Welcoming the New Generation of "Angel Investors" in Indonesia, Ready for High Risk Startup Investments

The importance of participation angel investors Being involved in the startup ecosystem, especially in the early stages, is undeniable. In addition to helping the startup itself, for investors investing in early-stage startups is classified as: “still cheap”, so that “budget friendly”. This charm has recently attracted individual investors with startup founder backgrounds.

In the ANGIN report titled “Angel Investment Network 2020”, the number of angel investors in Indonesia is entering a growing phase (growing), along with the Philippines, Thailand, and Vietnam. Meanwhile, Malaysia and Singapore are in the adult phase (mature).

Impact Investment Lead WIND Benedikta Atika said, in terms of quantity, now angel investors are divided into two groups: aspiring and new angel investors and experienced angel investors. For the first group, according to him, in general, his party saw the enthusiasm of individuals to enter as angel investors at an early stage.

ANGIN itself also feels the number of angel investors who have joined its network increased by 40% in the last two years. This trend is expected to get stronger in the future with more former entrepreneurs (for example startup founders) who are more active in investing. Also joining are young professionals, the diaspora and the next generation of prominent families.

“Meanwhile for experienced angel investors, where a shift occurred angel investors those who are more experienced are now advancing as LP/becoming fund managers. So they are no longer active anymore angel investors," said Atika to DailySocial.

In terms of quality, with more and more individuals joining in, the more varied and better forms of support provided to participants founder.

Currently ANGIN has more than 130 investor clients which include approx 80 angel investors individual executives, team leaders and professionals and the rest are institutional investors. Of this number, ANGIN succeeded in gathering more than 200 early stage investors who were involved in funding through its network. Since ANGIN was founded in 2014, it has accumulated accumulated investments in 60 startups.

These statistics make ANGIN a network organization angel investors largest in Indonesia. Apart from that, there is ANGEL EQ (now called ALTIRA) and Angel.ID.

In the ranks of angel investors who have joined ANGIN, there are institutional investors who come from VCs, conglomerate families, corporates, impact investors, and organization. Meanwhile, from individuals, entrepreneurs, HNWI (High-Net-Worth-Individuals), and public figures. As big as 80% of ANGIN's total clients are Indonesian.

Outside the ANGIN network, on record DailySocial, at least in the last few years the names of angel investors have begun to emerge from famous startup founders. Here's the list:

In the WIND network

Functions and roles angel investors

Recently the number of VCs who have also invested with ticket sizes like angel investors are starting to get busy, some start from $25 thousand to $50 thousand. However, according to Atika, no matter what the role is angel investors it is different from VC and remains relevant to the needs of early stage startups.

The reasons are 1) angel investors provide support beyond capital, although there are more VCs high-touch, but angel investors are still more flexible. This added value is what makes angel investors superior; 2) angel investors pioneer support to founders in the sector niche (for example less-techenabled model, has a social impact mission) which is often considered too early or less attractive to investors in general.

Atika's statement is fully supported by Edy Sulistyo (CEO of GoPlay) and Heriyadi Janwar (EVP B2B Corp Solution Blibli). Both of them are startup activists at the same time angel investors.

Edy conveyed the presence of a figure angel investors not only as a financial supporter of the company, but also as an external validation and the first person to believe in the founder's ideas. "Most founders still have good relationships with angel investors who also become mentors, not only for their business journey but also in their lives."

Edy's activities as an angel investor began in 2012, he also had the opportunity to become an advisor for several companies and startups who were driven by a great motivation to share and grow the Indonesian startup ecosystem.

Heriyadi added, whatever the figure angel investors it is still needed because most early stage startups need initial stage funding, to scale up and validation. This condition does not apply if the founder comes from a wealthy family and has no capital limitations. "This is something that is needed, after all startups in Indonesia are not the type that need to borrow funds from banks," he said.

Invest in founders

Quoting from an article written by Arya Setiadharma in ASEAN Business, playbook angel investors in Southeast Asia are different from developed countries where the ecosystem is much more mature and the regulations are supportive (such as single market rules in the EU). That's why, usually para angel investors in this region are already familiar with the culture of the ASEAN market. This also has an impact on the risk of failure.

Often too, angel investors find themselves having to deal with new founders who don't yet have a 360-degree view of startups. Therefore, according to Arya, there are three danger signs that angel investors must immediately identify before they cause problems in the future: unstable leadership, no recognition of competition, and unrealistic expectations.

“If you as an angel can predict a founder's dream coming true, it's worth betting that they can use that story again later when raising more capital from other investors. This may sound too simple, but at least in my case, it has proven true on many occasions,” says Arya.

Edy also said that investors investing in founders is true, especially for early stage startups. Because in this phase, there isn't much to see, so it's important to explore the ins and outs of the founder and his team.

