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Indonesia's start-up scene in the corona storm

Thanks to the economic upswing, Indonesia's startup scene can look back on a brilliant decade. But now the virus-induced slump is frightening venture capital firms. Some startups have to lay off employees. But there are also winners in a crisis.

The Indonesian startup Traveloka was planning the big breakthrough for 2020: The booking platform was founded eight years ago, and the company with the white bird as its logo has now become a household name in Southeast Asia. Your IPO was imminent; in venture capital circles its value has been put at around $ 2 billion.

Then came the Covid-19 crisis. The pandemic paralyzed air traffic, emptied hotels, closed tourist attractions of all kinds and sunk the travel plans of millions of people; and now the lockdown is still in effect in most of the major metropolises in Asia until further notice. In particular, the restrictions on international travel should only be relaxed gradually. This makes it increasingly clear that the current year is to be forgotten from a touristic point of view. What will bring in 2021 is still in the stars.

IPO burst, but hope is still alive

The big boom in the travel business in Southeast Asia began a good ten years ago. Never before had so many Indonesians been able to afford a flight with a hotel stay. Never before have so many Chinese visited their southern neighboring countries and discovered Bali, Phuket, Penang or Angkor Wat. But everything has been different since March 2020 - also for the Traveloka booking platform: Instead of making big money with going public, the startup company is now facing compensation claims worth millions. On April 10, the company announced that it would lay off a tenth of the workforce.

The market leader among travel booking platforms was badly hit by the crisis, and raising capital on the stock exchange has become a long way off; the IPO market is currently practically frozen due to the pandemic. Nevertheless, there is confidence at Traveloka: The startup, which can count on the backing of well-known investors such as the Singaporean state fund GIC, Expedia and East Ventures, will probably survive the corona lean period. With a total of four financing rounds, we have raised $ 420 million so far, and the travel business will pick up again sooner or later.

Pioneer of the "Indonesian Decade"

Regardless of the current setback, Traveloka stands to a certain extent for the «Indonesian decade». This not only stands for democratic elections and political calm, but also for steady economic growth and the emergence of a medium-sized enterprise with around 40 million households. And it initiated a brilliant digitalization: Startup companies like the e-commerce platforms Tokopedia and Bukalapaks, founded in 2009, as well as - above all - Gojek in 2010 literally woke the Indonesian economy out of its sleep. Today, Gojek is the highest rated company in Indonesia's digital ecosystem at over $ 10 billion.

The reasons for this departure are obvious: The (young) population of the gigantic country is open to digitization; the domestic market is huge and purchasing power has risen sharply over the past decade. Internet connections and mobile communication have also permeated the entire archipelago. In no other country in the region are the opportunities for industrial modernization as promising as in the country with a population of 260 million. A study initiated by Google and Temasek Holding in Singapore concludes that the digital ecosystem in Southeast Asia will have a volume of $ 240 billion by 2025. About half of this will be in Indonesia.

Chaotic and inefficient - but creative

For Willson Cuaca, Indonesia is chaotic and inefficient. But it is precisely this mixture that offers opportunities and challenges, says the managing partner of East Ventures, one of the most active venture capital companies based in Singapore. Cuaca was early on with venture capital at both Traveloka and Tokopedia. Cuaca believes that anyone who grows up in such a complicated environment as Indonesia is literally forced to find creative solutions to problems. And the entrepreneurial spirit on the archipelago is correspondingly highly developed.

Sebastien Guillaud of Hera Capital, another venture capital firm with a focus on Indonesia, agrees. The native French sees the greatest advantage in the aspiring middle class. East Ventures and Hera Capital are among a growing group of investors who swear by the Indonesian market. For reputational reasons, many of these venture capital firms have their official headquarters in the representative financial market of Singapore, such as Antler, Wavemaker Partner, SGInnovate and Insignia Venture Partners. But the investors behind it mostly have family roots in Indonesia or are otherwise closely connected to the country.

Gojek and Grab - Medtech and Edtech

SebastienGuillaud believes that the dams have been broken since the transport service provider Gojek and the e-commerce platform TokopediaIndonesia have revolutionized. The Gojek Superapp completely redesigned the digital infrastructure.

