The Innovation and Startup Act

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The Innovation and Startup Act is a piece of legislation that contains a range of measures designed to strengthen, promote and develop an innovative and entrepreneurial ecosystem in the Philippines.
What are the main aims and objectives?

The central goal of the Innovation and Startup Act is to encourage the establishment and operation of innovative new businesses while strengthening institutions that promote entrepreneurship. In particular the legislation highlights creating new jobs, improving production and advancing innovation and trade as specific objectives.  

Policy makers in the Philippines identified this is a critical issue with only 273 startups registered in 2017 and an average wait time of 33 days to legally register a new business.The provisions in this legislation aim to change entrepreneurial culture and make it easier for citizens to take first steps towards being entrepreneurs and build an ecosystem that can harness and support their innovation along their business journey.  

How does the program work?

The Innovation and Startup Act contains a variety of measures to help support entrepreneurs and ecosystem actors which can be broadly split into six main categories; access to finance, tax relief, reducing regulatory burdens, startup visas, privileges for participating in startup events, and the development of a web-based policy portal. 

Access to finance 

One of the most significant features included in the act is the mandate to create a Startup Grant Fund (SGF) and a Startup Venture Fund (SVF) to provide financing to startups and ecosystem actors.  

The SGF is a grant funding pot that will be distributed by the Department of Science and Technology (DOST), The Department of r Information and Communications Technology (DICT) and the Department for Trade and Industry DTI with different bidding mechanisms for startups to follow. By contrast SVF will be administered by DTI in coordination with the National Development Company (NDC) and will be used to match investments by selected investors and startups based in the Philippines.  

Startup Ecozones 

The Innovation and Startup Act authorises the creation of Philippine Startup Zones, or Special Economic Zones, in order to stimulate growth and startup development. Under these plans startups will be eligible for special tax privileges when they register under the Special Economic Zone Act. These privileges include fiscal incentives such as tax exemptions, credits and deductions, as well as non-fiscal incentives, such as employment of foreign nationals in supervisory, technical, or advisory positions.  

Registration and Operational Benefits and Incentives 

The legislation also stipulates that startups have their business registration costs and fees subsidised or totally reimbursed, as well as providing subsidies for applications. Furthermore, the bill authorises government agencies to expedite and prioritise applications within government, provide access and financial support for the use of facilities for startups and provide grants-in-aid for research, development, training and expansion projects.  

Start-up visas 

Three types of startup visas are to be launched including a Startup Owner Visa, Startup Employee Visa and Startup Investor Visa. To qualify for any of these visas, applicants will require an endorsement from a selected government agency (DTI, DOST or DICT) and will be valid for 5 years with an option to renew for a further 3 years. Interim startup visas will be valid for between 6 months and 1 year for prospective startup owners, and investors.  

Start-up event privileges 

The legislation also offers general benefits for participation in local and international startup events. Host agencies will be authorised to provide subsidies for travel, per diem allowances and expedited processing of travel documents for startups who qualify to participate at events and competition in the Philippines and abroad.  

Policy awareness 

The law recognises that the success of the policies included relies upon high levels of public awareness of the incentives and support available. Consequently, the legislation mandates the creation of a Startup Philippines Website that will serve as the primary source of information on statistics, events, programs, and benefits available to startups and ecosystem actors.  

What is the overall cost?

The Innovative Startup Act, or Republic Act No. 11337, was passed without any financial cost. However, the Act does provide for certain benefits and programs to strengthen, promote, and develop the Philippine startup ecosystem. 

The SVF has not yet received any funding, but the NDC has announced a P250-million budget (approx. $4.9 million) that will launch in 2023 and is targeted at startups in the seed to series B stage. 

The first call out from DOST for grant application in 2021 resulted in P43 million (approx $760k) being distributed to 14 startups for R&D. In total DOST provided P84.9 million (approx $1.5 million) of grant funding to 25 startups. The first call out for grant applications from DICT was in November 2022 with startups able to bit for maximum P1 million (approx $18,000) with at least 10 startups expecting to benefit. It is unclear how much has been spent in total by DTI on SGF. 

How was it implemented?

