Young entrepreneurs and innovators are busy bringing their dreams to come to life by sprouting startups of any kinds. Rooted from easy access to information and humans’ innate instinct to constantly innovate, startups have appeared to be a major breakthrough to resolve urban problems and issues.
Looking at the startups’ growth in Indonesia, there is an inevitable potential that could benefit many parties involved; including investors. In many ways, startups may have become such an effective means for entrepreneurs to survive years of the digital economy. Yet, it doesn’t guarantee that they could always gratify the investors’ desires. There are things to consider, and it is undeniably important that entrepreneurs, especially those who are new to the business, aware of.
What is A Startup?
If we travel back time to couple years ago, startups might be described as hip scrappy ventures. But now, we can’t deny the fact that some startups have grown enormously with unquestionably huge revenues. Still, what is a startup, really?
According to Neil Blumenthal, the co-founder and co-CEO of Warby Parker, a startup company is a company working to solve a problem where the solution is not obvious, and success is not guaranteed.
One immoderate definition suggested by Adora Cheung, the CEO of Homejoy, is that startup is a state of mind. She further explained that startups contain a group of people who will “sacrifice” companies’ stability over marvelous growth and immediate impact.
People could define startups differently from one another. There isn’t any fixed rule to defy it as people would not see relatively stable shift numbers of revenues, profits, and even employment numbers between companies and industries. It isn’t necessarily about the company’s ages or sizes either. However, if there is one thing that we could hold onto while defining a startup, is its ability to grow. As stated by Paul Graham for Forbes in 2013, a startup is a company designed to scale very quickly. He said that its growth isn’t constrained by the geographical division that makes it a different entity from any small businesses. Adding to the explanation, he compared startups with a restaurant in one town and a franchise; neither of both are startups.
One popular attribute to a startup these days also involves its perceptible equation with tech companies. However, this common intertwined relationship couldn’t really define a startup either. Again, people have varied perception over startups definition. To make things a little clearer, though, Forbes maintained in 2013 that a startup would likely to generate profits below $20 million, hire less than 80 employees, and remain resolutely in control to the company’s first identity. Yet, again, this definition isn’t necessarily relevance either if we try to use it today, especially when it comes to those unicorn startups.
Startups’ Growth in Indonesia
Indonesia isn’t new to startups. Along with the advancement of information and technology, many startup companies sprout and offer fast and convenient solutions to urban society’s problems and needs. From entrepreneurs’ perspective, startups have allowed them to break the wall that limits them to build and own a company. Indeed, building and developing a startup company has attracted those with creative minds.
This is proven by Indonesia’s statistic among other countries in the world in terms of the number of startups they have. Surprisingly, Indonesia is in rank 3 of countries with the most startup companies. Standing behind the United State and India, Indonesia has a legit 1559 startup companies. Even more surprising, Indonesia surpasses China and sits in the first seat among the South East Asia region.
Quoted from Pieter Kemps, the Vice President of Sequoia Capital, Indonesia received whopping $3 billion investments in 2017. In fact, Kemps maintain that last year is the first major wave of startups growth in Indonesia. It is highly anticipated that this year another major wave will strike and Indonesia will receive even more investment in startups business.
Last year, startup companies that run marketplace, travel, and transportation business topped the revenue charts. Some startups of those commodities have even crowned themselves with the title of startups unicorn—a privately held startup company valued at over $1 billion.
The trend of having these commodities dominate the chart would be likely to continue this year. However, Indonesia is also ready to embrace the next striking startups wave by having some rare yet potential types of commodities to offer to the market. Dea Sujadi, the Business Development of Golden Gate Venture Capital, hopes that there will be more startups in health care, agricultural technology, and educational technology that will attract more investors and also Venture Capital to invest in Indonesia’s startups companies.
Not only is it all about those commodities, but startups with finance technology will also likely to shine this year. Some examples of this anticipated phenomenon are already a thing. Take for instance the top up solution for your e-commerce payment and money transfer solution.
Startups’ Funding
Yes, there is such a trend of positive growth of startups companies in Indonesia. However, it doesn’t mean that we could easily build our startups from starch and at the same time expect on having quick revenues. That scenario is a little too naïve as we have to face the biggest important phase before eventually able to generate anything. I’m talking about how your startup company gets funded and has the chance to grow into something you could proudly call a company.
The startups funding is a complex process that has some distinguish stages. In many cases, you will be dealing with some types of investors to help your company grow within a course of different company’s scales and situations.
Yes, we have to earn opportunities to get funded by certain investors as the fund isn’t given to us and we all know that bootstrapping sometimes just isn’t always applicable and sufficient. Bootstrapping is the act of funding without getting any help from investors. The process bets your own savings and sources to fund your company. It is possible to start or run bootstrapping for a while, yet as the companies grow bigger, taking investors’ help is likely inevitable.