You need to ask, who is he, what is his background, vision and mission, then what is the composition of the startup's founding team, and how do they run their business. This needs to be done to see the compatibility between each other. Like looking for a life partner.

Edy referred to his previous experience. He said, before examining things like business models and market potential, it's important to understand "what problem the founder wants to solve."

"Because I believe, if the founder has discovered what the problem or problem is point bread for consumers, products/services the ones he produces will be much stronger. Stronger point bread and passionate founders with this problem, it would be better if they succeeded in presenting a solution that could answer this problem."

Heriyadi also added, getting to know the founder is filtering first before he decides to invest in a startup. “I would prefer it if founderI already know him. I don't want to know them at all, at least within the ranks founderthere is one that I know. Or I was introduced from my own network," he said.

The next filter he usually uses is to understand how big the business idea can be.scale up and how big the market share is. “As for validation marketIf it's too big or too small, I think it's unrealistic.”

All of Edy and Heriyadi's questions will be answered by reading the founder's mindset and the responses given. If the founder is stubborn and doesn't want to adapt quickly, it will be difficult to develop. Because, according to Heriyadi, going into a startup means having to be flexible.

“The reason for this angel investor funding runwayIt's only enough for 6 months-1 year, after that you have to do it raising funding Again. If you can't funding During that time, we have to ask them what they will do because the company must continue to have business ," said Heriyadi.

He also emphasized that the injection from angel investors should not be used to pay existing employees. Investors must know what the funds will be used for. "The money has to be used to make products, this is done by hiring product people and so on. That's the case if the founder is not a technical person."

Amidst the enthusiasm for the presence of new angel investors, Edy continues to emphasize that investment in this sector is profitable big-gain, Certain high-risk. For this reason, investment in startups is a long-term investment that must really be measurable. Especially for early stage startups, the calculation that can be made is the need for involvement (hands-on making,) by doing mentoring and intense discussions.

"Because at this early stage we still have the opportunity to provide direction for the company, provide suggestions for product development based on our experiences."

Meanwhile, for Heriyadi, investors need to get money progress routine regarding the startup business whether it is in accordance with the initial plan or not. If there are problems, usually he will help by relying on the networks that have been built.

Heriyadi has invested in six startups as well angel investors. Some names are Printera, Job2Go, and x0swab. In addition, he is active as an LP for fund made by a number of VCs.

High risks and other challenges

Atika said, with more investment poured into startups, his party saw that finding quality startups was no longer a challenge for angel investors. Currently there are so many investment readiness programs, matchmaking, speed dating, and startup events that help angel investors gain access to founders.

However, the main problem that continues to be an issue is regarding execution (structuring the agreement/deal structuring, negotiation, and closing), including regarding the investment structure (investment structure). Angel investors have limitations in participating in deals with certain structures.

For example, because of where they live, limited access/knowledge of legal support or alternative legal entities available. This makes it inefficient for angel investors to invest, especially referring to ticket sizes which is smaller.

In resolving this issue, his party is supported by Frontiers Lab Asia, which is currently developing a solution to overcome this problem and open up opportunities for angel investors to invest at the Asian level. “We are working on a scalable solution to make angel investing more efficient and relevant across the region.”

This issue was also raised by Payfazz Co-Founder Hendra Kwik, who is now also involved as LP and MAGIC Partners. MAGIC is a global VC for early stage funding managed by a group of startup founders. According to Hendra, he tends to enter as an LP rather than investing directly because he wants to be more structured and professional.

"So I want to prevent [unprofessionalism], everyone must be professional [in the funding process]," said Hendra.

In conducting funding, ANGIN has three layers of assessment before being connected to angel investors who enter its network. “We have our own scorecard, but during the review, we will definitely look at the people (e.g. motivation, commitment, founder/market fit, and team structure), problem/solution fit, and product/market fit.”

Another thing that is included in the ANGIN analysis process is how to understand whether the founder matches the interests and risk appetite angel investors in the WIND. With diverse profiles between individuals, this method makes the analysis process at ANGIN richer because it provides additional perspectives.

Arya continued, amidst higher risks in ASEAN, angels in this region can use the initial agreement to invest through the SAFE instrument (simple agreement for future equity) or convertible notes.

According to him, this instrument provides a level of protection if the startup experiences a downturn as creditors are prioritized over shareholders, while generating a larger equity stake if the startup is successful in future funding rounds.

“Just as they do with other asset classes, angels should try to be as productive as possible when backing startups to diversify risk.”

He also suggested that angel investors should not limit themselves, but instead build a portfolio from various industry themes. Another option is to try join the network angel the right one and co-invest with other angels.

“Above all, don't get discouraged when a startup in your portfolio fails, or a particular investment doesn't pan out. Angel need to be prepared to make a lot of bets. If this doesn't suit you, my simple advice: don't try to be angel in ASEAN," concluded Arya.

- *header photo: Depositphotos.com