In the aftermath of the WeWork hullabaloo, the region’s most prominent risk capital investors and startups gathered at the Indonesia PE-VC Summit 2020 in Jakarta on Wednesday said they were still in business but will apply a more cautious approach than before.
Here are the four key takeaways from our summit:-
Sustainable growth has become the buzzword of the day
Even if startups aren’t ready to post net income, businesses and their investors are pushing for a shift to a “sustainable growth” model, and eschewing “growth at all costs.”
That was in the wake of the debacle surrounding WeWork’s scuttled IPO in September. The co-working giant had attempted to go public last year, but the sudden transparency revealed deep losses and corporate governance problems. That sent WeWork’s valuation tumbling from around $47 billion to below $8 billion, resulting in the ouster of its founder-CEO.
Carmen Yuen, a partner at Vertex Ventures, wasn’t kind to her own industry: “We should have been more disciplined,” she said.
She called it a “mirror” that showed what happens when companies are flushed with too much money and too little oversight.
Vertex Ventures is the venture capital unit of Singapore state-owned investment company Temasek Holdings. It has more than $700 million in assets under management and a portfolio of more than 40 companies, according to its website.
Gary Kheong, executive director at Vertex Ventures for Southeast Asia and India, said investors are becoming more cautious.
“We try to make sure that the companies we back are seriously executing and not just burning money for the sake of burning money,” Kheong said. “In general, there’s a shift of sentiment towards more discipline, but we are still optimistic and we still have the power to back successful companies.”
It’s a message that’s resonated with startups as well.
Muhamad Fajrin Rasyid, co-founder and president of Indonesian unicorn e-commerce player Bukalapak, said the industry needs more than just “vanity metrics.” He said his company has been looking at “unsubsidized GMV,” or gross merchandise value of sales not driven by vouchers or cashback.
Amit Saberwal, CEO and founder of hotel startup RedDoorz, was blunter. “This is the year when the men will be separated from the boys,” he said.
WeWork aside, funds still need to be deployed
WeWork may have rattled venture capital and private equity investors, but investments won’t stop flowing.
Michael Lints, a partner at Golden Gate Ventures, said WeWork hasn’t changed the fundamentals of investing, with funds unable to just sit on capital.
The amount of fundraising in Southeast Asia has been “phenomenal,” and it will need to be deployed over the next three to four years, he said. Golden Gate Ventures is an early-stage venture capital player with a portfolio of more than 30 companies.
John Riady, CEO of Lippo Karawaci, added that the hit to the market psyche had recalibrated valuations.
“Companies with real business models are able to raise money. It allows the market to self-select companies that are doing well,” Riady said.
Exits can happen in the region even if IPOs are difficult
Riady was unperturbed over any difficulty with exiting investments, including in Indonesia, where IPOs have proved hard to come by.
“You achieve an exit by building a real business,” he said.
Other investors pointed to alternative exit paths.
Deepak Shahdadpuri, managing director, DSG Consumer Partners, said that once local brands achieve sales of around $10 million to $30 million, global companies are likely to be interested in acquisitions.
DSG Consumer Partners is an early-stage venture capital investor in the consumer-product space in Southeast Asia and India. The VC firm closed its third venture capital fund at $65 million in August last year, exceeding an initial $50-million target. DSGCP has backed over 45 startups including OYO Rooms, Zipdial, Redmart, Veeba, Epigamia Greek Yogurt, Raw Pressery, among others.
The Indonesian consumer is the big bet
Investors are clearly betting big on the Indonesian consumer.
Patrick Walujo, managing partner, Northstar Group, said his company was betting on the country’s biggest market, which is at the bottom of the pyramid.
“If you look at the needs of our brothers and sisters, in that segment, it’s really basic services, basic products,” he said. “We also take a view that if we deliver good quality, affordable products to them, it not only benefits us as investors, it also benefits society, it benefits the country.”
Walujo told DealStreetAsia NorthStar is expected to hit the first close of its fifth fund at up to $400 million in the first half of this year.
Gitta Amelia, founder and general partner at EverHaus, said Indonesia is attractive, in part because it makes up 50 percent of Southeast Asia’s population and it marks one of the world’s largest and fastest-growing digital consumer economies. In addition, Generation Z, or people born in the mid-to-late 90s or later, make up 30 percent of the population in the archipelago, she noted.
“We’re entering such an interesting pivotal shift in consumer behavior driven by a couple of factors: The first is technology, the proliferation of media and the use of social media; the increase in disposable income as well as the increase in education,” she said.
“We have the potential to actually influence about 80 per cent of household purchases,” she added. “There is a gap between what the market and producers are able to provide here and what the consumers now want.”
EverHaus, one of the youngest VCs in Southeast Asia, primarily focuses on the Indonesian market. It invests across sectors in pre-seed to pre-Series A deals ranging up to $500,000.
Some pointed to specific sectors.
Riady, for instance, projected a potential real estate boom in Indonesia, where homeownership is only at 50 per cent, compared with 70 per cent in India and 80 per cent in China.