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RI’s start-ups struggle to secure growth funding
Indonesia has seen a 10 percent increase year-to-date in $1 million to $20 million ticket deals compared to last year. However, the country also saw a 19 percent decline in $20 million to $100 million funding often found in series C and D over the same period
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tart-ups across Southeast Asia are struggling to raise capital to support business growth following the bullish funding received by early-stage companies during the first half of the year, prompting some to speculate about the end of the unicorn era.
Singapore-based equity firm Asia Partners cofounder and managing partner Nicholas Nash reported that Southeast Asia was not seeing the US$1 billion in funding for start-ups annually that was needed to spur growth.
“This lack of funding is a limiting factor to growth,” he said during a conference hosted by Tech in Asia on Monday. “We see a lot of venture capitalists [VCs] writing checks for seed-stage companies but there is an acute gap in series C and D funding in the region.”
Indonesia saw at least 51 funding agreements announced throughout the first half of the year, with 31 deals being made in the second quarter, higher than the 24 deals over the same period last year, according to DailySocial.id data. As many as 13 of the 31 funding agreements were made with seed-stage companies.
Nash explained that Indonesia had seen a 10 percent increase year-to-date in $1 million to $20 million ticket deals compared to last year. However, the country also saw a 19 percent decline in $20 million to $100 million funding often found in series C and D over the same period. Meanwhile, the number of start-ups raising capital above the $100 million mark had increased by 44 percent.
Companies that have exceeded the $100 million fund raising mark amid the pandemic include online travel agency Traveloka, which has secured $250 million, and coffee shop chain Kopi Kenangan, which has raised $109 million.
Similar trends had been observed throughout the region, Nash said, adding that COVID-19 had created a funding gap especially in the first months of the pandemic. The lack of funding is also because there are only around four VCs focusing on growth-stage companies in Southeast Asia.
“We see this situation as the end of unicorn and the rise of rhino companies. Rhinos are more frugal, humble and local and they can operate in a capital scarce environment,” he said, adding that such companies aimed to be profitable and resilient.
“These rhinos can lead to a more sustainable and profitable business in the long haul,” he stated.
The last couple of years has been a golden era for Indonesia’s digital industry, with the rise of five homegrown unicorns – start-ups with a valuation of more than $1 billion – namely Gojek, Traveloka, Bukalapak, Tokopedia and OVO. Despite the significant funding they have received and the soaring gross merchandise value (GMV) they have booked, none of them have recorded a profit.
Venture Capital and Start-up Indonesia Association (Amvesindo) chairman Jefri Sirait attributed the lack of funding to the limited number of VCs with enough assets to support more mature start-ups.
“Small investors will find it hard to fund companies in the bigger tickets, and even bigger VCs will be more thorough in accessing risk and start-up scalability, so companies need to also be resilient amid rising competition,” he told The Jakarta Post on Monday.
Logistics technology start-up Waresix CEO Andree Susanto expressed optimism about the company’s prospects for raising future funds.
“The trend now is for VCs and private equity firms to be more selective in their investments. They want to see a sustainable business model and fund companies that give value,” he told the Post on Tuesday.
“I think with a solid business model and positive unit of economics, we can build investors' trust and level of comfort,” he said.
Waresix closed its $100 million B series funds in September, mostly backed by new investors. The company claims it has been profitable on a net income basis since June 2019, two years after its establishment in 2017.
To navigate the funding gap situation, Nash of Asia Partners advised start-ups to go public as one 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 IPO.
However, Jefri of Amvesindo said there were constraints for start-ups to conduct an IPO, including complicated terms and high fees, as well as willingness from companies to be transparent.
“Of course, as VCs we also want start-ups to go public and companies also want to secure capital gains but is the IPO process easy or difficult?” he said.
