According to Pilarmas Investindo Sekuritas director Maximilanus Nico Demus, the so-called tech winter has discouraged many companies from pursuing an initial public offering (IPO).

“It all depends on the companies’ business prospects,” he said, adding that, “as long as the business is good, we’re sure people will buy [the stocks]; people will want in, and investors will be interested.”

The pursuit of profitability could be accelerated if a start-up brings down its burn rate, or the money it loses every month, such as by optimizing internal operations, giving fewer incentives to users or monetizing its services.

Heightened demand for digital solutions during the COVID-19 pandemic and a supportive financial market environment made investors bullish on tech firms until just over a year ago, driving up many blue-chip stocks to record highs in late 2021.

That changed abruptly as funding became harder amid interest rates, compounded by doubts about the high valuation of many firms. The tech winter is marked by a slowdown in venture capital funding and mass layoffs at listed and unlisted firms.

Investors now demand to see profit, or at least a clear path to profitability, both around the world and in Indonesia, and many of the metrics long preferred by tech firms to gloss over ongoing losses no longer convince investors.

“People no longer bother looking at contribution margin,” JP Morgan Indonesia head of research and strategy Henry Wibowo said on Wednesday, emphasizing that earnings before interest, taxes, depreciation and amortization (EBITDA) was the more important matrix to observe.

And “after EBITDA, people will want to know when positive net profit can be achieved,” he added during a press briefing at the investment bank’s offices in Jakarta.

At the same roundtable event, JP Morgan Indonesia senior country officer Gioshia Ralie said this fresh paradigm in the tech sector applied not only to IPOs but also strongly affected private placement, “If [the company] cannot achieve it [in a private setting], then the same will be the case in the [public market].”

Private equity investors were now very critical when looking inside a company, Gioshia said, scrutinizing and analyzing the business model as well as the numbers in detail before writing a check.

“If the managers can defend themselves, only then will they get liquidity,” said Gioshia.

Usually, this requires them to demonstrate profitability or a clear path to profitability.

That could be achieved, for instance, by charging higher commissions, Henry explained, as seen in the e-commerce sector.

Henry said Indonesia’s three publicly listed tech companies, namely PT GoTo Gojek Tokopedia, PT Grab Teknologi Indonesia and PT Bukalapak.com, were on the right track, given that the two former expected positive EBITDA by the fourth quarter of 2023, whereas the latter was earning profits since the first quarter of 2022.

Read also: GoTo aims to hit profitability milestones earlier than expected

However, Henry noted that macroeconomic conditions played a fundamental role in the tech winter and said there were two important indicators to watch out for, namely when interest rates would peak and when they could come back down.

Macro conditions dictated where the market was headed, he explained, adding that it could be considered unwise to embark on as big a corporate action as an IPO in the middle of a downward macroeconomic trend.

Redseer Southeast Asia partner Roshan Raj Behera told The Jakarta Post on Thursday that most companies preferred to go public “when markets are trading at or above their historic valuation level,” as that would provide both a more attractive benchmark value and better exit returns to their private investors.

“Most companies, big or small, would prefer to delay their public listing until the macro-outlook turns favorable,” said Roshan.

Read also: EV ambition to boost Indonesia equity market in 2023: JP Morgan

Begging to differ with JP Morgan regarding profitability in a private setup, Roshan said the time for a company to turn profitable would depend on the stage it was at, and those that were at an early stage were unlikely to obtain profit within two or three years.

“The need to accelerate the path to profitability is higher in mid to late-stage private companies, as they have already achieved a certain scale and have to become sustainable soon,” Roshan said.

“However, as seen in recent quarters, investors are willing to back [early stage] companies, as long as they address a meaningful need gap and are able to demonstrate a path to profitability over time,” he added.

Somewhat along the same lines, Maximilanus said the tech sector needed to be seen from the scope of “future potential valuation,” meaning that maintaining perception and expectation was the name of the game.

“The real question you have to ask is, ‘What does this company have and what are they selling?’” Maximilanus told the Post on Wednesday.

He went on to say that, when a tech company had a good digital ecosystem with strong footing in Indonesia, there was nothing to worry about.

For Maximilanus, GoTo is a positive case in point, as the company had induced a multiplier effect on other industries, such as food and beverages as well as logistics.

“Everyone relies on [GoTo]; everyone is in its ecosystem. What’s wrong about waiting for another two to three years for profit?” said Maximilanus.

“So, if you ask whether [these tech companies] can turn profitable, certainly yes. But if you ask if they could attain profitability within the same time of two to three years, that depends on what the company offers. Have they done anything?” he added.