As you might already familiar with, there are stages of startups’ funding. These stages, also often refer as rounds, distinct startup companies from one another. Every startup company always starts from an idea. Passing through the co-founder stage and everything involved there, then a startup will ideally or hopefully able to survive some rounds.
The first round is likely to be bootstrapping. As what is already explained above, bootstrapping is a way of funding for those new startups that haven’t looked interesting yet for investors. They rely on their own sources to support their startups.
The next round is what is so-called the seed round. There are some available funding sources for this round, like business accelerator funding and startup incubator seed funding. These two generally provide a small amount of investment for startups. Not only do they provide investment, they usually provide mentoring, workspace, and professional service. Those are in exchange for some company’s stake.
The later rounds are defined as series A, B, C and so on. If a startup sits on one of these series, it is ready to get some help from Venture Capital. Some cases also involve what is so-called angel investors.
The Facts around Investors Who Invest in Indonesia’s Startup Companies
The startups investment in Indonesia has been growing rapidly over the course of a year. The evidence of such phenomenon is the whopping amount of growing investment from $1.4 billion in 2016 to $3 billion in 2017. According to Alessandro Gazzini, the representative from AT Kearney Partner, the massive growth of startup investment value in Indonesia has a tendency to even surpass the nation’s oil and gas investment which was $5 billion in 2016.
As reported from the analysis of the venture capital landscape and investment flows, based on interviews with both local and foreign venture capitals, there are findings on the investment’s tendency among seed round and late-round investment. This annual report, which is based on the data received during January to August of 2017, indicates the majority of investment in Indonesia is still in the seed round or the early startup funding. From total 53 investment deals, there is 43% of a seed round investment. The series A investment is in the second place with 30% investment. Meanwhile, the third, with 15% investment deals are from series C or later investment. The rest are for series B (8% investment deals) and Debt/PE (4% investment deals.). These numbers indicate investors, both Indonesian and foreign, are pretty much interested in Indonesian’s early-stage startups. They are willing to invest in small-scale startups even though they cannot really guarantee success the investors are expecting.
Back to Indonesia investment value, the $3 billion investment value was in fact generated from series C and later funding. This huge amount of investment was received from China’s investors’ involvement, namely Tencent, Alibaba Group, and JD.com. Recorded in the report, their involvement dominated 94% investment values in 2017 by investing in some major Indonesia’s startups Unicorn.
Along with that fact, there is a tendency among foreign investors to increase the investment. According to the report, the majority of 80% foreign investors will increase the investment with 20% of them were on the brink of decreasing their involvement.
Quite differently from the above fact, local investors were likely to decrease their investment. There were at least 21% of local investors who were considering decreasing their investment. Meanwhile, 57% of them were interested in increasing the investment with 21% of them stick with the previous involvement.
According to Wilson Cuaca, the Managing Partner of East Ventures, Indonesia’s crisis of startups role model leads to the decreasing number of investment within local investors. He said during the interview that Indonesia is actually experiencing a small winning as we actually envision strong and sustainable companies by relying mostly upon foreign investment. He then suggested that local investments should prioritize more on a quick win by making a small yet gradually growing investment in order to create a different kind of effects, especially for Indonesia’s investors’ interest.
Winning Investors’ Heart
Looking at the situation of startups ecosystem in Indonesia there are some key principals asked by investors. According to AT Kearney Indonesia VC Outlook Survey, there are talent developments, fiscal incentives, funding and exit options, and startups facilitations that help accelerate the growth of Indonesian startups.
According to the Principal of Sequoia Capital Abheek Anand, in order to make the most from the trends, the venture capitals and angel investors’ enthusiastic attitude toward startups in Indonesia, there should be smart entrepreneurs who are ready to take the risk and boost the companies’ targets. More talent should be supplied in order to make a different scale of startups. It applies to all types of startups; no matter how big and how valuable they are, the risk-taking qualities of founders or leaders are needed in order to grow.
Investors’ confidence is affected by many factors. Yet, how business leaders implement improvements to their startup companies’ record will definitely attract investors to confidently invest their money. Same applies to both local and foreign investors. Angel investors, incubators, and accelerators will be more attracted to those companies who have the clear quality to make growth. Added to that is the role of the lawmaker that always envision fairness and legality of anything that could benefit any parties involved.
Where to Start
Every big tree starts from a tiny seed. What its cultivator do with the help from anywhere possible are keys before getting the ripening fruit. Same applies to your startup company. Consider yourselves as a cultivator. When you get any potential ideas, you should immediately start somewhere.
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