Founders now have more funding options for new companies than a decade ago, as the country’s digital economy continues to grow. The report shows that investors’ appetite for seed and early-stage funding has never been higher.

The Jakarta Post’s Eisya A. Eloksari interviewed Arya Setiadharma, an angel investor and the CEO of investment firm Prasetia Dwidharma, on Dec. 1 to get insights on how founders can find the best match for their capital needs. Below are excerpts from the interview, which has been edited for brevity.

Question: How has the start-up scene changed in the past 10 years?

Answer: The most drastic change is how local investors' interest in the tech ecosystem has skyrocketed in the past decade, so the number of deals and capital flow has exploded. Funding was dominated by foreign venture capital and investors back then, but now founders have many options to raise capital locally.

Second, Indonesia’s market size is growing due to rapid digital adoption in the past three years, catalyzed by smartphone use, which has enabled users in nonurban areas to access digital solutions.

Third, the quality of founders has improved because they now bring experience working in unicorns or other tech start-ups to their own companies.

What is your take on the influx of foreign funding to Indonesia?

I don’t see it as a problem because a few years ago, foreign funds were the only available source. If foreign investors are more bullish about local start-ups, they will be the ones who put in capital. But I think if start-ups have the opportunity, they will choose local investors who understand the market better. 

However, there are also companies that prefer foreign backers because they have more dry powder and a higher risk appetite. While some local investors see high revenue as a requirement for funding, foreign capitalists are often more willing to invest in ‘growth at all costs’ start-ups.

What should founders look for in an angel investor?

It is good to find a relevant angel investor that can add value and match your industry. For example, a fintech company can look for an angel investor who is also a fintech founder. But companies can also opt for someone in an adjacent industry, such as a logistics start-up.

Some investors still have the ‘money is everything’ mindset, while the founder is of very high value these days. I think people should avoid investors who ask for stakes of 30 or 40 percent before the start-up has even begun making money.

What start-up verticals excite you nowadays?

Fintech, edutech, health tech, logistics and direct-to-consumer (D2C). Fintech is still growing, and it is not slowing down. There are new kinds of business models that the fintech segment has created, like fintech enablers and digital investment. 

Edutech and logistics have quite a high growth rate and will continue to do so next year. Logistics has potential because Indonesia already has many customers that are accustomed to e-commerce. 

D2C is also exciting because it is supported by a good payment, logistics and digital marketing ecosystem. So, the building blocks and key success factors to build a thriving D2C brand are already established.

What is your take on start-up initial public offerings (IPOs)?

What usually happens in the United States is that big start-ups go public when they have no private option to raise funds, which results in their shares plummeting. So retail investors enter the company when it is at its peak, when its valuation has been overblown and the start-up’s financial performance cannot keep up.

Hopefully, start-ups will go public locally when they are still hot and can offer upside to investors. This will help the tech industry grow in the capital market as well as increase investors’ trust. If tech IPO in the near future fails to perform well, it will affect investors' appetite in early-stage companies as well.

Amazon took nine years to become profitable after its IPO, but I think Indonesian retail investors are less patient. On the one hand, the company should have a clear road to profitability, but investors should also be more steadfast.

What is the future trend for start-up funding in Indonesia?

I think Indonesia has received a lot of capital last year and it is not going to stop. Our macroeconomy is growing, and despite the new COVID-19 variant, investors' appetite in seed and growth-stage companies is growing. 

Many Southeast Asian investors are also looking to enter Indonesia, so this is a sign that they want to invest – and with more capital than before the pandemic.

Prasetia Dwidharma is also looking to invest more in the five segments I have mentioned. I think we may have three fintech companies in our portfolio that can become unicorns in Indonesia, India and Singapore.