The Silent Movement of "Angel Investors" in the Indonesian Startup Ecosystem

Based on the data collected DSResearchIn 2019, there were 113 startup funding announced to the public. Looking deeper, out of this amount, only 10 startups involved funding angel investors. According to our analysis, the number could have been more, but the funding transactions were not published.

As known, angel investors is a person who injects funds into startups out of his own pocket. Of the trends so far, most of them are involved in funding pre-seed, seed funding or pre-series A. Although rare, it is also found angel (exactly a group) involved in the funding round series A together venture capital.

Help startups validate

When it was just established and launched its first product, not much can be reaped from the startup business. To gain traction, the potential for profit is often sacrificed first. They come to investors to ask for capital assistance, in order to accelerate the plans that have been prepared.

Not all business plans can run smoothly, especially in hand founder less calculated. It is possible that the resulting technological product is very sophisticated, but sometimes the market says otherwise, they don't need it as a solution – instead of paying, they are reluctant to use it. This kind of risk is what investors always think about before actually providing funds.

"Angel investors is entrepreneur who dare to take risks by investing in startups that are just operating. Angel investors usually provide capital, but can also be non-capital," said Managing Partner of Ideosource Andi Boediman on an occasion.

Regarding the value, it is quite varied and depends on the needs of the startup. However, from the information we have, the average value is between tens of millions to 1 billion Rupiah – mostly in the hundreds of millions of Rupiah. In Indonesia, among angel filled by entrepreneurs who are already in business. So that what Andi said is true, sometimes angel also provide non-capital assistance as a mentor for the founder.

It's only profitable if the startup achieves growth

The presence of startups, which have now become big players in Indonesia, cannot be separated from their involvement angel investors in its initial phase, incl Gojek and Tokopedia.

“...I then learned the concept of starting a business by seeking capital from angel investors to venture capital. I do not recognize venture capital whatever, then I came to the only rich person I knew, the boss where I worked at that time,” said Tokopedia Co-Founder & CEO William Tanuwijaya. tell the initial phase of the company's establishment.

There are several aspects that affect the consideration angel when investing in startups. To DailySocial, Michael Tampi says trust in founder be the main thesis. In addition, other things such as market opportunities, business plans, to intellectual property are also still being considered.

Some things to see angel investors Dalam rate the founding team includes (1) does it have passion and experience in related fields, (2) whether they have the right composition in forming a team, and (3) what is their vision of the business created.

Although investing in high-risk businesses, angel investors can also gain profit if the related startup succeeds in achieving growth. The realization is when a startup manages to raise a larger funding round – so ownership (shares) becomes more valuable.

“The advantage of being angel investors is that if a startup succeeds in funding series A, B or later, we can see a significant increase from value seed investing. However, the success of one startup is uncertain and most die before the next funding," he said Danny Oei Wirianto, GDP Venture's Chief Marketing Officer who also became angel investors for more than 30 startups.

As a startup ecosystem catalyst

DailySocial monitor, every month there are various new startups that introduce themselves. They try to present solutions to specific problems encountered – for various fields. Sometimes the innovations that are presented are quite new, for example developing artificial intelligence technology for certain purposes.

It's a challenge for founder to convince venture capitalists. But it's a different story when they find people who have a harmonious view. In a writing even said, angel investors invest also to fulfill the desire for pleasure. They are passionate about the business, they are interested in the technology being developed, or they see the future of the service.

So clear, role angel investors It is very crucial to revive the startup ecosystem, to accompany innovators to move forward towards a sustainable business. Especially in Indonesia, which is now being considered as a growth center for startups in the region. Not a few young people dream of establishing a successful startup – just look at every business competition full of new and unique digital creations.

Mechanism angel investors

Unfortunately not like venture capital who has a clear identity as an investor, angel investors sometimes they just look like ordinary people or entrepreneurs who are running their business. So to find it, founder indeed have to increase its business network, either directly through meetings or in person online through channels like LinkedIn, AngelList and so on. But believe me, some of our informants revealed that finding, negotiating, aligning the vision, to closing funding with angel investors not an easy thing. But when you get it, it could be a path for startup growth that is being initiated.

Regarding the investment mechanism, there are two most popular models, namely through share ownership (equity stake) or convertible notes. For stocks, investors will exchange the cash they provide for ownership in the company. The amount will depend on mutual agreement. The calculation could also be as simple as: if the startup is currently worth US$1.000.000 (founder and investors agree), then angel put in US$200.000, then they will get 20%.

However, the calculation of the company's value, aka valuation, is sometimes complicated. Founder usually ambitious, wanting the company to have the highest possible value. Then the second mechanism is often the choice. Convertible notes allows both parties to determine the value of the company at a later date, usually until the next investment round. Footnotes It was made as a loan to the company, so it has a deadline

The process is like this, for example angel investors agree notes by including a capital fund of US$200.000, the position is the company's debt. However, at maturity, investors can choose whether to get the money back with the agreed interest or convert the money into company shares.

Once approved, the next process is to make term sheet (can be made by investors or startups). In essence, this document is a sign of ties, including outlining every detail related to the agreement made. Usually requires the services of a legal team to take care of this stage, it can take quite a while too.