Indonesia’s startup valuations have recently come down to a more justifiable level as investors and players are gradually moving their focus back to the fundamentals of businesses, partner at Venturra Capital, Tee Plern Suraphongchai, said at DEALSTREETASIA’s Asia PE/VC Summit – Indonesia Panel in Singapore last week.
Suraphongchai believed valuations had been “unrealistic” and “unreasonable” at the beginning of the first few years of Indonesia’s digital startup boom, as competition among investors rose exponentially and drove early-stage valuations up.
“Initially, at that point, when competition is the highest – which was early last year – we found the valuation to be very unrealistic and unreliable,” she said.
“Competition can be both good and bad depending on what stage you are playing at. When you think about investors generating return, you go back to pricing, and more competition at the pricing level obviously had driven up valuations within the angel up until the series A stage,” Suraphongchai elaborated.
Thankfully, she said, with large e-commerce players such as Tokopedia, Grab, and Go–Jek cementing their leading positions in the market, there has been greater likelihood now that exits can actually be generated at a greater value.
“Valuation is relative, right. If you think you can exit at a higher valuation, that valuation might just be justifiable,” she concluded.
Indonesia is seeing some interesting changes as the industry shapes and matures. According to co-founder of Alpha JWC Ventures Jefrey Joe, consolidation will play a considerable role in shaping valuations in contrast to the early years when it was largely driven by investors.
The unicorns of Indonesia have been on an acquisition mode since last year, purchasing both local and foreign companies to fill the gaps of their own businesses. Go-Jek, Grab, and Traveloka, along with media conglomerate Emtek, are rumored to be bidding for digital payments firm Fusion Payments in a potential $20 million deal. Go-Jek is also said to be a likely investor in Bangladesh bike app Pathao’s soon-to-be-closed series A round.
“Now with all this big money coming in, you will see some of these players (unicorns ie. Go-Jek, Grab, Traveloka) will want to acquire good companies with good team and the valuation can change. Why? Because it now depends on the synergy: if there’s a good synergy then you can pay a higher valuation, but on a distress or not so high synergy, the valuation will be lower. So this is how valuation has changed,” Joe said in an exclusive interaction with DEALSTREETASIA recently.
Traveloka has recently received $500 million from Expedia and other investors, while Go-Jek is reportedly raising $1 billion from existing and new investors, including Chinese giants Tencent and JD.com. Meanwhile, Grab is targeting to raise a total of $2.5 billion.
Country with best risk-reward ratio
Panelists at the Indonesia session at the Asia PE/VC Summit also agreed that Indonesia remains appealing not only because it is the largest consumer-driven market in SEA, but also because – as Joe puts it – of having the best risk-reward ratio in the region.
“What really excites as investors is the risk reward ratio, which one of the best in the region,” Joe said.
Indonesia’s competition landscape, while fierce, is relatively manageable compared to that in India or China. Some verticals may have been overcrowded, but there are still plenty others that are practically untouched, such as healthcare and edutech.
Meanwhile, in the very early or angel stage, Indonesia is facing the challenge of finding competent, high-skilled human resources. Angel investor Shinta Dhanuwardoyo, CEO and founder of Bubu.com, believed that human capital might just be the more pressing matter to attend to.
“As angel investors we think about how we can add value to help this human resource problem as Indonesia wishes to become that digital economy-driven country. So (we need to be) addressing not only the infrastructure problem, but also the human capital,” Dhanuwardoyo said.