"We invest in solutions more so than innovation. Innovation, in my mind, can be trendy. We invest in solutions because we want to invest in things that Filipinos need, no matter what the cycle is." - Franco Varona, Managing Partner at Foxmont Capital Partners
"If we just inch our way forward to where every peso is being spent in the right place, instead of going into somebody's pocket, then that's already accretive to the country's GDP." - Franco Varona, Managing Partner at Foxmont Capital Partners
"When we think about Foxmont Fund III, we talk about it in the context of affordability and accessibility. These are core things that Filipinos need. We have a growing middle class, and they are asking for more options." - Franco Varona, Managing Partner at Foxmont Capital Partners
Franco Varona, Managing Partner at Foxmont Capital Partners, joins Jeremy Au to discuss the macro-economic shifts and emerging opportunities in the Philippines. They unpack the country's recent declaration of a national energy emergency, exploring how external shocks are driving the adoption of renewable energy, solar infrastructure, and Chinese electric vehicles like BYD. Franco also shares a deeply optimistic view on how government transparency and the cleanup of corruption scandals can unlock new GDP growth. Finally, he breaks down Foxmont Capital Partners' investment thesis for Fund III, explaining why they are ignoring trendy tech innovations to focus on brick-and-mortar solutions—such as high-value, low-price gyms (BeFit) and accessible female-focused health clinics (Eluvo)—to serve the rapidly growing Filipino middle class.
00:00 - Introduction & the State of Philippine Business Incorporations
04:08 - The Economic Silver Lining of Corruption Scandals
06:48 - The Philippines Declares a National Energy Emergency
13:40 - Social Media and the Devolution of Communication
16:38 - Regional Energy Strategies & Vietnam’s Nuclear Ambitions
20:48 - Tailwinds for Renewable Energy and Solar in the Philippines
24:15 - The Rapid Adoption of EVs and the Arrival of BYD
28:48 - Foxmont’s Thesis: Investing in Solutions Over Trendy Innovations
30:30 - Affordability and Accessibility for the Filipino Middle Class
36:45 - Key Takeaways on Energy, Macro Cycles, and Investing
Keywords: Philippines Startups, Emerging Markets Venture Capital, Renewable Energy Philippines, EV Adoption, BeFit Gyms, Eluvo Health
Franco Varona on the Philippines' Energy Emergency, and Investing in Solutions for Middle Class Filipinos - E683
Jeremy Au: Hey Franco, welcome back to the show in person.
Franco Varona: Thank you very much, man. I'm so glad to be able to see you in person. The last time we did this was actually online, so welcome to Manila.
Jeremy Au: Thank you so much. Always good to be having fun, chit-chatting, and shooting the breeze with you. It's interesting because your last show went viral. You were comparing the speed of incorporation in Singapore versus the Philippines. And it turns out that a lot of Filipino small and medium enterprise owners were very unhappy about this state of affairs.
Franco Varona: Yes. Well, I am happy to tell you it's exactly the same. Nothing has changed.
Jeremy Au: I think all the feedback that you got in that viral clip was true. It became viral because what you said resonated with the Filipino population.
Franco Varona: This is the problem. I saw some of the comments saying it's actually quite fast if you go online. But the reality is, yes, it's fast, but then there's four or five different other requirements that you need. And that's the same case; it still takes forever to close a business in this country.
Jeremy Au: Insane. At that time, we were discussing it as an anecdote that you felt something could improve on. But looking at the comments and hearing about how many people's experiences were, they had run from department to department, dealt with paperwork and duplicate cancellations. Some commenters were talking about how they actually had to bribe in order to get the paperwork process eventually closed. It was quite an eye-opening set of insights for me because I'm not a Filipino SME owner who has to incorporate. So I thought it was an interesting learning moment for me.
Franco Varona: If there's an opportunity in digitization in that case, I think there's a lot of gray areas. That's where the paperwork exists. And that's why things like bribes happen in this country. But I also see it as an opportunity. If we can start getting the government to digitize a lot of the processes, then a lot of that corruption goes away.
Jeremy Au: Because there's no way to gum up the process.
