Previously, Convergence Ventures founder and managing partner Adrian Li discussed the operations of premium co-working space GoWork and new sectors the venture capitalist is looking at. In today’s article, Li shares his insights into Indonesia’s fintech and e-commerce landscapes, as well as IPOs for Indonesian tech unicorns.
KrASIA (Kr): When will Indonesian fintech reach its inflection point?
Adrian Li (AL): Financial technology involves many products used by consumers and businesses. When we talk about an inflection point, we have to talk about the state of the market. In the financial industry, most of the Indonesian population is unbanked or underbanked, even for traditional services.
Hence, while we are close to experiencing an inflection point of digital financial products for the banked population especially in Tier 1 cities, we are still only at the preliminary stage of wholesale financial inclusion in the country. There are still plenty of opportunities in the financial technology sector.
It is also helpful to see that in other parts of the world multiple fintech companies have been able to build big disruptive services, where even traditional banks are not overly concentrated. Hence, there is still an ample window of time for entrepreneurs to build big businesses in this sector.
Kr: Do you think Indonesian e-commerce companies are already mature and have successfully monetized their services?
AL: In e-commerce, there are several ways to make money, depending on the model. However, in most developed markets, we’ve observed a “winner takes all” type of market in horizontal e-commerce marketplaces. Hence, the dominant strategy for most marketplaces is to invest heavily in growing their platforms and later in monetisation.
This is because of two reasons. Firstly, network effects are very powerful in these types of systems; the more merchants on the platform the more consumers they will attract, which in turn attracts more merchants. Secondly, when a platform gets larger, economies of scale come in and reduce costs across the value chain. We still have several horizontal e-commerce players in the market: Tokopedia, Bukalapak, and Blibli, and regional players Shopee and Lazada. While leading players Tokopedia and Shopee have expanded their market share, the presence of significant competitors still makes the full monetization of these platforms far off.
Kr: More tech companies are thinking of going public. Is it a necessary or a good move, even?
AL: Naturally, going public is a means for investors and founders to achieve liquidity for their investments. However, going public also opens up the opportunity for public funds and retail investors to invest in high potential companies, while companies en route to listing can secure access to additional capital for growth.
Going public will also set the performance bar much higher for companies as their value is reflected every day in their stock prices. It also introduces a lot more scrutiny on the company and as a whole there are also more complexities in managing different stakeholder interests once it has gone public. Stock market prices may reward short-term performance over long-term investment, for example, which can be challenging for management to navigate.
Overall, I think it is a good move if the company is ready as it will raise the performance bar for the company and provide opportunities for more people to invest in great businesses.
Kr: Do you think any of Indonesia’s unicorns will go public?
AL: Technology companies can go public the same way companies in many other industries can. They could go public locally, regionally, and maybe even globally in markets like NYSE.
However, for any company to go public, it will have to reach a level of maturity in its business.This is defined as a time when it can not only satisfy shorter-term listing criteria, but also raise sufficient capital to pursue longer-term goals of strong, profitable growth. Rushing for a public exit for liquidity will not be beneficial to the company or new investors who get into a company before it is ready.
Kr: How difficult is it for these unicorns to have a path to profitability?
AL: I think every company is different. I think ride-hailing in general around the world has not yet been proven a profitable business model. Uber has pointed to some cities where they are profitable, but this is not the case for the company as a whole. Hence, in recent times, the stock price has reflected investor concerns.
With other business models, such as online travel agent platforms like Ctrip and Expedia, there are several listed platforms that have long proven to be profitable models. These models give strong evidence that local platforms like Traveloka can also achieve profitability and list one day.