JAKARTA / TOKYO – Car rental starts Smove strangely popular and easy to use, even in Singapore, dear and subject to rules. With the touch of a prepaid card, anyone can simply get on a street vehicle, get it up and running at the touch of a button and drive for as little as $1 consistent with a quarter of an hour.
As cycling giants Uber Technologies and Grab grew in Southeast Asia, temporarily and probably unstoppably, discoverer Tom Lokenvitz thought he had figured out a way to follow his braids. In 2015, he signed an agreement to supply cars to Uber drivers, which he sought to cover by hiring long rents to increase the number of his fleet. Meanwhile, Grab and Uber have been running on the upstarts playbook, offering giant discounts and subsidizing trips in a war that is intensifying to gain a percentage of the market in the region.
For a time, Lokenvitz’s bet was successful. Within six months of the Uber deal, Smove Systems has thrived. Its fleet has increased tenfold, its workforce has tripled and, at one point, is the largest company of its kind in Asia.
Then came the bomb: Uber’s abrupt departure in 2018 from Southeast Asia, pursued through a victorious Grab. In reaction to the collapse of his association, Smove was forced to restructure, renegotiate the terms with his suppliers, close his offices in Australia and lay off workers in Singapore. But in the early 2020s, Lokenvitz felt they had turned the corner; they had abandoned most of their most expensive rentals and looked to the future, contemplating an expansion of their fleet and incursions into new markets.
“In January, February, we returned to normal,” Lokenvitz told the Nikkei Asian Review. “The plan was to make a funding circular in the mid-2020s to say essentially: look, we are profitable globally, we can support expansion.”
When COVID-19 cases increased in Singapore in May and his government slowed down the relaxed movement, the death sentence rang out. The company’s revenue fell by 85%, forcing it to liquidate its operating arm and go out and sell the high-level assets of its parent company.
“We had a bit of poor health before COVID, but we were recovering,” Lokenvitz said. “But as a company with a low money balance, what can you do? We may not get any money fixing … even if there is government support. It’s not enough to help us get past the circuit breaker.”
Smove is part of a pile of injured new businesses bleeding in cash in Southeast Asia. The coronavirus has cooled new companies in the region, driven for years through billions of dollars in venture capital from growth-seeking investors, adding SoftBank’s debatable $100 billion Vision Fund. The cracks in the capital-driven style underlying the boom are exposed: valuations are falling, venture capital raising has reached a minimum of seven years, and unicorns for whom profit was a theoretical purpose are suddenly forced to make deep cuts and difficult decisions.
In this more sober environment, Southeast Asian attractions as an expansion game have stuttered. In a market that grew in double-digit percentages per year and unicorns seemed destined to move toward decatony status, the coronavirus correction is a setback for investors and a setback for the region’s burgeoning startup ecosystem, at least until the pandemic is under control.
This may be just a moment of turmoil, said Chandra Firmanto, managing wife of Jakarta-based Indogen Capital. “Investors paid no attention to the unitary economy. Many of them simply said it’s a booming industry, which is going to be important… because it’s very easy to raise money.”
unicorn blood
In Jakarta, the unicorn’s hemorrhage has begun.
In 2010, a small company called Gojek, named after Ojek, a two-wheeled motorcycle whose cyclist can be called from chaotic traffic in a corner, began life as a call center with a handful of employees, connecting consumers with couriers and rides. By 2015, it had developed an Uber-style app and had become Indonesia’s first unicorn; until 2019, it had passed a valuation of $10 billion and was on track to become a “super application,” covering everything from car sharing to household virtual bills. Somehow, he had surpassed the ambitions even of his predecessor Uber.
Gojek and its founders were following the expansion of Southeast Asia’s booming emerging industry, where venture capital raising would increase more than 20 times in the 2019 decade. The company played a key role in integrating Indonesia’s intensely local industry into digital development. economy, just as investors were seeking first access to a disgustingly rich market connected to mobile devices. Names like Google, Tencent Holdings and Facebook have accumulated on their taxpayer list.
For skeptics, there is more cash than concepts in the fledgling ecosystem of Indonesian startups. But as the archipelago’s Internet economy is about to succeed at approximately $40 billion in 2019, a five-fold buildup since 2015, and a fact proudly promoted through President Joko Widodo, Gojek’s ambitions have been incorporated into his super app strategy. “Everything that average elegance in Indonesia and beyond must address, we must centralize it in this one application,” said founder Nadiem Makarim in 2018.
The concept was that by focusing several newspapers on their platform, consumers would be connected to the Gojek ecosystem, thus expanding their use of other fundamentals such as carpooling and payments. Millions of dollars of investment in the company were responsible for expanding spaces ranging from food delivery to massages, thanks in component to the acquisition of even smaller startups.
