With gross merchandise value (GMV) increasingly becoming the metric to value online retail businesses in their initial stages, venture capitalists and economists are now warning of the sustainability of such valuations. Billion-dollar unicorns should be measured by real revenue, profit and loss at that stage, they warn.

GMV measures total sales volume transactions through digital platforms, which most of the time act as mediators for transactions rather than the direct seller. Meanwhile, revenue comes from the income of doing business as the mediator, through fees or advertising.

“I don’t really believe in GMV, because if someday there is a global recession, that source of finance will decline. So if the business model continues to burn money, of course the model will have a limit,” renowned Indonesian economist Chatib Basri said, warning of the sustainability of tech businesses.

“If they rely only on raising funds, someday when there is a sudden shock in which funding is stuck, they will no longer be able to burn money and the impact will be systemic,” said Chatib, a former finance minister with academic experiences at Harvard University and the Australian National University, in a discussion organized by Indonesian unicorn online marketplace Tokopedia.

Many small and medium enterprises and individuals trade goods on digital platforms, hence the need to protect online marketplaces from a systemic crash by ensuring sustainable valuation and investment, he added, citing an example of Tokopedia’s Rp 73 trillion GMV in 2018. Transaction value on the Tokopedia platform has been estimated at Rp 222 trillion in 2019, equivalent to 1.5 percent of Indonesia’s gross domestic product.

Five Indonesian start-ups have turned into unicorns, namely Tokopedia, ride-hailing app Gojek, e-commerce platform Bukalapak, travel and leisure marketplace Traveloka and e-money platform Ovo, according to the Communications and Information Ministry.