I spent about 12 days in Jakarta, Indonesia last month, meeting tech founders, investors, executives and operators. Here is a first-hand account and highlights which may be useful for you to know.
Market sentiment
Most people, matching the global sentiment, are plain worried. Everyone understands the funding party of 2021 is over.
Founders have a lot of questions about what they can expect when they go out to raise. Is the market going to be back up in three, six or 12 months?
Companies which were planning to raise in the short-term, are now in a tight spot and looking to shareholders to bridge the gap while companies which recently raised are breathing a sigh of relief. Most are focusing on conserving cash and directing their efforts on proving their business’ sustainable unit economics.
Investors are increasingly herding and hesitant to do non-consensus deals. “Winter is coming” is echoed around SCBD. Such statements are catchy and resonate deeply with people but do not give any sort of clarity to founders and amplify worries about an “abstract winter” i.e., we don’t know what’s going to happen but it’s going to be bad.
Yet, some investors remain optimistic, perhaps rightly so:
- The economy is strong. Indonesia’s economy is stable and growing, with five per cent YoY growth in Q1 2022, partly spurred by commodity prices and partly by a pick up in private consumption.
- Attractive entry prices. Funding winter has brought valuations to earth so if you are an investor with capital to deploy, you can enter great businesses and get a nifty return when wider capital inflows pick up again.
- Strong will thrive. Portfolio companies with strong fundamentals will come out of this downturn stronger i.e., when the debris clears, competitors with weaker fundamentals would have slowed down or shut down.
Real problems, real solutions
Funding winter or not, real problems need to be solved for Indonesians and builders to continue to build effective solutions. For example:
- Quality education access leads to increased global competitiveness (Co Learn, Binar Academy).
- Digital payments penetration and transaction data mapping lead to credit access for the traditionally unbanked (Xendit, BukuWarung).
- Bringing insurance to the new age to promote well-being and productivity of an increasingly diverse/younger workforce (Aman, Oktolife).
- Empowering micro-entrepreneurs to make a decent living (BintanGo, Super).
- Bringing down extremely high transport costs to unlock personal savings/investments (Swoopmove).
For the sake of brevity, I have only given a select few examples covering select sectors. We will be releasing comprehensive sector deep dives later this year.
Investor ecosystem
The local venture capital ecosystem is increasingly self-sufficient (at least for the early-stage rounds) with leading funds such as East Ventures, AC Ventures, MDI Ventures, Trihill Capital, Alpha JWC, Skystar Capital and Intudo Ventures together managing over US$2 billion. Many of them have recently closed new bumper funds and are deploying consistently, albeit in a slightly more paced manner.
Also Read: Funding roundup: SG’s KILDE raises US$350K, East Ventures backs Indonesia’s Riliv
There is a general acceptance that international investors especially ones who have not operated in SE Asia for long and don’t have feet on the ground will pull back for now which leads to a concern of a growth-stage funding gap opening up.
Recent transactions (see Xendit, KitaLulus, Astro) would prove otherwise but there are perhaps exceptions or rather a legacy factor at play i.e., announcements are usually three-four months behind deal closure, do expect a few more announcements of US$50 million+ rounds in the next month or so.
Notwithstanding, some international investors who have been entrenched in the SE Asia ecosystem for long, especially ones with new SE Asia-focused funds or evergreen setups, are looking very opportunistically at the market and we see them maintaining or even picking up the pace which positions them primely given the growth stage supply-demand mismatch.
Where are the Chinese? Historically active Chinese VCs in SEA, have been relatively quiet in recent times. However, it is understood there are some new entrants in the market and are looking to establish an on-ground presence in Indonesia. Plus India not being a very open market for Chinese investors, makes Indonesia a net benefactor.
Korean and Japanese investors, although never the dominant set, seem to be plugging away with deals here and there.
Middle Eastern investors have a significant amount of capital committed to Indonesia but mostly via the LP route, backing local VCs, rather than investing directly (for the moment).
Public markets and exits
The crown jewel of Indonesia, GoTo, has fared poorly on the IDX, the market cap has plunged 25 per cent since listing on 11 April 2022. To be fair, there are some knock-on effects from the global market crash, but GoTo will have to readjust to the new reality quickly and start delivering on its promise for its own sake but also for its peers.
To be noted the local listing was most likely a precursor to the eventual US listing but we can expect a delay to those plans. Some other notable tech or tech-related listed companies on IDX like Bukalapak and Bank Neo Commerce (Akulaku-backed) have not done well either.
However, making IDX into a reliable listing option for tech companies is a priority for the government, in the longer term, IDX can become a major listing destination in SE Asia for sub $1b tech companies and a secondary listing destination for larger Indonesian unicorns subject to an establishing an initial track record.
In terms of tech M&A activity in Indonesia, we see more volumes coming through in the medium-term, taking buyer inquiries as a leading indicator. Especially when we look at the micro (US$1-10 million), small (US$10-50 million) and medium (US$50-200 million) size transactions, a lot of companies have done well growing their businesses.
But at the same time have reached the end of the runway in terms of scale, expertise and stamina while big players (potential acquirers) are running away with an unassailable lead, most of the capital is likely to gravitate to these supposed winners given their growth prospects, organisational depth/breadth and expansion ambitions.
SEA expansion
Indonesian companies with unicorn ambitions are looking at neighbouring markets for growth as their domestic serviceable obtainable market saturates.
Already, we see large Indonesian tech companies establish a corporate executive base in Singapore, using it as a launchpad into other markets as so many Singapore-based tech companies have done before.
Partly driving this are its shareholders i.e., the Indonesia-first funds (some mentioned before) which have raised significant growth capital and need to deploy across more markets to keep delivering returns, from a capital efficiency pov, having a portfolio grow is relatively easier and synergistic than investing in fresh companies in new markets.
The subtle Indian influence
Operating in both markets of India and Indonesia, I can’t help but notice the similarities in terms of demographics, consumer behaviour and outlook which drive similar business models and value propositions, with Indonesia following India’s example, perhaps two-three years out.
Another peculiar thing I noticed while talking to early-stage founders is how they increasingly referenced Indian unicorns when describing what they’re building.
For example, X for Indonesia, the X often being a bigger Indian tech company. It is a bellwether of the increased capital, company and people flow between the two countries, a bridge we certainly wish to help build in the coming years.
People impact is already prevalent via Indian-origin founders, who seem to be doing quite well for themselves, having built some of the leading tech companies in Indonesia such as Ula, BukuWarung and Co Learn, to name a few.
Signing off
Indonesia is better positioned than ever, despite the current global downturn, relative to a lot of its peers in terms of market dynamics, self-sufficiency, local capital base, government support, and its position in international geopolitics.
Most of all, it is great to see so many strong companies being built by an ever-increasing base of super talented founders and tech execs. I am betting on them to endure this interim blip of a funding winter and thrive through and after.
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