Franco Varona: There's no way to gum up the process. You can't slow it down. This is literally algorithms doing everything for you, which really should be the case anyway.
Jeremy Au: Why make a small and medium enterprise's life harder when it's already hard? You're creating jobs, you're giving people livelihoods, you're letting them feed their families. You want to make things slow and hard for them? Jesus.
Franco Varona: A hundred percent. I think the Philippines went through an experience last year—we're still going through it right now—where there were some corruption issues happening in the country. Again, I see that as an opportunity to clean up. If you think about corruption scandals and how that actually affects countries, I used Gemini for this, by the way. I put in a biased prompt. I asked what the positive outcomes that come out of corruption scandals historically are, because I'm a positive guy. Gemini actually told me that in the best-case scenario, within a year, things look much better. What is the best-case scenario? High-profile arrests, processes are cleaned up. And in the worst-case scenario, it takes five years. But in both scenarios, there is actually a bump in productivity. In other words, government money is actually being spent in the right places because the folks who were doing the funny stuff before are a little scared or not here. That actually means that there is an allocation of capital that is being spent where it's supposed to be spent.
Jeremy Au: So right now in the Philippines, I would say that there's a lot of people saying this is BS. There's a lot of anger around this whole corruption issue that happened last year. But my belief is that at the very least, if it's not all the capital that was supposed to go into the right projects last year, at least a small part of it is going into the right projects this year. And that's already a positive change. Now of course, there's a lot more momentum that we need to have.
Franco Varona: Moving forward, we do need to put the right people in jail. We do need to correct the processes to take out some of this gray area and corruption. But if we just inch our way forward to where every dollar or peso is being spent in the right place versus the wrong, then that's already accretive to the country's GDP. Instead of it going into somebody's pocket or into a Louis Vuitton bag, it's going into a road.
Jeremy Au: Gemini helped me think about it this way. I think of it as, good, it's now out in the open. Great. Now let's fix it.
Franco Varona: The big question is, are we going to do everything right to fix it? To make it corruption-free. Can we get there? I'm pretty sure most people will say no, I don't think we can ever get a hundred percent. But whatever, it's better than zero. It's better than zero dollars going into our infrastructure and our economy, which is probably where it's at right now.
Jeremy Au: I a hundred percent agree with you about that. It's about growing the pie together and having more pie to share with everybody. Speaking about all of this in the economy right now, the news has come in about the Philippines declaring an emergency around energy. I believe it's the first in Asia to announce a national energy emergency. So what's the context here?
Franco Varona: We were joking about this before we were taping, but the reality is that the Philippines is not an oil-producing nation. I read that 20% of all the oil that goes through the Strait of Hormuz actually winds up in Southeast Asia. So the reality is that the Philippines does not have a stable supply of oil. I think what's good—and I'm always an optimist—is that the president got ahead of it and said, listen, this is how much oil we have. I get it, there are a lot of distractions right now, but I'm going to declare this emergency, and we're going to hyperfocus everybody to make sure we never get to the point where we're all screwed. Our gas prices are already amongst the most expensive in the world to the consumer right now. I think he wanted to get ahead of it so that it doesn't affect our power, our food, or anything else. It remains to be seen as we're in the middle of it right now. I have high hopes that things are going to turn around well and that the government is working very hard to make sure we're always secured with our oil. Just today they announced 22 million new barrels had arrived onshore. Almost every day the government is announcing literally how many new barrels they're securing. That's something interesting. As a private citizen, I never knew how many barrels we would get anyway. It's almost like what happened during COVID. It was, this is how many cases we have, this is how many people are in the hospital. As a private citizen, you're thinking, okay, we're getting better or worse, but at least we're fully informed. In this case, I feel pretty well informed. I feel like I know how many barrels are coming and how many extra days we have. Hopefully, with that transparency, the government itself will continue to act as efficiently as it possibly can. It's cool too. One of our own oil fields, the president just announced that there was a successful mining of it, and it should be fully online by the fourth quarter of this year. That's natural gas. So one can already see that there's some security happening in the midterm.
