The former are later-stage investors who back a company after it has already gone public. Stock market investors have a couple of distinct breeds. Some belong to the “value investing” camp, while others call themselves “momentum investors”. These two types of players are polar opposites in their dogma.

Value investors (think Warren Buffett) only look for companies that are on sale relative to their intrinsic value. Momentum investors (think Richard Driehaus), on the other hand, look to buy stocks that have had high returns over the past three to twelve months and sell those that have had poor returns over the same period.

Value investors analyze the past performance of a company over a long timeline of cash flow and P&L. They make bets based on what has been tangibly demonstrated by a company to date. They follow the conventional wisdom of “buy low, sell high” to maximize their gains over time.

Meanwhile, VCs back companies long before they go public and sometimes continue to buy in again after. By our very nature, VCs like myself are momentum investors. We back early-stage startups and bet heavily on a company’s potential performance. Our spectrum is “projected growth” and so we try our best to understand a company’s most likely future. We take big risks on a relentless quest for mammoth returns. So contrary to conventional wisdom, we choose to “buy high and sell higher”. Instead of being deterred by high prices (and companies that are still loaded with risk), we’re drawn to those whose prices are trending upward.

Enter Bukalapak. By listing on the Indonesian stock exchange (IDX: BUKA.JK), the e-commerce firm is the first local tech unicorn to break the sound barrier.

On Aug.6, Bukalapak made its market debut on Indonesia’s stock exchange to much fanfare, with share prices skyrocketing by 25 percent  to Rp1,060 (US$0.0738) within mere minutes of opening. The country’s first listed tech unicorn achieved its target of raising US$1.5 billion in what is now Indonesia’s largest-ever initial public offering (IPO), giving it a valuation of $6 billion.

Without question, this will soon be replicated and surpassed by more tech companies. GoTo, for example, is another high-profile IPO that has investors already salivating. The world-renowned decacorn is reportedly looking to raise as much as $2 billion from pre-IPO investors before gunning for a dual listing on the IDX and the NASDAQ, though a concrete timeline has yet to be announced.

Three other local companies with a combined value of around $2 billion are also looking to go public on the local exchange. With regulations aimed at attracting more tech startups, the IDX is well-positioned to house these innovative, high-growth companies.

However, investors like ourselves must be wary of history repeating itself. In 2009, the oil industry dominated the market. In the wake of the financial crisis, American companies dropped off while Chinese companies capitalized on red-hot economic growth. China’s largest oil producer PetroChina was on the crest of this wave and even momentarily crossed the $1 trillion market cap threshold in 2007. Momentum investors of a certain age will recall this moment in time ending in tears. 

The parallels are uncanny. One decade later, big tech dominates the market. Microsoft, for example, found huge success in gaming and cloud computing and cemented its position as the top company in the world by market cap. Even Chinese tech companies like Tencent and Alibaba have seen their market caps swell, though China’s recent government crackdown on the country’s tech juggernauts has left investors in a bit of a limbo.

Circling back to Bukalapak, it might be tempting to see it as one portion of an overvalued tech bubble that will eventually burst, much like the oil industry did. But there is more than one side to every story. From the "value investing" perspective, Bukalapak may very well be overvalued. High share prices are set to continue surging upward, with investors scrambling for a piece of the tech giant’s pie.

Yet, from the "momentum investing" perspective, Bukalapak is undervalued.

This is because we are looking at growth potential, rather than current performance. Traditional companies typically grow at a linear rate with less than 20 percent year-on-year growth. On the other hand, tech companies grow at an exponential rate, usually boasting more than 20 percent year-on-year growth.

Further, macro-level developments make the Indonesian landscape conducive and favorable for tech companies to scale exponentially. Government support, such as tax incentives for listed companies coupled with programs that link startups with financial backing creates inroads for tech companies to expand and innovate.

Lastly, other metrics are commonly used as an additional layer of consideration when it comes to valuing this type of company. In lieu of meaningful profit, the total processing value (TPV) of an e-business can often be a better gauge of a company’s performance.

Using the above criteria, Bukalapak is firmly on an upward trajectory and makes an attractive asset for momentum investors. From 2018 to 2020, Bukalapak’s compound annual growth rate of its TPV was 73 percent. Its earnings before interest, taxes, depreciation and amortization (EBITDA) improved by 80 percent in 2020. The number of registered “mitra” — mom-and-pop shops, known locally as warung, participating in Mitra Bukalapak, the company’s online-to-offline arm — soared by 20 times in three years, from 350,000 in 2018 to 7 million in 2020. Furthermore, the company’s customer acquisition cost has decreased by over 64% within the same time period.

Bukalapak might be the first, but more tech companies will soon go public on the IDX. With more of them set to IPO, it’s important for investors, corporates, and stakeholders to remember that tech firms often experience exponential ascent instead of linear growth.

Companies like Bukalapak might seem overpriced at first glance, but momentum investors look to the future and concentrate on growth, not just yesterday’s profit. Change is coming, and adaptation paired with fresh perspectives is necessary to stay ahead of the curve, especially as Indonesia’s stock market begins to boom.

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The writer is CEO of BRI Ventures, the corporate venture capital arm of Bank BRI, the largest microfinance institution in the world.