Clockwise from top left: Pandu Sjahrir, Founding Partner; Michael Soerijadji, Founder & Managing Partner; Helen Wong, Managing Partner ACV; and Adrian Li, Founder & Managing Partner
In January, Indonesia-based AC Ventures announced that it had closed its fifth investment fund, ACV Capital V LP (ACV Fund V), totalling US$210 million.
Having invested in more than 120 companies, with this new fund, AC Ventures wants to add around 25 more companies to its portfolio. It has started deployment and announced funding rounds for companies such as MAKA Motors, Koltiva, Simplus, and Super Mum.
It also aims to seek out more investments in Indonesia in fintech, e-commerce, health tech, MSME enablement, and climate space, with a particular interest in consumer space sectors.
“We continue to believe that the demographics of Indonesia present the strongest investment case for the ASEAN region and that, more than ever, the ecosystem has reached a maturity level ripe for new generations of technology-enabled companies to thrive. We will continue finding the most promising entrepreneurs and businesses to work with and create societal and economic impact,” writes Adrian Li, Founder & Managing Partner of AC Ventures, in an email to e27.
Also Read: AC Ventures aims to drive positive societal change, economic impact in SEA
To understand more about how the VC firm aims to create an impact through their portfolio companies and Indonesian startups’ standing when meeting ESG-related expectations, check out this edited excerpt of our interview with Li.
What is the most significant trend in the Indonesian startup ecosystem today?
In recent years, the Indonesian venture capital landscape has significantly shifted towards investing in startups with higher-quality business models, emphasising the ability to generate positive cash flow. This trend reflects a maturing market where investors are increasingly looking for businesses that promise high growth and demonstrate a clear path to profitability. This change in investment criteria is a move away from the earlier focus on rapid user growth and market share acquisition, with less immediate concern for revenue and profit.
From a sector standpoint, there is growing interest in startups addressing climate change and sustainability. This reflects a global trend of increasing awareness and concern over environmental issues, but it is particularly pertinent in Indonesia, given its vast natural resources and the challenges it faces in terms of environmental conservation and climate resilience. Startups in renewable energy, waste management, and sustainable agriculture are attracting attention, signalling a shift towards investments that promise financial returns and positive environmental impact.
Additionally, general consumer businesses continue to attract significant interest from venture capital investors. With Indonesia’s large and growing middle class, startups in the e-commerce, fintech, health tech, and edutech sectors are seen as well-positioned to capitalise on the increasing digitalisation of consumer behaviours. These businesses often have clear revenue models and the potential for rapid scalability, making them attractive to investors looking for sustainable growth.
Also Read: Merchants selling via TikTok could be harming Indonesian economy: AC Ventures
This evolution towards more financially sustainable and socially responsible investing reflects a broader understanding within the Indonesian venture capital community that long-term success is driven by more than just rapid growth. It signifies a deeper alignment with global investment trends that prioritise sustainability in business models and the broader impact on society and the environment.
Recently, more and more investors have taken ESG into consideration when assessing potential investments. How do Indonesian startups fare in this matter? Are they ready for this?
In response to the growing emphasis on ESG considerations among investors, Indonesian startups are gearing up for a more mature and resilient ecosystem. Early signs suggest that these startups are well-positioned for the shift.
Early-stage deals are expected to thrive, especially in emerging sectors such as electric vehicles, renewable energy, healthcare, and food and agriculture. Additionally, fintech, commerce, and support for MSMEs remain attractive investment areas.
We have always emphasised the importance of economic and social impact for our portfolio, and to track this, we have adopted ESG tracking for our portfolio from the start of our last fund. Working with IFC as well as using The Upright Project, a tech company based in Helsinki that measures impact according to Northern European standards, to create a Net Impact Score for our portfolio, we can see what areas they perform well in as well as areas they need to improve on.
With an internal ESG function, we can also work with our portfolio to guide them on improving ESG scores. It is also important to note that improvements in ESG metrics can improve bottom lines economically, not just ensure businesses have a lower environmental footprint.
Also Read: Indonesia needs more female investors willing to back female founders: Helen Wong of AC Ventures
How does AC Ventures help its portfolio companies balance ESG and profitability?
Within our portfolio, we run baseline assessments across the four key dimensions of ‘environment,’ ‘health,’ ‘society,’ and ‘knowledge.’
The metric that guides our hand is the ‘net impact ratio.’ This percentage score quantifies how effectively a group of companies turns resources into positive impact. Per our latest measurements, our firm and portfolio’s overall net impact ratio delivered an above-average +37 per cent, with our strongest areas being ‘society’ and ‘health.’
The Nasdaq Small Cap Index (NQUSS) features an average net impact ratio of +29 per cent. On the environmental side, a few of our notable portfolio companies include electric motorbike manufacturing company MAKA Motors and sustainable farming and agriculture supply chain traceability platform Koliva. Another one is Indonesia’s responsible waste management company, Waste4Change.
On the societal side, a big aspect that we try to understand is job creation and how many lives our portfolio companies are improving. Our portfolio at AC Ventures has improved the lives of millions of low-income and middle-income earners and MSMEs. Most of our portfolio companies are in second-and third-tier cities, creating hundreds of thousands of jobs.
A substantial part of this comes from our fintech portfolio, with names such as KoinWorks becoming category leaders in productive financing for Indonesia’s MSMEs – of which there are more than 64 million that serve as the backbone of the nation’s economy at large.
Also Read: Wealthtech, insurtech, SaaS fintech are the new hot verticals in Indonesia: AC Ventures report
Is it true that environmental sustainability and profitability often go hand in hand?
Yes, it is increasingly evident that environmental sustainability and profitability are not mutually exclusive; they can and should go hand in hand.
Many businesses recognise the value of integrating sustainable practices into their operations for ethical reasons and as a strategic advantage. Efficient resource management, reduced waste, and a focus on environmentally friendly solutions often contribute to cost savings and operational efficiency, ultimately enhancing long-term profitability.
At AC Ventures, we have observed this synergy within our portfolio, where companies adopting environmentally sustainable practices demonstrate financial resilience and profitability.
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Image Credit: AC Ventures
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