Jeremy Au: Lots to unpack there. The first thing I would say for sure is that declaring a national emergency on energy takes political courage. It was not an easy decision. From my vantage point, looking at the news, obviously some countries are okay. Malaysia and Brunei are energy exporters, so there's not going to be a national emergency for them. But the amount of ducking and weaving some governments are doing around whether it's a problem or not depends on how long the crisis is. I think you just have to recognize that it's better to be prepared for the worst case now and manage your reserves. Getting people focused early is probably better than declaring this later.
Franco Varona: A hundred percent. I think most people in the Philippines will agree that this is the right decision for him to declare this. At this point in time, we're also a very politically divided nation, but this is probably one of those decisions where most people will say that's probably the right thing. This oil crisis is not under our control. We did not make this oil crisis, which means that you cannot blame one political side or another. It's literally something that we have to deal with from outside our own borders. So this was a call that he made that said, listen everybody, let's stop for a second and focus on this. Let's stop politicizing everything. This is a national issue. For a national emergency, we have to focus. He's talking to the private sector and the government, making sure that everybody's aligned to get oil on our shores.
Jeremy Au: And get energy efficiency and conservation up, work from home. Being thoughtful about oil and gas expenditure so that there's time for new supply to ramp up and hopefully the crisis to resolve.
Franco Varona: Hopefully. It depends on other people.
Jeremy Au: That's where we're at. I think it's quite interesting also to compare some of those moves. It's interesting to hear about the Philippines having oil and gas fields, which makes sense. I don't think most people historically think of the Philippines as having oil and gas.
Franco Varona: We don't export it. It's all for us. It's not even enough for us.
Jeremy Au: But one of the things I've learned is that there are a lot of resources offshore. There was an announcement recently for a resumption of negotiations with China around jointly developing some of the offshore oil and gas fields in the disputed waters.
Franco Varona: Here we go. I think the exact words he said is like a reset of the relationship. It's always a touchy subject, and maybe it takes a national emergency to reset and rework a relationship. At the end of the day, we want to have good relationships with everybody. We want the rule of law to be followed, but at the same time, we want to make sure that we have energy security. If we can find the thin line that connects all those three things together, why not?
Jeremy Au: The subtext that I didn't know was that there were previous talks, and this current administration canceled that set of talks with China. But now, the talks have been resumed. I wouldn't be putting betting odds on it. It would be difficult, but there's no harm talking and trying to figure out a path that works for everybody.
Franco Varona: I think we'd be all very hopeful. The Philippines is in a very interesting strategic location. If we can really thread that line of diplomacy, business, and politics to create healthy relationships with all parties involved, let's do it.
Jeremy Au: Off the top of my head, very high level, I can imagine for the Philippines it's energy security and development capital. For China, it's an opportunity for oil and gas that doesn't flow through the Strait of Hormuz or the Strait of Malacca. So there's diversification for them as well. I think a deal could be made.
Franco Varona: Let's open up a line of communication at the very least. I think the world sorely lacks lines of communication these days, which is so weird to me.
Jeremy Au: Isn't that email or WhatsApp or WeChat? It's so easy to talk to each other these days.
Franco Varona: There's so much social media in this world. Social media was created so that you could communicate easier with everybody. But I attended a talk about American politics and how divided they are. I was thinking, 20 years ago we were all so excited about Facebook, Friendster, and MySpace. The excitement was really because we were able to communicate to a mass audience faster, like our old high school friends. That thought of connecting better and faster somehow over the last 20 years has devolved into this place where we actually divide ourselves by clans and cliques, and lines of communication have broken down. This is why the US is so politically divided. This is probably why places like the Philippines are also very politically divided. Because nowadays, we naturally think about being fed this idea that our idea is correct. If this is the color orange, and everybody else says that's the awesome color of orange, but then there's going to be one person that says it's brown. What are you going to do? You're going to block that person, or thumbs down or cry emoji. It's a negative reaction.
Jeremy Au: I think the guy who says that is actually brown, not orange, will probably get a lot of comments saying that he sucks.
Franco Varona: Exactly. This talk I attended this morning was a pollster out of the US, and he was saying he's had a chance to speak to the American president a couple of times. He was asked, does the president look at polls? Does he react to the polls? And the answer was, yes, he does react to the polls, but he only looks at the polls of the people who support him.