Startup acts have been spreading across the world at a rapid pace in recent years with new legislations springing up in Nigeria, Tunisia and Brazil amongst others. Much of the legislation is inspired by earlier startup acts such as that of Italy so it is evidently possible to replicate this legislation at a national level. It is also feasible in countries with high levels of devolved power such as India that a startup act could be implemented at state level too. 

The Innovation and Startup Act is a relatively straightforward piece of legislation, however, the critical factor to be considered is implementation. Policy makers in the Philippines elected to create a program of support for startups officially called the Philippine Startup Development Program (PSDP) which is in practice led by three existing government agencies; Department of Science and Technology (DOST), Department of Trade and Industry (DTI), and Department of Information and Communications (DICT). This approach could result in a lack of accountability with the boundaries between the roles and responsibilities of each department seeming to overlap at times. This approach also may not be feasible in countries with different ministerial structures.  

In addition to this, a separate bill also passed in 2019 – known as the Philippine Innovation Act – created the National Innovation Council (NIC) which is chaired by the President and mandated to develop the country’s strategic vision for innovation and long-term innovation goals and priorities. The effectiveness of this new body will be a critical factor in achieving the long-term goals set out in the Innovation and Startup Act.    

Implementation timeline: 

  1. The Republic Act No.11293 known as “The Philippine Innovation Act” is signed to law on April 17, 2019 which creates the National Innovation Council and sets out the direction of the country’s innovation goals, priorities and strategies.  

  1. The Republic Act No.11337 known as “The Innovative Startup Act” is signed into law on April 26, 2019 which outlines the Philippine Startup Development Program and the various benefits available to startups.  

  1. Implementing Rules and Regulations updated in October 2020 

  1. First call out for grants by DOST in July 2021 

  1. First call out for grant applications by DICT in November 2022  

  1. SVF funding to be released in 2023 

 

What impact has been measured?

There is evidence that Startup Act is having a positive impact according to its implementing agencies. According to the DTI investment has surged with startups attracting more than $858 million (approx $15 million), up from just $193 million (approx $3.4 million) in 2019. DOST also reported that the number of startup companies registered under the Act has significantly increased since its implementation in 2019, surpassing 700 in 2021 (up from under 271 in 2019) and it has been claimed by Trade Undersecretary, Rafaelita M. Aldaba that the community is now over 1000. Overall, they cite more than 3,000 entrepreneurs benefitting from the law’s incentives.  

The Innovative Startup Act, outlines a number of metrics to measure its success in promoting Philippine startups. The primary success metric is the number of startups registered with DTI within a given time period. Additionally, the legislation also sets out goals to secure funding for startups. The DTI will use performance metrics such as job creation and investment returns to gauge the success of the act.  

Despite their impressive results so far in overall improvement of the Filipino entrepreneurial ecosystem, the governing agencies have not provided any metrics that prove the direct impact of the measures included in the Innovation and Startup Act. Consequently, we cannot accurately judge the full extent of the legislation’s influence.  

What lessons can be learned?

It is important to note that successful legislation requires motivated political actors to push them through and then ensure their successful implementation. Senator Bam Aquino is cited as being a critical figure in the development of the Innovation and Startup Act in his role as chairman of the Committee on Science and Technology. Senator Aquino was the primary sponsor of the bill and was seen as instrumental in ensuring the bill’s passage which resulted in an 18-0 vote in the Senate. 

One of the key challenges identified by policy makers is education and making sure startups and entrepreneurs are actually aware of the legal and practical benefits they have as provided in the law. The Innovation and Startup Act approaches this challenge by mandating the creation for an online policy portal. However, there is scope to go much further than this by launching an educational campaign aimed at reaching communities that do not feel empowered to become entrepreneurs.  

Although the legislation has been well received amongst the startup community in the Philippines, some criticism has been levelled against the scope of the act. In particular it has been argued that the act does not provide enough incentives for foreign capital to invest in the Philippines and that it does not streamline government and non-government initiatives as much as it should. It is worth noting that the legislation does not contain certain features that have been present in other Startup acts such measures to help startups “fail fast”.  

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom