- 21/07/2016
- Category: Commentaries
Recently, one of the most renowned and possibly the biggest startup in Indonesia, Go-Jek, received a huge amount of investment from two foreign investment companies, Kravis Roberts and Warburg Pincus LLC. The investment, amounting to about 400 million USD has been noted as one of the biggest that has ever been seeded to an Indonesian startup. On the other hand, recent report also underlines the current trend on diluting investment directed to startups business, and only the ‘decacorns’ and unicorns (startup companies that are valued to more than 1 billion USD), like Snapchat, are able to seize ticking up investments. The shape of global venture capital market has shifted. What does this recent phenomenon tell us?
First of all, the report CB Insights and KPMG suggests that there is a 3% raise of global venture capital last quarter, totaling at 27.4 billion USD. However, the number of global deals fell to the lowest point since 2013, and down 6% since last quarter. This is largely due to the fact that more investors are more interested in investing to these decacorns with larger amount of money. So despite the relatively lower number of deals made, more money is actually circulating. This is also due to the fact that more investors are now accessing money through private market instead of public market, propped up by the characteristics of startup companies that do not play with IPO (Initial Public Offering), or the stock market.
To sum it all up, startup industries are now very big, to the point that some of them are able to stand on par with huge industrial companies. Take Uber as an example, which recently surpassed the value of GM and Ford in just five years. [1] Investors are now more keen on looking at the companies that are able to reach the level of ‘unicorns’ and ‘decacorns’, as they are able to prove steady and continuous business growth, added with more assured capital and revenue returns they may receive in the long run. This is why there is less number of newer startups able to acquire investments, with the directional changes in preferences of investors. It is determined by, and has a lot to do with, trust; how startups settle their image through evident success. Global venture capital market is indeed getting more competitive.
The story of Go-Jek has surely become a rare feat in Indonesia, since they have proven to not only be able to seize investments, but secure the flow for a longer run by proving stellar performance over the years. Similar experience has not been much recorded, either due to the very recent growth of the country, so most of the players in the startup industry are newcomers; or the fact that most startup companies in the country are reluctant to disclose their detailed performance (including Go-Jek), seeing undisclosed performance, including funding and investment numbers, as a competitive advantage. No matter, new game plan has to be made in order for these companies to survive, and secure a long rung flow of capitals propped by steady business growth and performance.
Quoting Bill Gross, the founder of Idealab, funding is not the determining indicator in measuring startup success. According to him, it only accounts to 14% of the overall indicators in startup success. The other (bigger) indicators being business model (24%), ideas (28%), team (32%), and timing (42%).[2] Departing from this interesting formula, and combining those with the recent phenomenon on the shift of global venture capital market, several things can be translated into essentials for startups in order to adapt with changes on the global startup ecosystem
First, finding the timing. Despite the ability to attract investment, startup companies must be able to drop their game in the correct timing in order to ripe the most benefits. Finding the correct momentum where market needs them the most is definitely key, as seen from the case of AirBnB. Especially at times like this, where Indonesians are more aware of digital industry, thanks to the likes of Go-Jek and Tokopedia, startup companies should carefully take advantage of this fruitful momentum. Precise forecast on what is being and going to be needed by Indonesians requires meticulous measurement and careful consideration. Once accomplished, revenues secured; impressive performance recorded; trust earned.
Second, investing in human capital. A lot has to do with the way team members work and perform for the business. Seeing how the global venture capital environment is a lot demanding these days, team members of particular startup have to meticulously work in line with the whole business orientation they are aiming at and business environment they are playing at. Investing in the human capital is basically investing in the future directives of the company. In the case of Indonesian startups, people who are able to curate the directions of the company suitable for the local and global demand of the business environment itself are playing core roles; noting that locality values are important for those companies to be able to meet the demands of the locals which often diverge from the global trend.
Seizing the moment and captivating the correct people to work with seem to be among the most effective formula to cope with the ever-bending trend of global startup ecosystem. At the same time, assessing the locality of Indonesia might also give boost in insights on what the markets is looking for. Nevertheless, continuously being aware of the current condition of the startup ecosystem is the key to survive.
photo credit: pexels.com
[1] Katie Roof. (2016). “Decacorns continue to receive funding while the rest of startup investing declines”. Tech Crunch. <https://techcrunch.com/2016/07/19/decacorns-continue-to-get-funding-while-the-rest-of-the-startup-investing-declines/>
[2] Chris Dessi. (2016). “5 top indicators of startup success, according to this TED talk”. Inc.com. .
