Business Models Tested as Investors more Selective

KOMPAS/HERU SRI KUMORO

Indonesia’s start-up company executives speak about the future of the start-up sector during Ngeteh Sore Bersama Kompas (Afternoon Tea with Kompas) at Kompas Tower in Jakarta on Tuesday (21/1/2020). Speaking at the discussion were DailySocial.id CEO Rama Mamuaya (left), Tokopedia cofounder Leontinus Alpha Edison (second left) and Telkomsel Mitra Inovasi CEO Andi Kristianto.

JAKARTA, KOMPAS - Start-ups in the digital world, like companies in other business sectors, must have strong fundamentals to ensure a long-term growth. Investors are becoming more selective in investing in start-ups.

That was one of the points raised in an afternoon discussion titled The Future of Indonesia\'s Pioneer Business, which was held by Kompas at the Menara Kompas building, Jakarta, on Tuesday (01/21/2020). Speakers at the discussion were among others, Tokopedia founder Leontinus Alpha Edison, CEO of Telkomsel Mitra Inovasi, Andi Kristianto, and CEO of Dailysocial.id, Rama Mamuaya.

According to Leontinus, there has been growing awareness among digital industry players in Indonesia since 2016-2017 that building technology start-ups requires strong market research. Its founders must have a long-term vision and skills in building a sustainable business.

"In the period of 2016-2017, the founders of start-ups were more mature. Some have worked in consulting firms and have handled various industrial sectors. There were also those who have a strong base in technology, even those with a family business background," said Leontinus.

KOMPAS/PRIYOMBODO

Notices of online payment system are displayed at a kiosk at Pasar Segar BSD in South Tangerang, Banten, on Sept. 19, 2019. Online payment systems have grown into one of the largest subsectors in the financial technology industry.

Unlike a majority of business founders in the previous era, in which the mastery of technology is the main capital, at present, the founders of start-up businesses are increasingly aware that technology is a tool to offer solutions.

The solution to the problems faced by the community is a fundamental factor for the sustainability of start-ups. Later a number of start-ups in Indonesia began to change their strategy to strengthen their business. The change was made as the impact of the failure of start-ups in the United States, such as the unsuccessful initial public offering (IPO) of Uber. WeWork’s IPO was also canceled due to a lack of interest from investors.

Andi Kristianto emphasized that at the end, any company must be able to solve the fundamental thing, which is to solve the problems experienced by people. The technology is a tool even though its development has become so sophisticated. Solutions must be accepted by the market so that the business will continue to grow.

"The business incubation formula is the same, that is, the solution should be accepted by the market. Among the start-ups, it is often called product-market fit, "he said.

KOMPAS/LASTI KURNIA

Online shop Okegadgets admins run their business from a shop at Roxy Square, Jakarta, on March 26, 2019 (26/3). Okegadgets is an online shop that sells electronic products through platforms such as Tokopedia, Bukalapak, Akulaku, Shopee and Elevenia.

Accepted by the market

The period of growth and development of a start-up is relatively long. There is a period of time spent to acquire users and there is a time to increase revenue projection and to make a profit.

"The acceptance of the consumer is always important. Do consumers want to pay for the solutions the company has created and how are they able to pay it?" Andi said.

He cited the experience of a start-up with internet of thing (IoT) solutions in agricultural management. The solution can solve the problem, but farmers — its primary market — have problems with their ability to pay.

According to Rama, in many countries, middle-phase technology start-ups, which experience hyper growth, tend to have difficulty maintaining their business in the long run. The context of hyper growth can be the high growth of the number of users in a short time. They usually pursue growth for the sake of increasing valuations, but on the other hand, they have a large amount of debt.

The injection of funds into start-up companies in Indonesia, said Rama, will not decrease. But investors will become more selective.

The acceptance of the consumer is always important.

"If a start-up is considered successful to have achieved a high growth phase, investors will hunt for them. The company is considered to have a proven track record for business compared to start-ups that have just begun to operate," said Rama.

Based on the 2019 SEA e-Economy report released by Google, Temasek and Bain & Co., the number of investment agreements with digital companies in Indonesia in 2016 reached 166 deals worth US$1.2 billion, rose to 181 agreements valued at $3 billion in 2017 and to 349 agreements worth $3.8 billion in 2018. In the first semester of 2019, there were 124 investment agreements worth $1.8 billion.