Jakarta, January 11th 2023 – Aspire and Trihill Capital proudly hosted a comprehensive panel discussion on the Investment Outlook for 2024. This esteemed panel featured key partners from Indonesia’s top venture capital firms, Skystar Capital and Intudo Ventures. In light of the dynamic shifts witnessed by the startup industry in the past few years – from the growth and scale focus in 2021, the pivot towards sustainability in 2022, to the tech winter of 2023 which was marked by extensive layoffs and rigorous funding rounds – there’s a growing curiosity among founders, investors and the public on the future trajectory of the Indonesian technology sector in 2024.
Sharing his view on the future of Indonesia’s tech sector, Patrick Yip, Founding Partner of Intudo Ventures and Endeavor Ambassador, anticipates the market to continue its correction phase in the early half of 2024, but foresees a resurgence of stronger startups in the latter half of the year. Fundraising challenges are escalating as investors adopt a more discerning approach. Yet, within the venture capital landscape, liquidity remains robust as VC firms continue to successfully accumulate capital. This evolving scenario is gradually shaping the ‘new normal’ in venture capital: a revised standard for evaluating company valuations, coupled with an intensified focus on rapidly achieving product-market fit.
Abraham Hidayat, Managing Partner of Skystar Capital, echoes this sentiment, agreeing that the market will continue its correction process. He points out a critical aspect often overlooked by the media: amidst the highly publicized down trend, a lot of innovation is happening at the grassroot, early stage-levels and Venture Capitalists are actively seeking to support and invest in these emerging players. He is especially optimistic about the potential for success of startups founded during this period. “It is during the toughest times that we’ll see the most promising founders emerge,” said Abraham. He also noted a shift in business strategy implemented by many founders. While startups may have previously focused on growth over profitability, we are now seeing startups prioritize product-market fit since their inception while also aiming to achieve profitability by the end of Series A.
Building on these insights, Ferdy Nandes, General Manager of Aspire in Indonesia, who had received $100 million USD oversubscribed Series C funding led by Sequoia and Lightspeed in 2023, provides his perspective on the current market challenges. “This tech winter demands startups and companies to operate with heightened efficiency and effectiveness. Although the current landscape has intensified competition among startups, it’s a crucible that will forge them into stronger, more resilient entities. This, in turn, sets the stage for a more robust ecosystem. We can draw parallels to how the market bounced back and even soared to unprecedented heights following the downturns of 2009.”
Addressing the global concern over the rising interest rates in the US, Anthony Tjajadi, Founding Partner of Trihill Capital, maintains a positive outlook for Indonesia. “Despite the global economic fluctuations, Indonesia has been performing commendably, particularly since 2022. This resilience is bolstered by our economy’s strong ties to the commodity sector,” he notes, highlighting the unique strengths underpinning Indonesia’s economic stability amidst international and local concerns.
Ferdy Nandes, referencing the UN’s macroeconomic projections, provides an insightful analysis of the broader economic landscape. “While the UN forecasts a deceleration in global economic growth, dropping to 2.4% this year from an estimated 2.7% in 2023, this shift also presents unique opportunities,” he asserts. Nandes specifically highlights the potential in what he terms ‘digital immigrant’ sectors. These are traditional industries like logistics, commodities, and manufacturing that are increasingly integrating technology to enhance operational efficiency and stay relevant. He emphasizes that these sectors are founded on proven business models which, when augmented with technological advancements, become significantly more effective and competitive.
The Most Promising Sectors of 2024
Sharing their insights on which sector they believe will perform well in 2024, Patrick Yip of Intudo Ventures and Abraham Hidayat of Skystar Capital find common ground. Both agree that technology-driven Software as a Service (SaaS) platforms, particularly those offering operating systems for SMEs and enabling technologies, hold significant promise. Observing a growing inclination and adoption rate of B2B solutions that emphasize and promote operational efficiency, these areas are identified as key investment targets in the coming year.
Abraham Hidayat of Skystar Capital elaborates on the evolving tech landscape: “A few years ago, the concept of tech-enabled automation and process efficiency was relatively unexplored. Today, we’re witnessing a surge in demand for software solutions across various companies,” he observes. Abraham highlights a paradigm shift among businesses who are now eagerly embracing Software as a Service (SaaS) [enabler technology], e-commerce, and fintech solutions. These tools are increasingly being integrated into their operations, becoming a fundamental aspect of startup culture and driving efficiency and innovation in the business world.
Ferdy Nandes of Aspire Indonesia comments on the trajectory of enabler technologies in relation to the ‘digital immigrant’ sectors. He believes that these traditional industries will increasingly harness such technologies to enhance their profit margins and sustainability. This is achieved by elevating their value propositions through tech integration. Nandes draws a parallel with Anthony Tjajadi of Trihill Capital’s preference for more traditional, revenue-generating business models in the consumer, commerce, agriculture, financial and logistic sectors, with technology to accelerate growth and optimize cost. Both emphasized how tech-enabled traditional businesses leveraging existing distribution channels and catering to immediate needs stand a better chance of success.
