Idiotopedia: The Golden Cage
Venture capitalists see Southeast Asia as a sparkling concept that will bring them huge returns in a world of fast digitalization and growing consumer markets. However, there is a complex reality behind this attractive front. Investors are eager to get in because they have the money to do so, but the region's unique problems, such as regulatory hurdles and a lack of skilled talent, can quickly turn a golden chance into a golden trap. My opinion here is simply to advise an investor on how to deal with this changing environment. It does this by sharing my understanding and cautionary stories to encourage investors, entrepreneurs, and other industry players to talk to each other openly. Disclaimer: Keep in mind that this article is just a summary and shouldn't be taken as financial advice. I'm not telling you this to show that I'm wiser than you; it's just to let you know that I've done so many stupid things that I think I might be more knowledgeable than you.
Why did I sidestep the seed stage?
I began my journey into the unknown seas of Southeast Asian investment around 22 years ago. At that time, the area was still a developing ecosystem, full of opportunities but missing the infrastructure and maturity of well-established markets. As an early adopter, I jumped in, excited to be a part of the region's digital change. Over the years, I've seen the rise and fall of many startups, the flow of capital, and the changes in the investor scene. The area has come a long way, but I've learned something sobering: Southeast Asia's seed stage is risky, with many challenges that often outweigh the benefits.
This region is considered a great place to do business because it has many open markets and a growing population of tech-savvy people. This story is partly true, but it hides a more complicated reality. However, making money at this area's seed stage is like getting lost in a maze when it's completely dark. There is a lot of competition for early-stage startups in this area; the market is small, consumers don't have much money to spend, and the digital infrastructure is still very new.
The current state of the economy, which includes rising interest rates, price pressures, and a slowdown everywhere, makes these issues worse. Yes, investors are becoming less willing to take risks in this situation and are asking for higher returns and more mature business plans. For the most part, the days of huge price increases and fast growth are over.
Yet, it's a big change from a few years ago, when it seemed like every startup could become a unicorn. I'm still hopeful about this region's long-term chances, but I think it's important to go into the seed stage with a critical mind and a healthy dose of skepticism (be realistic!). Well, finding unique opportunities, coming up with patient capital strategies, and building long-term partnerships with entrepreneurs are the keys to success in this challenging environment. It's about going against the grain, questioning what everyone else thinks, and accepting ways that aren't the norm... are you ready for this?
Then, what will be my preferences? The pre-series A to Series A sweet spot
Southeast Asia, especially Indonesia, has many different possibilities and problems that make it unique. As mentioned, while the region's startup environment is full of new ideas, it faces poor infrastructure, complicated regulations, and a lack of skilled talents. To succeed in this setting, you need to know a lot about the local culture and have a long-term view.
Yes, it's hard to deny the appeal of later-stage investments with high returns, but I've learned how important it is to build a portfolio around early-stage companies. These businesses can make huge profits, but they also have a higher level of risk. If you want to make a lot of money over time, you have to be willing to take this measured risk. I am very aware of the problems that can happen when the direction of a portfolio doesn't match what investors expect, though. Deadlines that aren't met and results that aren't what were expected can hurt trust and make it harder to raise funds in the future. Throughout the lifecycle of an investment, it's important to keep open and honest contact with investors by giving them regular updates on the performance of their portfolios and addressing their concerns before they become problems.
Note: Building confidence and trust is very important in this business - there are no friends or enemies; it's all about straight business. We can build long-term relationships with investors by keeping our promises and showing a strong dedication to the startups in our portfolio. Always keep in mind that buying is a marathon, not a sprint. Even though prices will change in the short term, our main goal should still be to build a diversified portfolio with the possibility of long-term growth.
