We tend to say that about the year, that is about to end. But this time, we mean it when we say that 2019 is game-changing for the Southeast Asian startup ecosystem for things will never be the same after this.
There are at least two major reasons why this happened, which led us to decide to publish this article as a series.
Today, we are going to start by talking about money– and burning them.
Watching money goes up in flame
Years ago, when I was a young Padawan, I published an interview with two ride-hailing giants in the region: Grab and gojek. In the article, representatives of the two companies talked about subsidising their marketing and promotional efforts.
This is a move that remains popular among the major tech startups in Indonesia. Walk into a typical mall in Jakarta and you will see all sorts of cashback offers by leading e-payment providers, including OVO and GoPay. In some cases, the cashback can even go as breathtakingly high as more than 50 per cent.
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Indonesia is not the only place where burning cash for customer acquisition is common. Even top-of-mind US-based companies such as Uber and Airbnb have been known for burning cash; they are considered “generously rewarded” in this article by Inc as their market share and revenue also grow with every cent they burned.
But in the middle of the year, something exploded. WeWork and its failure to launch an IPO had led investors to be more critical of overvalued tech startups. Under this scrutiny, there is a growing pressure for startups to justify their large valuation. Perhaps for once in their life, startups are pressured to act like a ‘real’ business.
Closer home, the nail in the coffin hit when Mochtar Riady –the founder of OVO-backer Lippo Group– publicly commented about the company’s money-burning habit.
It was interesting to see how these turn of events led to changes in such a quick time. Or possibly, the startup community has long seen this coming and decided that it was now time to take action.
Profitability, which was once seen as a good-to-have bonus, is now the name of the game.
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Recently, Indonesian e-commerce giant Bukalapak announced that Co-Founder and CEO Achmad Zaky is stepping down from his position. As a replacement, instead of promoting someone from within the company, Bukalapak appointed Rachmat Kaimuddin, who had a strong background in banking and business consultancy. We see this move as part of its effort to promote stronger financial management and most likely, profitability.
Carsome, who just announced a US$50 million Series C, also publicly declared its goal to be “operationally profitable” by the end of next year.
Another move towards profitability had become apparent since the end of 2018, particularly from the side of the investors. Newly launched venture capital (VC) firm Kinesys Group puts emphasis on having a path towards sustainability for its portfolio companies.
VC firms are investing in non-tech industries that have been known to have a more certain path towards sustainability such as F&B or hospitality, adding variety to their portfolio. In addition to growing their businesses, these F&B and hospitality companies are also looking forward to digitising their operations.
But I’m fundraising!
Yes, yes. We get how this can be scary for those who are in the process of fundraising. It is challenging enough to prove to potential investors that there is indeed a demand for your product; let alone having to show them how you can be profitable within a period of time.
So, how will this affect fundraising in 2020?
Our guess is that the scrutiny will be harder for companies that are in the later stage.
Basically, when considering a potential investment, VC firms are looking at different points between early-stage and later-stage startups. While investors tend to focus on the potentials and opportunities with early-stage startups, they would put more consideration on the growth aspect for later-stage startups. Yes, you have a product and people are using it.
But how fast is your growth? Any plans to expand to a new vertical or geographical region? Is there any sign of profitability? How can we work together to move this forward?
If anything, as confirmed by leading investors such as Vertex Holdings in this interview with e27, the early-stage investment will remain a “robust” asset class for next year.
In another interview with e27, the corporate VC arm of Salim Group also confirmed their preference for early-stage startups, which is seen as being more malleable or coachable.
If you are fundraising for a later-stage startup, this prediction is not meant to discourage you. In fact, these changes in the ecosystem are a trigger for startups to build a stronger, self-sustaining business.
In the end, we all want to see the companies that we are building thrive.
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Image Credit: Florian Wehde on Unsplash
The post Why 2019 is a game-changing year for Southeast Asian startup ecosystem – Part 1 appeared first on e27.