The company, which was founded as a motorcycle travel agent, now provides a variety of services, ranging from food delivery to mobile payment. Its founder, Nadiem Makarim, is now the minister of education in the Indonesian government. Tokopedia founder William Tanuwijayagen also enjoys cult status in Indonesia.

But what has changed with the Covid 19 crisis? In addition to e-commerce, the telemedicine and medtech sectors, as well as online training offers such as Edtech, have also received enormous boost. In the medtech sector, three providers have already gained a foothold in Indonesia: Alodokter, another investment by Hera, Halodoc and Grabhealth. Meanwhile, online learning is being mixed up by Ruangguru's app. According to its own information, this Edtech company already has 300,000 teachers under contract and has 15 million students among its customer base. One of the brands that recently attracted new investors is Colearn.

Alodokter, for example, currently records up to 40 million inquiries per month. The company is thus following in the footsteps of the Chinese startup Wedoctor, which has over 210 million registered customers and is now aiming for an IPO in Hong Kong. Halodoc, which has since entered into an alliance with Gojeke, should also be one of the winners of the crisis: Thanks to investors such as Singtel Innov8, Korea Investment Partners and WuXiAppTecs, Halodoc's start-up financing has recently been expanded to around $ 80 million. And behind Grabhealth, of course, is Grab, the market-leading driver service provider in Southeast Asia, notabene Gojek's main competitor.

Gojek, the star of the startup scene

Largest seed and expansion financing for 10 companies
Invested capital (in billion $) Estimated Market Value ($ billion) Sectors
Gojek4.510Transport, logistics, food, payment
Traveloka0.422to travel
Akulaku0.220.4–0.5Payment, fintech
KinerjaPay0.2*Payment, fintech
Ruangguru0.150.6–0.9Online training
Carmudi0.12*Car and motorcycle trade
Halodoc0.08*Health, insurance

"Seed money is almost dead"

But how are venture capital firms reacting to the Covid 19 crisis, and what are the consequences of the startups? Anthony Tan, the founder and CEO of Grab, the now grown startup par excellence in Southeast Asia that has become an investor itself, speaks plainly: Covid-19 represents the biggest crisis for the company since it was founded. The virus and the shutdowns in Asia would have unprecedented consequences for the operational business and the employment situation of the partners.

According to a survey and a study by McKinsey & Company, there are three priorities for startups in these times: cash, cash and again cash. The younger the startup and the further it is from profitability, the more problematic its situation is. “Seed money is dead”, says an investor from Singapore. Anyone who was able to secure financing rounds in the past twelve months and extend the "runway" can count themselves lucky. All venture funds have understandably become more cautious. The effects are clear: the pressure on young entrepreneurs continues to increase.

This in turn increases the pressure on the workforce. In addition to Traveloka, Oyo Hotels & Homes and Reddoorz have also cut staff in recent weeks. Zilingo, a fashion and e-commerce startup launched in 2015 on the cusp of unicorn status, recently laid off massive people.

Indonesia's venture capital scene is self-sufficient

The Covid 19 shock naturally also left its mark in Indonesia. In terms of startup financing, the country remains special: In the shadow of Gojek, Tokopedia, Traveloka and Bukalapak, a venture capital scene has developed there that is strongly focused on the home market and is considered to be quite self-sufficient. In this context, “self-sufficient” means that one does not necessarily have to rely on entry fees and financing rounds from abroad, but can raise capital locally. The corresponding local sources are considered discreet but smart. They know the local conditions exactly and often stay under the radar screen.

Such an investor is, for example, Mandiri Capital. The company, which was founded four years ago, is located at the headquarters of the largest Indonesian bank, but operates independently of the parent company. In their portfolio, which currently comprises 13 investments, there are exclusively fintech startups such as Moka, Cashlez or Amarthaund, which deal with financial services and payment systems. Mandiri's holdings are in the range of 5 to 49%, only exceptionally higher.

The founders should stay with the company and remain hungry for success, says Eddie Danusaputra, CEO of Mandiri Capital. It's not about takeovers, but about cooperations. The synergies are clear: The innovative entrepreneurs are helping Mandiri with digitization; In return, the bank finances their research, development and expansion and helps structure the business model.