Jeremy Au: Ah, interesting.
Franco Varona: That's going to be the case for everybody. You, me, everybody. I'm only friends with the people I want to be friends with on Facebook and Instagram. Think about the point of decision-making that happens at that point. It's a reinforcement. People are just telling you that you're doing the right thing, and you just go down that path.
Jeremy Au: You can call it coalition building or tribal, but that's a really interesting insight.
Franco Varona: And this is why communication has broken down despite the fact that today we are the most connected generation in the world.
Jeremy Au: We're talking about energy and all this other stuff. I think it's interesting to see some of the neighbors' reactions. We mentioned Malaysia and Brunei are both energy exporters, so those guys are good. People want to buy more of their stuff, so prices are going up. Singapore is interesting because it's a huge oil and gas refinery hub, so they're still able to get supplies from everywhere.
Franco Varona: The needs are much lower too because the population and the island are smaller.
Jeremy Au: Exactly. But it still has an impact on the economy because the downstream refining parts need volume to make plastics and jet fuel. So the impact on the economy is more mixed. Countries like Vietnam, Indonesia, Korea, and Japan are similar to the Philippines by needing a lot of oil and gas. Another interesting thing was Vietnam just announced they're going to install a Russian-supported nuclear reactor. That's the first country in Southeast Asia to commit to nuclear power.
Franco Varona: That's a lot to unpack. I can't imagine that was because of this oil and energy crisis that's happening right now. They probably planned this for a long time. It's going to impact their economy, their politics, and the global perception of Vietnam as well. The Philippines has tried to have its own nuclear power. We even have a decommissioned power plant that never came online called Bataan. It was an attempt by the current president's father. There's a lot of great things about nuclear power; it's much cheaper. But in a place like the Philippines where we are deep in the Ring of Fire...
Jeremy Au: Ooh. All those earthquakes, tsunamis. And that triggered the Fukushima disaster that caused a huge anti-nuclear backlash.
Franco Varona: I was in Tokyo during that earthquake. I saw that thing happening in real time. That was extremely scary. I can't imagine the Philippines going through something like that.
Jeremy Au: On the other side of it is bouncing back as quickly as Japan did.
Franco Varona: Because Japan actually... I remember leaving in 2011, two days after, and thinking it was going to be crazy out there for a while. I went back two months later, and everything was like normal.
Jeremy Au: They're very resilient. They have a huge, unbelievable civil emergency response. Everyone knows their drills. I don't think any country is as prepared as the Japanese to compare it to the Philippines. Japan is like the A-star student.
Franco Varona: It comes down to efficiencies. Japan is top efficiency. The Philippine engineer, I really trust, but I don't trust the processes for the Philippine engineer. That's the biggest challenge in the Philippines. It's not the talent; it's the process.
Jeremy Au: I think with Vietnam going nuclear, it's going to cause a lot of countries to reevaluate. Indonesia has stated that they're interested, and they also purchased an aircraft carrier. Singapore has commissioned a study reviewing nuclear energy. For Singapore it's different because there's no space for hydropower or wind power, and not enough space for solar cells because it rains all the time. So you have oil and gas, and if you make a government commitment to net-zero carbon, nuclear energy seems like one of the few approaches.
Franco Varona: What can I tell you about the Philippines and power? One of the things the government is finally realizing is that as an archipelago, it's actually quite difficult to transmit power. You can't put a power line across island to island.
Jeremy Au: And I think Indonesia is the same way.
Franco Varona: The Philippines is developing a little bit later in the curve than everybody else. We do get these positive realizations and an opportunity to act on them. One positive realization was that we're actually the perfect type of island for renewable energy.
Jeremy Au: You have solar cells, they could work, it's distributed.
Franco Varona: In Singapore, solar is probably not as efficient because of the rain. Plus, an interesting fact is that Singapore and the Philippines are in the same time zone, but the sun comes up much earlier here, sometimes at five in the morning. Because of that, we actually are able to derive more power from solar. It actually is a more efficient energy source for us than it is for Singapore.