Financial Realities - Numbers Don't Lie
When it comes to this business, stories are built, not made up. Yes, data is the key to any interesting story. In this region, where things are always changing, and danger and opportunity are mixed, numbers are the only thing that stays the same. They are the subdued builders of our hope, which the market's icy, unforgiving facts temper. Based on my limited experiences, by carefully examining these numbers, I can find patterns, spot opportunities, and eventually make simple investment choices. These numbers aren't just figures; they're the language I use to discuss the opportunities and risks of each project. They paint a picture of cautious optimism that is based on facts.
Note: Again, remember you are a storyteller, not a fortune teller!
Pre-Series A Stage
My common sense is that an investment before Series A is usually between USD 500,000 and USD 1 million. Still, this is just the opening of a deeper look into this case. Let's examine the details that make these numbers work.
Note: A closer look shows that the real investment amount depends on many things. The right investment amount depends on how far along the startup is in its development, how big of a market it is trying to reach, how strong its business plan is, and how good the team is. For instance, a deep-tech company with a new and important technology and a big market opportunity might get a higher valuation and, as a result, a bigger investment. On the other hand, a business that deals directly with customers and has a proven product-market fit might only need a small amount of cash to keep growing. Also, differences in geography must be taken into account. The above range is just a rough idea; the normal pre-Series A investment can be very different in different parts of the world. In Indonesia, for instance, the startup environment is still developing, and investments tend to be smaller than elsewhere. This shows how different the business climate is in the area, which gives investors both chances and problems.
Series A Stage
Investors usually put between USD 2 million and USD 5 million into Series A funding, which is a big step forward for a company. This big capital injection shows that people believe in the company's promise and is a turning point in its growth path.
Note: However, these numbers can be more attractive than they seem. For startups, a Series A round is more than just a number; it's a strategic relationship that needs careful research. At this point, investors want to see proof that the product fits the market, that the business plan can be scaled up, and that it is making a lot of money. It's about giving money to a team that has shown they can get things done and handle the challenges of growing a business. Many things affect the exact amount of spending within this range. Choosing the right capital injection depends on a lot of things, including the company's valuation, its location, its business, and its competitors. For example, a fintech startup in a market that is growing quickly might get a higher value and, as a result, a bigger Series A round than a consumer goods company in a market that is already well-established.
These numbers may give you a general idea, but it's important to remember that each investment is its own journey. The complicated nature of valuation, the way the market changes, and things unique to each startup can greatly affect these ranges. If you want to know more about how I did the calculations and the factors I used, I'd be happy to have a more in-depth discussion with you. But I think creating equal value is the most important thing, and I can't wait to find out how I can help you reach your goals. Let's work together to find growth opportunities and form a partnership that works for everyone... Simply put, there is no free lunch in business!
Investment Realities
How do you make money in this part of the world? Indeed, numbers can be made to sing and dance, but can they tell you when the next traffic jam or power outage will happen? I've seen more predictions about the weather than the economy over the next five years from highly paid consultants. What is the reality? Don't get me wrong, money is very important. Let's not fool ourselves, though. The team, not your bank account, is what makes a business last. As an investor, I've seen many "rock star" teams with great PowerPoint decks fall apart when dealing with harsh market realities. You need to be tough, persistent, and know a lot about the area, which isn't always shown in a pitch deck.
How about technology? It is necessary, without a doubt. But let's not mix new ideas with copying others' work. It seems like every startup is looking for the next big thing. Finding new ways to solve old problems gives things their real value. Too many tech-heavy businesses have failed because they forgot about the most important thing: the people. Then I'll look for the cockroach while everyone else is after the next horse. The creature that can handle anything. The one who knows the market treats the competition carefully and isn't afraid to get their hands dirty.
Remember: What matters is not how much something is worth but how much damage it does. There are times when the smallest bets pay off the most, and action speaks louder! And I can tell that trust is as important as numbers when investing. More than anything else, trust your gut, trust your team, and believe that the market is honest. The real opportunity is to build something that will last amidst all the noise of hype and the fear of the unknown.
Stability is the best currency in a world of chaos!
So, even though the area may look like chaos, it's a great place to start new businesses. Will you be a watcher or a leader? That's the question!