<article>Rising inflation levels coupled with concerns over a looming global recession have affected investor sentiment as well as founders’ ability to raise funds.</article>

Rising inflation levels coupled with concerns over a looming global recession have affected investor sentiment as well as founders’ ability to raise funds.
Several market watchers have likened this climate to winter, implying a dreary and bleak fundraising environment.
Data from DealStreetAsia’s DATA VANTAGE platform shows that deal value was down 27% between 2021 and 2022, even as volume edged up by 6% during this time.
Interestingly, Helen Wong, partner at AC Ventures believes the environment is not all that dreary.
“We are having a warm winter,” she said during a panel discussion titled – Harnessing tech for mega returns – at DealStreetAsia’s Indonesia PE-VC Summit 2023 in Jakarta on Thursday.
“We have never been in a high inflation environment for the last 40 years. Investors are now cautious, public portfolios have been hammered and there is more risk premium which has impacted venture capital players and the tech sector,” she elaborated.
She was joined by Intudo Ventures founding partner Eddy Chan, Alpha JWC co-founder and general partner Jefrey Joe, and B Capital partner Karan Mohla.
Alpha JWC’s Jefrey Joe said he still sees a markup in investments made in the region.
“I don’t think we are [experiencing] winter. Winter comes every year, but we have never been in this challenging situation [before]. The appetite and focus of investors now is very different,” he observed.
“The era of cheap money is over,” stressed Joe. Alpha JWC Ventures, an Indonesia-focused early-stage firm, raised $433 million for its third fund in the largest final close by a SE Asian VC firm in 2021. Some of its portfolio companies include Indonesia’s fastest-growing startups such as Kopi Kenangan, Kredivo, and Lemonilo.
Even so, Wong believes that Southeast Asia remains a bright spot for investment given good demographic trends, a strong commodity base, and a highly levered market.
She added that the region is set to see more funds being deployed from the dry powder of Chinese venture capital players venturing here.
Indonesia specifically is poised to see strong growth.
For reference, the median pre-ideal amount of capital raised by Indonesian home-grown companies edged up to $3 million in 2022 from $2.7 million in 2021. Meanwhile, Series A companies from Intudo Ventures’ Chan pointed out.
“What really excites me about Indonesia is the focus from founders towards building quality businesses at a much faster pace than some ecosystems,” says B Capital’s Karan Mohla. B Capital Group this year closed its $250-million early-stage Ascent Fund II, which seeks to invest in pre-seed to Series A rounds globally.
The country – which has a population of around 280 million – has a growing middle class who are demanding better quality products.
“Their way of consumption is very different,” notes AC Ventures’ Wong, adding that there has been a pickup in activity on live streaming and social commerce platforms.
For instance, she points out that the Indonesian market accounts for some 70% of the global growth for the gross merchandising value of sales made on TikTok shops.
However, Wong and Alpha JWC’s Joe cautioned that the middle class will still take a hit from inflationary pressures like rising energy prices and the cost of food.
Even so, Joe believes that rising costs will not have the same effect on the digital economy.
The economy can be viewed in two aspects: the overall economy and the digital economy.
“Inflation in the general economy will affect a lot things [such as] demand, but the effect of inflation on the digital economy might not be as bad,” Joe remarked.
“[As part of the digital economy], all founders are trying to innovate products, digitise supply chains, and such activities will create value. If they do not create value, then there is no point of internet penetration, adopting digital banking and payments which are still low,” he explained.
Such developments will offset economic challenges, barring unforeseen events, explains Joe, adding that founders today have to look at ways to do business by circumventing the hurdles of an inflationary environment.
It is interesting how a decade changes the opportunities and challenges that the market presents.
Looking back, Wong, Joe and Chan of Intudo Ventures note that inflation was not as much of a risk as having sufficient capital and talent seven to 10 years ago.
“The biggest risk seven years ago was financing and having the right talent but the ecosystem has improved since then and seems to be pointing in the right direction,” Intudo’s Chan said. Intudo Ventures, an Indonesia-only venture capital firm, has backed Xendit, Pintu, Pinhome, Halodoc, Kargo, PasarPolis, Nalagenetics, Populix, and more. Intudo closed its third fund at $144 million.
The absence of middle management was among the biggest challenges that businesses were facing.
This has since improved with founders driving the innovation adoption and venture capitalists delving into value creation, the panellists discussed.
Road ahead
The market has seen the listing of behemoth GoTo in the 2022 and the emergence of the next wave of tech majors including coffee operator Kopi Kenangan, payments operator Xendit, and health-tech player Halodoc.
Aside from these players, the panellists believe that companies in the fintech, healthtech, and edtech space are likely to be key contributors to Indonesia’s trajectory.
The question now is the ecosystem moving fast enough with regards to exits, mulled Chan, adding that it “seems to be moving in the right direction”.
“What LPs are looking for is where are the exits coming from – public market or more strategic. That is a bit of an open question right now. The last 12 – 18 months have been a good indicator that the public can support large exits,” observed B Capital’s Mohla.
He sees two areas where the exits can come from: the consumer-focused companies which are playing on consumption-related behaviours across different verticals as well as platforms helping digitise and help distribute across different ways – agriculture, industrials, large chunks of GDP where Indonesia can digitalise.
Going public may not be ideal for most companies given the challenges in the macroeconomic environment.
“It will be tough to face the public markets if you are not profitable, or have good unit economics,” mulled AC Venture’s Wong. She pointed out that having a healthy model involves the rule of 200%, where a company’s 12-month retention + gross margin + net margin + growth must equal to 200%, otherwise “you are not good enough”.

Companies in the fintech, healthtech, and edtech space are likely to be key contributors to Indonesia’s trajectory.

SE Asia still a ‘bright spot’ despite gloomy fundraising environment: VC experts

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SE Asia still a ‘bright spot’ despite gloomy fundraising environment: VC experts

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