Not alone: Rival Grab also sank millions into at least 10 small start-ups in the 3 years leading up to the start of 2020. No company was considered successful in 2019, caught up in a festival offering discounts and subsidies. attract cyclists and drivers to their platforms.
If anyone had the ability to pursue growth, it was Gojek. Its fundamental facilities already had essential elements in the daily life of Indonesians, and they sought more. But until the end of June, when customer activity collapsed, the company announced that it would lay down 9% of its workforce and close GoLife, a service that provides cleaning facilities and massage for the home, as well as GoFood Festival, the company’s physical meal yards. . He had already closed GoGlam, a beautician reserve service, and GoFix, an appliance repair service, in January.
It also threatened the livelihoods that many Indonesians had built with the help of these applications. “It was pretty shocking,” said Asri Sulastri, former cleaner at maintenance company GoClean. Thousands of cleaning companions like him were blocked through the closure. “I say it to myself: “Gojek is a great undertaking; in fact, it will continue to expand its types of “services.”
As countries hesitate to step back and re-impose remote controls, corporations that have enthusiastically mapped demand for developing customers in Southeast Asia will have to recover.
Traveloka, Indonesia’s reaction to Expedia, was forced to lay off about a hundred others, 10% of its workers, in early April, as global industry was crushed across closed borders and hypervigilant governments. Following the restructuring, the company was able to raise another $250 million in July. Singapore Unicorn Grab, in April, introduced voluntary unpaid leave or reduced hours of operation to workers in overcapacity departments. In June, he laid off about 360 workers, or 5% of the total.
“I know this team, it’s a very painful thing for them. If it’s not necessary, they won’t. I think they have no choice,” said Chua Kee Lock, CEO of Vertex Holdings, one of the first investors in Saisir.
Small start-ups that lack similar monetary resources have been forced to close permanently. Stoqo Teknologi Indonesia, a popular online platform that provided new ingredients to food retail outlets for mothers and fathers, ceased operations last April after COVID-19 “significantly reduced [its] income.” Another victim Airy, a low-budget hotel company; stopped trading at the end of May after noticing “a very significant drop in sales and very important user claims” in recent months.
One step further down the food chain, a lot of even smaller start-ups are forced to be located in a corner. Singapore’s financial technology company, FOMO Pay, fired its staff part-time and postponed its expansion abroad, as virtual payment transactions decreased by more than 50% in February as the epidemic intensified in the region. Malaysia-based flower delivery startup BloomThis saw its revenue drop by 90%, leading its leading executive to cut all marketing expenses, ask its owner for help, ask banks for help and cut wages.
This crisis has shown that this expansion is very fragile
In many ways, the boom in Southeast Asia is already losing strength. While investors watched initial public offerings from Uber and Slack Technologies in the spring of 2019 in the U.S., and WeWork’s own attempt would collapse when he presented his IPO prospectus in August, the myth of the ever-developing start-up had begun to crumble. . According to a dataset through DealStreetAsia, the region had experienced a 30% drop in the price of financing during the following year, concentrated in the part of the year following the increase in IPO DISAPPOINTMENTS. Many primary startups, adding Tojek, were already in transition before the pandemic, temporarily changing their message to “ways of profit,” as the growing attention of their sponsors prompted a re-evaluation of the “growth at all costs” philosophy of recent years.
Fund managers say that as a result, start-up valuations have fallen by 20% to 30% compared to the same time last year. The arrival of the coronavirus has only accelerated a turn already underway.
“This crisis has shown that this kind of expansion is very fragile,” said Amit Anand, co-founder and managing spouse of Jungle Ventures in Singapore. “Evaluations and pricing will have to go hand in hand. There is nothing in which corporations and investors seek superior expansion or valuation, but they will also have to unlock the corresponding price.”
Counting species
“COVID-19 has come at a very bad time for us,” said a depressed founder of an e-commerce startup in Indonesia. The start-up had become a gap in the market by promoting a specialized product, and still trades at a loss, the company had what it had and the idea of investors was a transparent path to profitability. Having already gone through the first rounds of funding, he was in talks to raise new capital to boost growth.
These talks were temporarily dissipated when the coronavirus made landfall in Indonesia in early March. The country is one of the last countries in Asia to report cases, but the count temporarily jumped to the highest count among the ASEAN group.
“Foreign investors have been cold,” said the founder, who asked not to be identified. “Basically, we had secured the investment to give us approximately 18 months of follow-up and retired at the last minute. One, a condition sheet [a non-binding document establishing the terms of the investment], the other a written commitment, an agreement. first we can understand, however, the devastating moment because we had this.”
Instead of struggling to outperform others in valuations, investors are asking companies in their portfolios to adjust their business plans and stay firm on money reserves, with the goal of building a “track” for at least a year, through painful fee reductions. . They are also looking for safe investor commitments to new funds.
