Forecast of the Indonesian VC Industry 2020 in the Midst of a Pandemic

The year 2019 brought a breath of fresh air to the investment climate in Indonesia's startup industry. Startup Report published DailySocial recorded a number of interesting achievements in the startup investment landscape in the country throughout 2019.

First, there were 113 publicly announced transactions totaling $2,95 billion. This number of transactions surpassed the achievements in 2017 (67) and 2018 (71). Second, funding for startups in growth stages, namely series A to series C, experienced a significant increase compared to 2018 and 2017.

This year, the above achievements may not necessarily be repeated. The health crisis due to COVID-19 has hit the entire global economy and business flat. Many concerns have arisen over various related government policies to stop the chain of spreading COVID-19.

For venture capital firms (venture capital/VC), these concerns will certainly limit investment plans and "exit strategyEven in this first quarter, the industry has witnessed VC first consolidation in Indonesia announced to the public, namely Agaeti Ventures and Convergence Ventures to become AC Ventures (ACV).

Will the consolidation trend color the VC industry in the country? What are the trends and projections for the VC industry this year?

The investment climate is declining in 2020

From the information collected DailySocial,  amount venture capitalist predicts that investment activity in Indonesia will decline in 2020. CEO BRI Ventures Nicko Widjaja predicts that there is a potential decline in the value of the startup's fundraising target. He gave an example, startups that had time to raise funds for series D could go down to series C2, or from series C targets to series B2, and so on.

However, with this projection, Nicko still ensures that there will be no delay in investment plans for BRI Ventures. Besides the VC that was only formed in the middle of last year, the former CEO of MDI Ventures admitted that he had pocketed a number of funds deal long before this pandemic occurred.

"Each of our investment plans is of course adapted to the parent business strategy. Well, we have closing a number of funding before this COVID-19. We believe the ecosystem will recover on its own," he said.

Meanwhile, Managing Partner MDI Ventures Kenneth Li assessed that there will be adjustments to investment activities. However, he estimates that there will be investors who will take advantage of this situation to look for a startup portfolio whose valuation can be adjusted.discounts, especially, investors who have cash reserves strong.

"We don't see investment plans based on market aggressiveness, but startups that will be successful in the future. After all, investment depends on how investors set their hypotheses. I'm sure VCs who have fund new and track record good to survive in this situation," he explained in a short message.

Kenneth also ensured that the spread of the Corona virus would not delay his investment plans and the formation of two new managed funds this year. Moreover, the new managed fund is targeted to collect Rp7 trillion.

In fact, until the first quarter of 2020, funding for startups in Indonesia is still fairly normal. DSResearch note there is 20 funding transactions announced to the public in the January-March 2020 period. This figure is relatively normal when compared to the number of funding transactions in the same period last year which was 27 transactions.

However, if you look at the development of the situation which has begun to become precarious since March, there is a possibility that a number of investment deals that have been explored in the previous months will be hampered.

Startup actors are asked to be careful

The policy of limiting activities over the past month has begun to have a double impact on business growth in the startup industry. Some have started to experience a slump in demand, and on the other hand there are many who are flooded with transactions because of this policy.

Still delivered by Nicko, startup early stage to unicorn although we must be careful in carrying out business strategies and expansion activities in order to pursue annual growth. Especially startups early stage need to be careful because it only has runway short one. Meanwhile, startups in growth stages need to adjust capital spending in carrying out business activities.

"Well, startups late stage who are planning exit with IPO or M&A will be delayed. In essence, most [startup] valuations will be significantly reduced from the targeted target, at least in the next two quarters," he said.

In a situation like this, he will apply various scenarios that are more careful with portfolios and candidates investees. However, Nicko believes this situation will trigger a more active synergy between startups and corporations.

Meanwhile, the most active VC in Indonesia, East Ventures, revealed that it continues to monitor the development of the situation, but will reduce plans to pocket deal new investment.

For East Ventures, which manages 170 portfolios, this situation is a warning sign considering that all kinds of strategies planned to be invalid under the current situation. Therefore, he ensures that his entire portfolio has disciplined finances to be able to get through this crisis

"Currently, we will focus more on managing our portfolio existing. We will see how COVID-19 impacts the financial industry." said the Co-Founder and Managing Partner of East Ventures Willson Cuaca to DailySocial.

A difficult year for funding in 2015/2016 to reap profits

Nicko Widjaja said earlier, the pandemic situation can have a prolonged effect because of the strategy "exit", both IPO and M&A become impossible this year.

According to him, for funding in the middle or end of 2017/2018, The situation is now very uncertain as investors seek to adapt by aligning initial theses--particularly those making big business plans, such as expansion into the Southeast Asian market.

Meanwhile, for VCs who raised funding in 2015/2016, especially VCs that have not been able to raise funds for the second round, this year has been a difficult year to reap profits. This is because the VC should have been able to "reap" the results of the options exit of 2020.

He even said that it is difficult to talk about profits up to 20 times this year even though Indonesia already has many startups unicorn and centaur For the record, Nicko has brought 7 exit from 30 MDI Ventures portfolios in 2018 and 2019 with an average profit of 3-7 times.

"VCs like us and Tanglin Ventures Partners--based on white paper updated by SEA Founders--judging the right move in such a situation is buying time, especially investors who have just raised funds and have cash big enough for deploy," said Nico.

Therefore, he underlined the importance of liquidity for VCs and investors corporate venture capital (CVC). For investors looking for liquidity, the best move now is to enter the secondary market. "The secondary market has the most bargaining value because liquidity is very limited. Especially for investment funds in the 2015/2016 period. Otherwise, investors will find it difficult to convince LPs to raise funds in the next round," he explained.

Actually, said Nicko, entering the secondary market was never an ideal option for VCs. This move may indicate a lack of LP maneuvering in the current turbulence because it cannot maximize the most desirable return on capital.

"I believe market corrections is something we need in the tech sector so that it can separate the real players from the non-real ones. However, I believe in the VC ecosystem, and this is the right time for us to build a business more than ever before."