Startup Tips for Surviving the "Tech Winter"

As one of the top VCs in terms of investment in startups in Indonesia, AC Ventures have a special focus on supporting the growth of their portfolio. Entering a difficult startup period which is also often called "Tech Winter", AC Ventures has several important notes that startup activists in the country must pay attention to.

Starting from the right fundraising strategy, the potential to do M&A, until now is the right time to recruit the best digital talent into the team. This is as stated by the Founding Partner of AC Ventures Pandu Sjahrir in a webinar session held last Wednesday (03/8).

Efficient use of capital

The ongoing war between Ukraine and Russia, coupled with the Zero-Covid Policy implemented by China, has resulted in delays in business activities and factory closures that affect the supply chain leaders in various countries, including Indonesia.

Coupled with inflation and rising prices of various goods and people's needs. This condition directly affects the business growth of most startups. To be able to survive and make a profit, ideally startups have started to make efficiency in terms of the use of capital or existing capital.

Ideally, when fresh funds have been obtained by startups, they can be used runway for the next 36-48 months. It is predicted that funding or offers to invest from VCs will be more difficult to provide. Investments that are final this year usually have been explored since last year.

"If you are currently looking for a valuation value, the average number has decreased by around 30% in private markets. On the other hand for public markets, the value can reach around 50 to 80 percent based on the country the company operates in," said Pandu.

Another strategy that startups can also launch is to focus on developing unique value proposition to get growth. Also consider the economic unit and hedge risk. To be able to get market share, use various channels, one of which is doing mergers and acquisitions (M&A). This is considered more effective than if the company takes the path through organic channels. M&A can generate positive benefits for startups, if executed properly.

The current difficult conditions also require startups to continue to present innovations with existing limitations. By doing this, it is hoped that the company will be better prepared for the future. However, what is no less important for startups today is to be able to build a quality team, by recruiting the best workforce.

"Now is the best time to focus on streamlining the team. If you already have a team with grades B to B+, now would be the right time to recruit talents with A+ grades. One person with an A+ score can be better obtained than adding a team of 6 people with B+ grades," said Pandu.

Current VC investment changes tech winter

According to Pandu, if a startup has the right product and is used by many people, it can create less price sensitive. For that make sure the product you have has gone through the process product market fit right. Mindset this is good for all to apply entrepreneur.

Meanwhile, according to Credit Suisse's Director Head of Research, investors are currently more focused on whether startups have revenue models or not. They will also prioritize startups that can recruit their target users appropriately and ultimately must have a clear monetization strategy.

Previously, the fundraising process was fairly fast, but now, when many investors have started doing calculations and due diligence strictly speaking, the fundraising process may take longer than usual. Those who are currently in the Series A stage and above, must also go through a strict screening process. Starting from the background of the founder to the economic unit owned by the startup.

The size of the investment will also change. No longer offering large amounts, investors are now starting to reduce their investment to a smaller value than usual. One of the reasons is, the number of Limited Partners (LP) who conduct evaluations during the process underwriting conducted.

Judging from the number of investors entering Southeast Asia, especially Indonesia, countries such as China to South Korea have also looked at many startups in Southeast Asia.

Launching from Deal Street Asia, now many VCs from China have started to set up their representative offices in Singapore. The goal is to provide investment to startups in Southeast Asia. Big Chinese VCs, such as Shunwei Capital, Source Code Capital and Plus Capital, are reportedly in the process of expanding to open their representative office in Singapore.

Asked what the dynamics of Indonesian startup IPOs will look like in the future, Pandu emphasized that the IPO conducted by GoTo was one of the most successful ones. However, to accelerate the growth of startups, if it is possible to collaborate with conglomerates to M&A with competitors, it is more ideal to do this to get growth positive ones.

Indonesia's political conditions, which will be marked by the upcoming 2024 general election, are also predicted to delay investment activities in the country. However, when the election is over, it is certain that activities will return to normal. For this reason, take advantage of the 9 months before the election for startups to start actively doing fundraising activities.