In 2023, AI investments surged in Europe and the US, but Indonesia faces unique challenges in adopting these technologies.Understanding Indonesia’s nuances and tailoring solutions through localization are key. Various limiting factors, such as the political landscape and the supply chain distribution, exist, but this presents a chance for local founders with firm grounding to win the market.
Abraham Hidayat of Skystar Capital shares an example of the importance of product-market fit with one of Skystar Capital’s own portfolio: even when the fintech industry was experiencing a general downturn last year, Julo, a P2P lending platform, experienced its most successful year in 2023. This shows that while some sectors may seem more appealing than others, investors believe that the key differentiator lies in the management and strategic execution of the startup. “Just because the industry is experiencing a downturn does not automatically mean all companies in that sector will also experience a downturn. Ultimately, startups built with the right foundation aimed to create value are the ones that will succeed, regardless of sector performance,” added Abraham.
Patrick Yip from Intudo Ventures & Endeavor Ambassador shares a similar view on tech-enabled and supply chain management startups, acknowledging the challenges ofadopting new behaviors. He emphasizes the importance of objectively assessing their potential for product-market fit. He also notes that startup failure is not uncommon in this sector. Abraham Hidayat from Skystar Capital adds, “For every process still done with pen and paper, there’s potential for improvement.” He encourages entrepreneurs, saying, “If your first attempt at a startup failed but you gained valuable insights, you are always welcome to come to us.”
The Impact of the 2024 Elections on Startup and Tech Investments
The panelists also discussed the impact of the upcoming presidential elections on the technology and startup sector. Ferdy Nandes, with over 15 years of experience in major tech companies, acknowledges that a political year influences how big tech firms strategize. He points out that these adjustments are more a response to potential policy changes rather than the candidates themselves. Big tech firms often plan multiple strategies to align with possible governmental shifts while maintaining their routine operations (Business as Usual – BAU). However, he notes that such political shifts are generally less impactful for startups, unless their business directly intersects with government interests or policies. For example the support for sectors like agriculture and fisheries, which are key to Indonesia’s goal of achieving food stock independence.
The other 3 panelists offered diverse viewpoints on how the impending presidential change impacts business strategies. Anthony Tjajadi, advises focusing on finalizing ongoing fundraising or M&A deals quicker, as political dynamics may intervene with business and investment decisions. On the other hand, Abraham Hidayat expresses confidence in Indonesia’s democratic process and plans to continue doing business as usual during the election year. “If there are startups who are struggling to attract foreign investors, maybe they can consider approaching local investors like Skystar Capital who may have a better on-the-ground understanding on how to navigate the potential changes happening as a result of the elections,” Abraham added.
Patrick Yip of Intudo Ventures & Endeavor Ambassador shared his perspective on maintaining a consistent approach, regardless of market conditions. “We move on our pace, whether in a bull or bear market. Like in 2019, when investment activity is all-around, Intudo made just one deal. We try not to get distracted by shiny objects,” he explains. Regarding the election, Patrick believes that all candidates are aligned with the long-term vision of ‘Indonesia 2045’, and he anticipates that the progression towards Industry 4.0 will continue unabated, regardless of the election outcome.
What Startups Should Expect in 2024
The industry is currently under close examination due to concerns over inflated valuations, especially following market corrections that have seen Series A deal sizes shrink to nearly half of what they were in 2020. Addressing this, Patrick Yip of Intudo Ventures & Endeavor Ambassador remarked that the expected outcomes from exits are likely to be lower than in previous years. He emphasizes the importance of adjusting investment check sizes accordingly, a move he believes will contribute to the overall health of the ecosystem. “We shouldn’t focus on deal size, but rather on returns.”
“The bear market won’t change to the bull market overnight,” adds Abraham. “We need to see the biggest tech darlings become profitable first before the public can change their perception. Despite the current bearish climate, however, Skystar remains actively on the lookout for promising companies to invest in.”
Trihill Capital does not raise external capital, instead, their primary focus is on finding new companies and managing their current portfolio. They are dedicated to guiding portfolio companies to meet profitability earlier while still actively seeking new, promising investments in the region.
Not only for Trihill Capital, Efficiency is a central theme for all the panelists. Aspire, in particular, is committed to promoting better cashflow management. With a strong emphasis on sustainability and profitability, Aspire plans to offer increased support and visibility in financial management. This initiative is designed to streamline operations and provide valuable insights that enable businesses to make financially sound and sustainable strategic decisions.