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Jakarta Post

Sky’s the limit for start-up funding in 2021 despite slowdown, VC association says

  • Eisya A. Eloksari

    The Jakarta Post

Jakarta   /   Wed, November 4, 2020   /   09:15 am
Sky’s the limit for start-up funding in 2021 despite slowdown, VC association says In the business sense, a unicorn is any privately held start-up valued at over US$1 billion. The choice of the mythical animal alludes to the rarity of such start-ups. (Shutterstock.com/fatmawati achmad zaenuri)

Thanks to the rising assets of venture capitalists (VCs), Indonesia’s start-ups still have the potential to get capital funding in 2021 even despite the economic slowdown in the third quarter this year, the Indonesian Venture Capital and Startup Association (Amvesindo) has stated.

Amvesindo data show that US$1.9 billion in capital has been raised by 52 start-ups in Indonesia as of September this year. The association expects the year-end figure to reach US$2 billion, which would be lower than last year’s $2.9 billion in capital raised by 113 start-ups.

At the same time, VCs’ assets rose 15.9 percent year-on-year to Rp 18.9 trillion ($1.3 billion) as of September compared to Rp 16.3 trillion over the same period last year, according to Financial Services Authority (OJK) data.

“The increase in assets means ample capital for next year’s funding. I believe there is still a lot of funding potential. Compared to neighboring countries, Indonesia is still a favorable investment destination,” Amvesindo chairman Jefri Sirait said during a webinar on Monday.

According to data from DealStreetAsia, Indonesia absorbed the biggest share of the $2.7 billion in fundraising deals booked in Southeast Asia in this year’s second quarter at 45.8 percent. Singapore came second with 33.2 percent of the deals, while Vietnam followed with 7.9 percent.

Experts previously predicted that start-up funding in the second half of the year would slow down as investors look to profitable companies that are able to adapt to the pandemic.

The decrease in the third quarter was due to a “funding delay because of the COVID-19 pandemic, not because of venture capitalists’ declining investment appetite,” Amvesindo deputy chairman William Gozali said at the webinar.

He went on to say that most capital raised this year came from start-ups in financial technology (fintech), education technology (edtech) and software as a service (SaaS) – sectors that have seen growth throughout the pandemic.

Investments in fintech companies in the Asia-Pacific grew 9.1 percent to $1.4 billion in the second quarter this year compared to the first quarter, according to S&P Global Market Intelligence. Southeast Asia drew in $455 million, roughly three times the amount raised in the previous quarter.

“Venture capitalists are looking for companies that have product diversification, good return of investment and trajectory for growth,” William said.

Accordingly, he projected that e-health, edtech, e-groceries and logistics would see accelerated growth in the coming year.

While Indonesia has enjoyed a wave of funding from VCs in the region, founder of venture capital firm Ideosource Edward Ismawan Chamdani said that the country still needed a greater variety of financial products such as venture debt and equity crowdfunding.

Venture debt is a form of debt financing, available for companies that lack assets or positive cash flow. It can be used by early and growth stage start-ups to raise capital.

“Local VCs have been operating in the country for at least a decade. I think it will be beneficial if more locally sourced funding options are available, such as through crowdfunding, to complement VCs,” he said.

Despite being relatively new, Indonesia’s first licensed equity crowdfunding platform Santara, operated by PT Santara Daya Inspiratama, has seen businesses raise funds ranging between Rp 150 million and Rp 7 billion.

The platform currently has more than 230,000 registered members, with 71 businesses listed from almost 6,000 that have applied. So far, the platform has raised more than Rp 100 billion. 

Amvesindo predicted that there was room to grow in beauty, e-commerce business-to-business, food tech and social commerce start-ups as big players in these sectors were still in the growth stage and aiming for maturity.

However, a report from Singapore-based equity firm Asia Partners suggested there was a lack of funding for Indonesia’s growth-stage start-ups.

Last year, Indonesia saw a 19 percent decline year-to-date in funding at $20 million to $100 million – often for series C and D – while funding between $1 million and $20 million increased 10 percent and funding above $100 million increased 44 percent.

Asia Partners cofounder Nicholas Nash suggested on Oct. 19 that start-ups could go public as a strategy to secure capital. He said companies with more than $25 million in gross profit and nearing the breakeven point could do well with an initial public offering (IPO).

Fintech start-up Cashlez, for example, went public on May 4, becoming Indonesia’s first publicly listed fintech payment start-up. It raised Rp 87.5 billion from the IPO.