Written by Alvin Cahyadi & Maliekah Harjani
Moderator: Adrian Li, Convergence Ventures
Panelists: Chi-Hua Chien, Goodwater Capital; Pandu Sjahrir, Agaeti Venture Capital; Nick Nash, Asia Partners.
Technology start-ups in Indonesia have brought a tremendous impact to the economy, presenting a US$27.0Bn market size across e-commerce, ride hailing, online travel and online media transactions in 2018. In addition, there was US$1.6Bn (IDR 22.6 Trillion) in loans disbursed by FinTech lending companies, which was equivalent to more than 8x growth from 2017. Despite these astronomical figures, Indonesia’s tech landscape is still far from maturing, with many traditional sectors opening their arms to digital disruption. To estimate this evolution, Convergence Ventures hosted a discussion on the 8th of April with experienced investors across the globe including Goodwater Capital, Agaeti Venture Capital and Asia Partners. Moderated by Convergence Ventures’ managing partner Adrian Li, the discussion touched base on the higher-level consumer trends in Southeast Asia and globally. With eyes from different corners of the world, renowned investors on the panel shared their perspective on trends to look out for, the evolving funding ecosystem and key learnings from their entrepreneurial and investment experience.
Here are our key takeaways:
We are China 10 years ago. Many experts say that Indonesia’s current landscape replicates China’s in 2009-2010 and that the path of technology adoption will also succeed China. This perspective leads to an anticipation that there will be a proliferation of streaming media and logistics for eCommerce (e-tailing). On top of this, Indonesia will see more sophisticated FinTech offerings that go beyond digital payment, e-wallet and lending. These offerings will tap into complex financial services, such as insurance and wealth management.
Focus on your customer like your life depends on it. Competition for start-ups in Indonesia is getting fiercer, especially as unicorns now diversify their offerings. The panelists believed that key to succeed in this competition is to focus on customers. A quote from our panelist – “Jeff Bezos says that he only pays attention to his customer because if you spend too much energy on learning about your competition, you may never understand the essence of what your customer needs from you. A business can never place too much emphasis on its customers. Building on your customer knowledge will put you ahead of the game.”
Being successful now does not save you from failure later. Fortunately, for the new start-ups, being a unicorn does not mean staying on top forever. History has shown us that empires do crumble. This could be due to a lack of being agile and innovative, company culture failures or even because of strong competition. Bear in mind that the most feared company in 1999 was AOL and the most feared company in 2003 is Ebay.
The funding ecosystem is evolving. To convince investors, it’s no longer a game of just scaling up the business with capital. Investors now have put more emphasis on the efficient use of capital and having a path to profitability. Investors want to be able to see the light at the end of tunnel, which mainly consists of reaching profitability and exits. This shift in perspective is triggered by the notion that exiting unicorns have done most of the homework. For example, one panelist expresses that “the unicorns have built the trust to transact online”. The next generation of unicorns no longer need to burn as much cash to educate the average Indonesian consumers; this leads to the belief that the next wave of unicorns will place importance on efficient capital consumption, margins and profitability. Bear in mind that consumer-facing companies need to do four things: 1) acquire leads, 2) convert them into active users, 3) retain those users and 4) ensure that you can monetize from them. Whether you are a content platform or a stock-trading app, this framework is apt for B2C models.
Choose your investors like you are marrying them. This is because the truth is, you pretty much will be “married” to them. You will spend a substantial amount of time with them and they may play an essential role in your decision-making process. Similar to picking a life partner, get to know your investor on a professional and personal level before you give them skin in your game. Picking the wrong investors could negatively impact your company. Investors have a strong and legal interest in you and your company so it is imperative to ensure that they have something to bring to the table.
Local will almost always win. In a complex and high-context culture like Indonesia, where business is relationship-driven and consumer behaviour is based on local preferences, it is very often that the companies that adopt a hyper-localisation strategy are the ones that remain on top. Here’s a simple example: Uber did not offer a cash option until much after Grab and GoJek did. Local differences make it difficult for global players to penetrate into local markets.