Investors Explain Reasons for Tightening Funding Selections

In recent years, Indonesia is a country in the Southeast Asia region that is quite flooded with investors, both local and foreign, who are enthusiastic to invest in startups that are increasingly mushrooming in number. Although it is still considered a very potential market, investors are slowly starting to tighten their policies in providing funding, especially this year. What's the article?

In the last 3 years, a number of investors have poured large sums of money into startups in advanced stages, for example Emtek for Bukalapak (reportedly around Rp. 433 billion), Softbank Internet Media (SIMI) and Sequoia Capital for Tokopedia of Rp. 1,3 trillion, and Sequoia. The capital for Go-Jek is rumored to reach Rp 260 billion. Now investors are starting to limit the amount of money disbursed and conduct a strict selection of startups that apply for funding.

The main reason why investors end up "tightening their belts" is because among startups that have received large amounts of funding, there are still few that end up making profits and business success in the long term.

The still high 'burn rate', unstable profit, and still low revenue are problems that many startups encounter globally, not only in Indonesia.

“If Ideosource itself always pays attention to plans business model and revenue from the start when choosing porftolio, though revenue does not have to occur before or at the beginning of the investment period. It could still be a plan in the future, "said VP Business Development Ideosource Andrias Ekoyuono.

In this case, the startup is responsible for giving confidence to investors to be able to meet the targets and agreements that have been made from the start, whether later the product can gain traction to a large number of users. The most important thing is that startups must be able to run their business stably.

E-commerce is still a favorite sector for investors

Even though investors conduct a strict selection for investment grants, one sector that is still the prima donna and is always in demand by investors is e-commerce. The huge potential for any e-commerce service to grow is the main reason why in the end many local and foreign investors are eager to provide new fresh funds or the next stage in this sector.

"Until now e-commerce and marketplaces still attract investors' attention because the economic unit is increasing and the stability of the e-commerce business is not just momentum," said Adrian Li, Founder & Managing Partner of Convergence Ventures.

This was also confirmed by MDI Ventures Senior Associate Kenneth Li after funding for Thailand's e-commerce enabler service aCommerce.

“The reason we see [to invest] is that e-commerce is not yet seeing signs of slowing down in Indonesia and part of this growth involves the infrastructure that supports e-commerce businesses. China has around 9% of e-commerce penetration, but in Indonesia it is only about 1%. We believe that all growth-supporting infrastructure should be built as well [logistics, payments, etc.].”

Ideosource itself is a local investor who in November 2015 dared to invest in e-commerce services Bhinneka worth IDR 300 billion. For Ideasource, the funding given to Bhinneka is the largest funding ever disbursed.

“Not only when choosing a startup that is still in its early stages, Ideosource also pays attention to these things when choosing a portfolio with a large enough investment, such as Bhinneka.com, which is currently a proven large e-commerce company. sustainable and profitable, said Andrias.

When the startup has shown rapid progress (traction) and is able to maintain the existing business model and has a good plan for scalability, investors will not hesitate to provide large amounts of funds.

If you currently see that your startup opportunity to get investment is still small, it does not mean that the product you have is not good or is less popular among investors. Ideally try to correct and pay attention properly, whether your product profitable, has loyal and active users, and can certainly last a long time. The opportunity to get a large amount of funding is wide open if you can prove the startup has a bright future.

"Expected all" entrepreneur able to manage finances well at least have savings for the next 6 months and continue fundraising. This is something that must be considered by early-stage startup," closed Adrian.