The PSE lacks the trading depth to absorb an offering at that scale.

So What Changes If This Is True?

Fund allocation decisions should privilege regulatory environment over GDP. Indonesia's $1.4 trillion economy generated multi-billion-dollar tech IPOs after listing reform. The Philippines' $440 billion economy—30% the size—produced zero. Exit execution, not addressable market scale, determines venture returns. Regulatory environment outranks GDP as an allocation signal.

Founder talent becomes mispriced relative to ecosystem structure. PayMongo (YC S19) and Kumu ($100 million from General Atlantic and regional investors) demonstrate that Filipino founders attract top-tier capital. Their risk-adjusted returns will reflect ecosystem exit constraints, not founder capability. The mispricing is structural: Philippine startups trade at a discount to regulatory infrastructure, not to market size.

Conglomerate CVC behavior shifts from irrational to optimal under monopolistic buyer conditions. Labeling Philippine conglomerates as "risk-averse" misreads their incentive structure. With no competing domestic acquirers and 60-40 restrictions limiting foreign bids in certain sectors, conglomerates optimize for optionality over speed. Kickstart Ventures invests across nine countries while acquiring selectively domestically—rational when targets have no alternative buyers. Founders bear the cost of this patience.

LP distribution pressure accelerates when exit paths are blocked. Median DPI for 2017-vintage global venture funds reached only 0.5× by Q2 2025—half of invested capital returned after eight years. Southeast Asia compounds this: high RVPI backed by concentrated unrealized positions delays cash distributions past standard fund cycles. Philippine startups generate 10.8% exit realization against a regional average approaching 30%. Funds with Philippine exposure face disproportionate distribution pressure, and LPs respond by reducing subsequent allocations.

The Assumption You Didn't Notice

Exit capacity is a regulatory artifact, not an emergent property of funding volume. The standard assumption—that ecosystem maturity follows a linear progression from angel funding through Series A to exit—inverts the causal sequence. Exit pathways must exist before capital scales, not after.

Indonesia deployed $4.6 billion in startup funding in 2021; the Philippines deployed $600 million. Indonesia's exit value that year exceeded the Philippines' cumulative five-year total. The divergence tracked directly to listing reforms implemented after in December 2021.

The Philippines holds approximately $2.4 billion in unrealized venture investments from 2020–2024. These companies are not waiting for product-market fit—they are waiting for exit infrastructure. The causal sequence runs from exit pathways to funding, not the reverse. $2.4 billion in committed capital has no credible liquidity event to anchor subsequent fund formation.

Stakeholder Rationality Under Constraint

Traditional conglomerates hold oligopolistic control over key sectors and face limited competition for investor capital. They acquire selectively at favorable prices—strategically exploiting the structural advantage that acquirer concentration provides.

Founders choose between conglomerate acqui-hire at compressed multiples and foreign sale or offshore listing with attendant complexity. Kumu raised $100 million from global investors, bypassing domestic M&A entirely—but has not yet exited. The counterfactual remains prospective.

Foreign LPs face extended hold periods and currency risk. Strong TVPI backed by concentrated unrealized positions does not generate cash—DPI remains suppressed until exits materialize, and IRR follows. Sixty percent of LPs now prioritize DPI over TVPI when evaluating managers, structurally penalizing funds without near-term exit pathways.

Local institutional investors—pension funds, insurance companies—are constrained by thin trading volumes and limited investable universe. They cannot access growth equity in domestic technology companies because those companies cannot list. Capital flows to traditional conglomerates and real estate, reinforcing existing concentration.

Regional Comparators

Vietnam implemented Resolution 57 in 2025, establishing government-backed venture funds at national and municipal levels. This extends domestic LP patience and reduces distribution pressure—startup funding reached $529 million in 2023, with healthcare (+391% YoY) and education (+107% YoY) leading sectoral growth. Vietnam lacks Indonesia's listing reforms. The policy addresses LP patience without solving exit execution.

ByteDance's $1.5 billion acquisition of Tokopedia's e-commerce operations in 2023 illustrates competitive bidding dynamics in regional M&A—global and regional players drove valuation through contestation. No comparable competitive acquisition has occurred for a Philippine technology asset. Thailand shares the same structural pattern: foreign capital dominance, limited domestic exits, dependence on cross-border M&A.

Regulatory adaptation speed is the differentiating variable. Indonesia moved from listing reform to billion-dollar tech IPOs in eight months. The Philippines announced a "Nasdaq-style emerging technology board" in January 2026—15 companies expressed interest. Implementation timeline, public float requirements, and profitability exemptions remain undefined, leaving the speed gap unresolved.

Implications, Not Recommendations

Exit infrastructure precedes ecosystem maturity, not the other way around. The Philippine government's tech board proposal treats listing capacity as an endgame milestone. Indonesia treated it as a prerequisite. Waiting for "more mature" companies before reforming listing requirements selects against loss-making high-growth startups—the asset class that defines venture outcomes.

Acquirer concentration becomes self-reinforcing without regulatory counterpressure. When four conglomerates control potential M&A exits and no foreign competitive bidding exists, founders optimize for conglomerate preferences in product design and business model selection. This tilts the startup pipeline toward incremental innovation (bolt-on acquisitions) rather than disruptive models that threaten incumbent positions.

LP capital allocation follows demonstrated exit capacity, not prospective potential. The Philippines received $600 million in 2021 funding and has yet to demonstrate a $1 billion+ exit. Indonesia executed two within 12 months of regulatory reform. Southeast Asian megafunds raise from global LPs by showing exit track records—demonstrated capacity determines the next allocation cycle.

Founder talent becomes geographically mobile when local exit capacity fails. Philippine founders attract international capital and incorporate offshore to optimize for foreign acquisition or listing. Operations remain in Manila; value capture migrates abroad. The Coins.ph structure (Philippine operations, offshore holding company, foreign acquirers) becomes template rather than exception.

The 10.8% exit realization rate is not a performance ceiling—it is a structural prediction. Absent listing reform or acquirer pool expansion, the 2025-2029 funding cohort will likely generate similar realization rates regardless of company quality. This is testable: if GCash executes its $8 billion IPO in 2026, it would represent a paradigm shift. If the IPO delays further or occurs at compressed valuation, it confirms the constraint hypothesis.

The OECD's 2024 Capital Market Review recommended that Philippine regulators ease listing requirements to accommodate high-growth companies that are currently unprofitable. Indonesia implemented this reform four years earlier and demonstrated causality within eight months. Whether Philippine policymakers prioritize ecosystem liquidity over incumbent protection remains the operative question.

Market depth determines whether startups become liquid assets or illiquid bets. The arithmetic is observable: $2.4 billion invested, $258 million realized, ratio persists absent structural intervention. Everything downstream follows.