Jeremy Au: And you have open space. Singapore doesn't even have space for agricultural farms, let alone solar farms.
Franco Varona: Exactly. The government is actually making getting renewable energies online a priority project. Wind farms and solar farms make sense.
Jeremy Au: It makes sense for the Philippines. You have space and distributed requirements. Gas has been top because it's easy to bring from island to island on a boat.
Franco Varona: Developing a little bit later but seeing what works in other parts of the region means we can look forward to some work towards that. Even with this national emergency, I think that's exactly the direction we'll wind up going. We as a fund see things as cycles. We're in the midst of a short-term cycle with this oil and energy crisis. But when you look further out, the result of this cycle is that we're probably going to be much better about our oil security in the future. There's probably going to be a lot of conversation around starting to put these renewables online in mass scale. That's my optimistic outlook.
Jeremy Au: This is actually talking about what the investment thesis is to some extent. What has changed? Nuclear power has a tailwind, renewables and solar cells have a tailwind. I assume battery storage to help the power grids in the Philippines is also prioritized. I guess the question is, is it going to be an issue that a lot of the solar cells and batteries come from China?
Franco Varona: I don't know the answer to that. What I do know is, on the consumer side, Chinese electric vehicles in this country have exploded. Specifically, one brand, BYD, went from nobody knowing it to owning a huge percentage of the EV market, and potentially the entire automobile market, in a short period of time like three years. So if there was any concern about importing Chinese technology into the Philippines, I think it's been alleviated by the fact that a large chunk of Filipino automobile consumers today are already using Chinese technology.
Jeremy Au: I think China is focused on left-hand drive versus right-hand drive markets. China and the Philippines share the same side of the road for driving. So at least you don't have to manufacture it differently. Singapore is not going to get Xiaomi cars anytime soon because we are on the other side of the road.
Franco Varona: You're missing out. They're great cars.
Jeremy Au: I would like to try a Xiaomi car. Xiaomi, are you listening? Next time you and I could be in a Xiaomi car doing a podcast.
Franco Varona: Next time we'll do it inside the car. BYD, are you listening? You're probably not listening.
Jeremy Au: In Singapore, BYD has become a top car brand. In Singapore, every car pretty much has to be scrapped or renewed every 10 years due to the Certificate of Entitlement (COE). By effectively seven years, every car is going to be electric because of that licensing requirement. Singapore is going through a tremendous S-curve on EVs right now.
Franco Varona: I think it's similar to the Philippine experience. This oil crisis is probably going to spur a lot more purchases towards electric vehicles. The Philippines has a tax break for buying electric vehicles here, plus additional perks. So EV adoption here has taken off incredibly.
Jeremy Au: If you can imagine somebody making a calculation, they have their solar cells and plug it into their car with a home battery. And you add a Starlink satellite to it, then you're off the grid. You can do everything you want.
Franco Varona: That would be the dream. Solar panels for the consumer in this country haven't taken off as well as they should yet; I think it's still a little bit expensive. But the private sector has been helping out. Charging stations in some malls in this country are still free. The charging stations are specifically placed in very attractive locations close to the entrance to attract more people to use EVs. So I think it's an interesting public-private effort to get people moving towards EVs.
Jeremy Au: It just made me realize that when my kids grow up, they're going to treat the internal combustion engine like the steam engine.
Franco Varona: They're going to have no idea what an internal combustion engine is. It's just straight acceleration with an EV, it doesn't even change gears. I'm about to switch to another EV for a second car. So these kids are going to have no idea what it is.
Jeremy Au: We're going to sound like old people talking about pumping petrol at a station and dollars per gallon of gas. Does this change any of your investment thesis for this cycle?
Franco Varona: We think of everything as a cycle. There are short-term to mid-term cycles, like the oil crisis or COVID, but the fund is a 10-year fund. Foxmont invests in solutions more so than innovation. Innovations can be trendy, like blockchain, NFTs, digital land, and the metaverse. $60 billion went into the metaverse. That was an innovation and it was very trendy. Now the trend is gone, and so is all that money. We invest in solutions because we want to invest in things that Filipinos need, no matter what the cycle is. Foxmont Fund 3 looks at affordability and accessibility under the framework of Maslow's hierarchy. We understand that the Philippines has an emerging, growing middle class asking for more options. We invested in gyms. Specifically, an HVLP—high-value, low-price—gym called BeFit. They are huge gyms, 1,500 square meters with over 100 machines, for $20 a month. We've had thousands of signups. This is not a trendy thing. You couldn't go to an affordable gym here, and this is the solution. It's 24/7, which fits our country's BPO sector.
