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© CompassList

© CompassList

VCs weigh in on deal flows, valuations, the sectors they favor, and chances of more tech IPOs 

After the longest bull market run in history, investors are bracing for an impending economic downturn. The global economy may weaken to its slowest growth rate since the 2008 financial crisis and get “stuck in a long period of low growth,” the OECD has warned. Other organizations, such as the IMF and the UN Conference on Trade and Development, have voiced similarly bearish sentiments.

In Indonesia, VCs and other startup investors are warning about a downturn as well. Tech companies would find it “challenging” to raise funding the next two years, Raditya Pramana, Partner at Venturra Discovery, told a panel discussion at BLOCK71 Jakarta. 

“Not that there’s no money out there, but what will be corrected is valuation,” he said, referring to a move away from the massive valuations that defined the last decade. “Investors will be more stringent when selecting companies.” 

WeWork, he said, is a classic case of a “mis-priced” company, where although its business model has been proven and the company still has room for innovation, it is “not a $47bn company.”

But while valuation multiples are seen falling, the actual ticket sizes are expected to get bigger this year with more interest in scaleups, or growth-stage startups, and beyond, especially from the larger funds. Speaking at the same event, Joshua Agusta of Mandiri Capital Indonesia, the VC arm of state-owned Mandiri Bank, the country’s largest bank, said: “[Mirae Asset-Naver] Asia Growth Fund’s fund size is $1bn, [used] for this region only. B Capital Group’s fund size is $750m for Series B and above.” 

He reckons a number of billion-dollar rounds could take place this year, “going to the unicorns we have right now, or new unicorns.”

Birth of a new unicorn

In just four years, Indonesia's startup ecosystem has given rise to five unicorns. Ride-hailing “super app” Gojek was the first, after Nadiem Makarim and his fellow co-founders successfully adapted the Uber model to motorcycle taxis. Following Gojek were e-commerce marketplaces Tokopedia and Bukalapak, and online travel aggregator Traveloka. In 2019, Indonesia welcomed its fifth unicorn, the e-wallet company OVO.

From which sectors will the next unicorn come? In October 2019, Rudiantara, the former Minister for Communication and Informatics, suggested the education and healthcare sectors. “Logically speaking, 20% of the national budget is allocated to education; 5% is allocated toward healthcare. Why shouldn’t the next unicorns come from these sectors?” he said, as quoted by Indonesian news magazine Tempo.

Investors will be more stringent when selecting companies

Investors are clearly interested in developing the potential of Indonesian healthtech. The local population is increasingly aware of the need for professional health advice, yet the national healthcare infrastructure is still lagging. Telemedicine startup Halodoc, which connects users to certified doctors for live consultations, is reportedly valued at $350m after raising a $65m Series B round in March 2018. One of its close competitors, Alodokter, raised a $33m Series C in October 2019; its current valuation is unknown.

In the education sector, Ruangguru seems to be the top contender for unicorn status. After rumors that Softbank was interested in becoming an investor, Ruangguru announced at the end of 2019 that it had raised $150m from Great Atlantic and GGV Capital. After nailing down a subscription-based business model and becoming a household name in Indonesia’s online learning scene, it has launched a learning management system for use in corporate settings, as well as Brain Academy, a network of online-enhanced tutoring centers. Founded five years ago, the startup has also expanded to Vietnam. 

B2B enterprise tech to shine

Samir Chaibi, Principal at Insignia Ventures Partners, has set his sights on enterprise-tech B2B startups, including those in the SaaS market. “More and more enterprises are willing to spend on productivity and the overall digitalization of their businesses," he said. 

Case in point: Cashlez, a point-of-sale platform developer, is already targeting a public share listing in 2020, while Gojek is rumored to be acquiring Moka, one of the most prominent startups in the sector. Such companies continue to gain ground as e-wallets and other cashless payment methods become more commonplace.

Some B2C companies are also branching out into the B2B market, using existing expertise and tech to develop new income streams. K-12 tutoring and educational platform Ruangguru has launched Ruangkerja, an employee training platform for corporates. HarukaEDU, which focuses on bringing degree programs online, have also created a corporate training platform after closing a Series C round in November 2019.

One segment of B2B to watch is B2SME, or business to small- and medium-sized enterprises. Government statistics estimate that Indonesia has nearly 60m micro, small and medium enterprises, and more than 3.9m of them are already using online platforms to market and sell their products. E-commerce platforms like Tokopedia and Bukalapak are the main drivers and beneficiaries of this phenomenon, but there are also other startups, like Warung Pintar and Wahyoo, which work with neighborhood mom-and-pop stores and traditional restaurants to help them go digital.

More enterprises are willing to spend on productivity and digitalization of their businesses

The unicorns have entered this segment as well, to extend their own presence and develop new income streams. Gojek and OVO are enabling restaurants and corner stores to accept e-wallet payments, driving up the adoption of cashless payments even in rural areas. Meanwhile, Tokopedia and Bukalapak are turning the same mom-and-pop stores into O2O touchpoints for online shopping and digital product purchases. Thanks to its acquisition of Kudo, now GrabKios, in 2017, Grab has also got involved in digitizing Indonesia’s SMEs via O2O models.

Is IPO still in the picture?

2019 was marred with a string of flops in US tech IPOs. Uber and Lyft, while managing to raise a total of more than $10bn, saw their stock prices sliding right after their debut. More spectacularly, WeWork had to scrap its listing plan, capping the string of debacles and putting loss-making startups – and their investors – under greater public scrutiny. 

“The recent tech IPO flops are just the consequence of the last decade where investors and entrepreneurs drank their own Kool-aid, thinking that public markets would buy into private-market valuations and value tech companies the same way,” Chaibi told CompassList.

Despite the negative sentiment, three of Indonesia’s unicorns have signaled plans to go public. Gojek co-CEO Andre Soelistyo said last November that the company was planning an IPO on the Indonesia Stock Exchange. Meanwhile, Tokopedia is rumored to be raising a $1.5bn pre-IPO funding round, before embarking on a dual listing, in Indonesia and overseas. Rival Bukalapak has also expressed desire to reach profitability and go public. Online travel booking platform Traveloka is considering a dual listing in Indonesia and the US, after denying IPO rumors in April 2019.

Mandiri Capital’s Agusta believes the Indonesia Stock Exchange might not be a good place for these unicorns to list. He gave three reasons: the exchange’s high requirement for net tangible assets; the aversion of local retail investors toward cash-burning companies; and the low trading volumes. As a result, a unicorn going IPO in Indonesia may not yield the sort of investment returns that their VC backers typically seek.

Tech IPOs in Indonesia to date have not fared well either. In the past two years, four tech companies have listed on the local bourse: travel and mobile Wi-Fi rental platform Passpod; O2O digital goods platform Kioson; digital payment kiosk MCASH; and B2B digital distribution platform NFC Indonesia. The stock prices of these companies, with the exception of MCASH, are currently trading below their IPO prices.

Given the negative sentiment surrounding tech IPOs, Agusta believes the Indonesian unicorns will “likely hold off” their IPO plans “at least until the middle of 2020.” 

“They might start the roadshow in the second half of the year and make their debut in 2021,” he said.

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Edited by Bernice Tang

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