Rising Cost of Capital Depresses Funding for Startups

Startup funding in Indonesia slowed down during the first half of 2023. Data from the Indonesian Venture Capital and Startup Association (Amvesindo) revealed a significant drop of 74 percent compared to the same period in 2022. In the first half, a total of 73 startup funding announcements were made to the public, amounting to US$707 million.

Out of these, 34 transactions did not disclose their specific monetary value. In contrast, the first half of last year saw 149 funding transactions with a total value of US$2.69 billion, excluding 99 transactions with undisclosed values. Similarly, during the first half of 2021, there were 87 transactions valued at US$1.3 billion.

BNI Ventures Chief Executive Officer Eddi Danusaputro Eddi Danusaputro said declining startup funding can be attributed to the rising cost of capital. This factor has led investors to become more selective, seeking definite returns on their investments.

Additionally, investors are exercising caution due to the high valuations often found in startups and their reluctance to make necessary corrections. "I have also noticed that many startups lack the agility to pivot towards profitability," Eddy said.

Founding Partner of DS/X Ventures Rama Mamuaya explained that the elevated cost of capital has compelled investors to focus on portfolio management. In other words, fund owners are prioritizing the survival of the startups already in their portfolio, which diminishes their willingness to add new portfolios. "Additionally, startup liquidity in Southeast Asia, including Indonesia, has been underperforming. Everyone is still wait-and-see towards macroeconomic conditions and global inflation,” Rama said.