We also invested in a female-focused clinic called Eluvo. Medical accessibility is a problem in this country. Hospitals are the heart and soul of everything here, but the average commuter in Manila spends four hours a day commuting. Layer on lining up at the hospital because there are so many people, and it becomes inaccessible. Eluvo focuses on "talk, test, treat" outside the hospital, where you can see an OB-GYN, get your tests right on-site, and get treated basically on-site in one visit. Additionally, they have a partnership with a Singaporean business called GenPrime for fertility. The Philippines only has nine fertility clinics for a population of 115 million people.
Jeremy Au: Your optimistic case would be that there's no infertility problem in the Philippines, but from a reality perspective, there must be so many couples struggling with infertility who are underserved.
Franco Varona: Exactly. A lot of that has to do with the perception of fertility in this country. A lot of people within my social circle who need to see a fertility clinic will go abroad to San Francisco or Singapore. One reason is inaccessibility here, but the other is reputation. People have very conservative concepts about what fertility means. But we believe that with this younger generation, that's probably going to change, and there's a massive need for it. I spoke to a family office in Vietnam that told me there are entire buildings full of fertility clinics on the outskirts of Vietnam, yet here there are only nine clinics.
Our third investment makes what is considered expensive luxury electronics much more accessible. We're providing solutions to the Filipino. People ask me all the time if I've found any AI deals. We have been pitched AI in this country with very interesting use cases, but I do think of AI as an innovation right now versus a solution.
Jeremy Au: It's an enabling technology rather than a solution in itself.
Franco Varona: Exactly right. The AI that we see in this country is really creating more efficient processes within some of our startups. Etaily and Sourcy do a great job of using AI to clean up their internal processes. But AI as a business on its own, we're still forming a solid thesis on it in the context of the Philippines.
Jeremy Au: I'd love to summarize the three big takeaways from our conversation. First, thanks for sharing about the energy emergency that was declared. It's an external shock, and it took political courage to declare it and focus people's minds. Second, thanks for sharing how you see the dynamics for the Filipino economy in terms of energy security, solar cells, electric vehicles, and power distribution. Third, thanks for sharing what you still think are the lasting principles of this cycle. It's looking past the short-term news cycle and investing on a 10-year cycle for affordability and accessibility. Thanks so much for sharing Foxmont's investment approach during this time.
Franco Varona: You're welcome, Jeremy. Thank you for having me. I hope my insanely optimistic views are received warmly by your audience.
Jeremy Au: In 10 years, we'll find out if you are right. We might be living in caves with sticks and stones and thinking Franco was so wrong.
Franco Varona: We're not using microphones anymore, we're literally just talking to each other again.
Jeremy Au: Our kids will be using electric vehicles and asking what a stick shift is. On that note, let's wrap up.
Follow BRAVE Southeast Asia!
WhatsApp: https://whatsapp.com/channel/0029VakR55X6BIElUEvkN02e
TikTok: https://www.tiktok.com/@jeremyau
Instagram: https://www.instagram.com/jeremyauz
Twitter / X : https://x.com/jeremyau
LinkedIn: https://www.linkedin.com/company/bravesea
Spotify
English: https://open.spotify.com/show/4TnqkaWpTT181lMA8xNu0T
Bahasa Indonesia: https://open.spotify.com/show/2Vs8t6qPo0eFb4o6zOmiVZ
Chinese: https://open.spotify.com/show/20AGbzHhzFDWyRTbHTVDJR
Vietnamese: https://open.spotify.com/show/0yqd3Jj0I19NhN0h8lWrK1
YouTube
English: https://www.youtube.com/@JeremyAu?sub_confirmation=1
Apple Podcast