“Today, many of those actors [investors] have disappeared,” Said Chua de Vertex. “We’ve looked at a lot of agreements, [and] there are very few people talking to contractors, negotiating condition sheets. Very little.” For some startups, the investment fund is the only one they’re in conversation with, according to Chua. “I’m very surprised. [Some companies] have never noticed this kind of “one man” scenario.
For those who are left, there is still room for opportunity. In some cases, investment situations have changed: corporations are raising more and more budgets in the form of bonds and convertible loans, meaning that a smart investor can simply buy a stake with a reduction in the future.
In a recent webinar, Abheek Anand, managing director of the Venture Capital Fund Sequoia Capital, said corporate idea is “a very attractive moment” because “very smart corporations are starting to stand out and competitive intensity is beginning to decline.” a dozen funds, adding Sequoia Capital, one of the top assets in the region and just closing a $1.35 billion fund for Southeast Asia, declined to comment on the story.
Preqin’s knowledge shows that the ASEAN-focused venture capital budget raised nearly $400 million in the first part of this year, meaning there is still dry dust for start-ups in the region, as long as they can showcase their skill or even take advantage of the merits of adjustments in COVID. -19 has been applied.
“We are making an investment right now. We have a new fund on the way, so we’re looking to lose the pipeline before we’re able to interact [with the new companies],” said Benny Tjia, director of Indogen Capital. . “Now we are in a few corporations that are in the ‘pandemic expansion sector’ Array … corporations in sports, fitness and logistics. They have been affected by the pandemic, but not as much as other sectors.”
Several start-up investment circulars have been completed in recent months, some of which have been in progress since the beginning of the year. Kopi Kenangan, a takeaway coffee chain that claims to be already profitable, raised $109 million in a Serie B investment circular in mid-May. Other recently funded startups come with Bobobox, a capsule hotels company founded in Bandung; Delman, a great provider of knowledge analysis and control; and Kargo Technologies, a cargo logistics market.
“When COVID-19 started, [Kopi Kenangan] hadn’t signed anything [with investors],” said a user close to the company. “There is no legal responsibility to carry out the operation. But most of its investors are long-term investors. They have a horizon of five years or more. They were lucky.”
Then the false jolt. The caution opposed to coronaviruses would possibly serve as a calculation for some companies, but it is also an opportunity for others who knew they needed to reduce fat.
“Some corporations will use COVID as a form of lighter, even if it might not have had a direct impact.” said the founder of a Singapore-generating company who asked not to be identified. “It’s a smart excuse, however bad it sounds: if we’re going to lose weight, we’re going to have too much overhead, we’ve been designed to grow, so now we have to analyze profitability. I think that’s the case with a lot of startups.”
New reality
Now, with coronavirus wreaked havoc in the region, even profitability is on hold. The new mantra: winter.
The most important players are not immune to adapting to the new reality. “Like many other corporations, startups, especially in Southeast Asia, want short-term defense without delay, especially if they don’t have a lot of money,” said Amit Joshi, a professor of artificial intelligence, research and marketing strategy at IMD. Business school in Lausanne, Switzerland. “The purpose will be to succeed over this storm, preferably by reducing costs. However, for the best-funded startups, this is a wonderful opportunity to win smaller corporations and further consolidate their position.”
“VC will also see this phase as an opportunity to enter promising start-ups on the floor,” he added. “However, ‘stupid money’ will run out, so more investment just to call it an ‘AI startup’ or something like that. In terms of metrics, popular metrics (combustion rate, acquisition cost, retention) will remain sufficient but will be tested much more than before.”
After starting the settlement of Smove, Lokenvitz published an article on the social networking site LinkedIn inviting other founders to succeed, express their considerations and be informed of their example. The reaction was overwhelming and he told Nikkei that he had since spent hours on Zoom and Google Hangouts calls.
“Entrepreneurship is never easy,” he said. “It’s smart for other people to succeed and ask for help.”
He expects startups and VC to continue to reassess how good fortune looks. Growth for the sake of expansion has become bad, for companies, founders and customers, he said, adding that start-ups are focusing too much on raising investor capital, which on generating cash by attracting and retaining customers.
“For start-ups, due to excess venture capital, this time when their customers, their main source of financing, has been delayed for more than a decade and a half,” he said.
These models have taken years to identify. But in this environment, investments can happen quickly.
“When I was hired in mid-2019, the user I was hired for was beaten because of the main goals and demands of many other divisions,” said a former Traveloka employee, a victim of the company’s layoffs. “It was around February that it was reported that a coronavirus was having a great effect on the company. From that moment on, the scenario got worse.
“I’ve heard a lot that running in startups is very vulnerable Array … However, I think running in a unicorn would be different. Apparently, in this [coronavirus outbreak], no one is safe.”
Additional report through Kentaro Iwamoto in Singapore and Ismi Damayanti in Jakarta.
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