Thesis: For over a decade, venture capital has been flowing into Indonesia, backing growing cohorts of startups. This era gave rise to consumer-technology giants like GoTo, which is now listed on the Indonesia Stock Exchange (IDX). Venture capital allows founders to quickly scale their companies from scratch while factoring in the risk that the majority of investments will fail along the way. This makes it an effective mechanism to identify and nurture winners in the fast-paced digital economy.
That model may have made sense in the early days of consumer-internet companies, argues Martyn Terpilowski.
The former hedge-fund manager in Tokyo and Hong Kong is now an entrepreneur in Indonesia. His company, Bhumi Varta Technologies, is a location-intelligence platform. It serves enterprise clients and doesn’t follow the blitzscaling playbook that’s typically utilised by consumer-facing businesses.
Still, from this vantage point, Terpilowski has become a vocal critic of the venture-capital industry in Indonesia. He believes that the venture-capital equation doesn’t add up in an environment where entry barriers have been brought down so low that anyone can launch an app. The inflow of venture capital has created an overheated market in Indonesia, and it is about to face a reckoning. In his view, it doesn’t have to be this way—if the venture-capital industry can reform itself.
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“The conditions for venture capital have changed.”
When venture capital started, it was intended for technology and innovation. There weren’t that many ideas, and there was not that much money.
In the early days for consumer-internet companies, venture-capital firms like Sequoia made a lot of money on the likes of YouTube, for example. That’s great. They were first in the market. Blitzscaling worked because there were few other players.
Then it became trendy. The more money is thrown at anything, the more investments you have competing with each other.
Now, we have 15-minute grocery deliveries. That’s not technical innovation. That has nothing to do with innovation.
The whole concept has changed. You now have more than 200 venture-capital companies in Indonesia and Singapore, chasing the same limited opportunities. They all want to be in the business-to-consumer (B2C) space because they want to achieve unicorn valuations. In business-to-business (B2B), if you’re dealing with large corporate clients, you can’t mark up valuations the same way.
Generally, B2B is the way you actually make money in the longer term. It’s less price-sensitive, and it’s more about loyalty. Enterprise clients are not going to rip up the contract every year in a B2B model because the infrastructure takes too long to build.
But venture capitalists (VCs) want to back consumer-facing companies, and now you have a situation where there are coffee shops and 10 different food-delivery services backed by VCs.
Here, we’re not seeing tech at all, really.
