Insider tips for startups on how to approach venture capital
4 December, 2020
This past year, the Indonesian digital economy has consistently seen exponential growth especially in terms of new consumers. According to the Google, Bain and Temasek’s eConomy 2020 report, 1 in 3 digital service users were newcomers. To seize this opportunity, aspiring startup founders need to move fast to validate their ideas for innovation before entering the market and securing funding. While startups often turn to venture capital for funding, their business model is not always compatible with the venture capital-style of funding.
The main takeaways from the session are:
- “Innovation is about finding efficient solutions to pre-existing market problems,” said Melisa. Entrepreneurs need to be able to clearly define the market issue they are solving before pitching.
- VCs look meticulously at market size and whether or not they can envision scale in the industry, according to Melisa. While VC is a great route for many startups, others can look to banks and other institutional or private investors. It all depends on the startup and the market it serves.
- Network actively and often.
- The Indonesian ecosystem is ripe for innovation and pioneering.
Follow the conversation between Melisa Irene and moderator Amir Karimuddin, as Head of Editorial and Research at DailySocial.
Innovation must be able to solve existing problems
Amir Karimuddin: Melisa, how do you see the many innovations presented by Indonesian youth today?
Melisa Irene: Basically, East Ventures is interested in providing investment to technology-based companies. However, just because companies do not receive investment from East Ventures, does not mean that those companies do not innovate.
Today, we see countless new companies starting to take advantage of technology. But the most important thing is whether the innovation carried out can solve the existing problems.
Back to the principle of innovation, technology is only a tool to solve problems more quickly. Many of us find companies that make applications but do not have a clear concept in solving the problem, so it isn’t easy to analyze the effectiveness of the invented solution.
So innovation eventually is about finding better, more effective solutions to problems.
Read also: Idea validation with Willson Cuaca: How to start an investment-worthy startup
Not all startups are compatible with venture capital-style funding systems
Amir Karimuddin: New startups need to know how to get funding from venture capital. As someone from East Ventures, hence as a VC, can you explain what startups need to do to attract attention, contact information, and funding?
Melisa Irene: Actually, not all companies are compatible with the venture capital funding model. So if you fail in getting funding from a VC, it doesn’t mean you will fail in getting funding for your company. For example, some companies are better off obtaining funding from bank loans versus VC.
What needs to be considered by entrepreneurs who want to approach VC is: whether there are any matching business criteria with what venture capital is looking for. Many entrepreneurs end up feeling disappointed when they fail after pitching their business ideas. In fact, they shouldn’t.
Each venture capital usually has its target return. What VC will consider first is the market size: where the business operates, and its business competition or opportunities. If the market is attractive for investment, venture capital will consider: what can be done in this industry? The relationship between the startup and VC is a long term partnership. Apart from providing funding, venture capitalists will also spend a lot of time and energy to make this startup grow, thus VC and entrepreneurs have to like each other.
One tip for approaching venture capital is to come to the startup founders who have already received investment from the VC. Look at the businesses run by these startups as part of research on what kind of business is suitable for this certain venture capital.
The next is networking. Usually, venture capitalists will also see who recommends this startup. This business is always about trust because VC will give money to fostered startups. Considering recommendations from trusted people can reduce the worst possibilities, such as money being taken away.
For startups that are currently approaching venture capital, you can expand networking and research on what kind of business model is suitable.
Startups must get a suitable mentor in the acceleration program
Amir Karimuddin: Apart from funding, there are startup support programs such as acceleration, incubation, etc. So, what kind of program can increase the startup capability itself?
Melisa Irene: What’s exciting in Indonesia is that the government is actively involved in supporting programs that can help startups develop, as implemented by several ministries.
The acceleration program is a discovery process for entrepreneurs. Do they want to directly become entrepreneurs or they want to first learn from other companies before starting their journey?
Second, I feel that the presence of a mentor is essential and must be chosen accordingly. For example, startups engaged in AI should get mentors from similar fields.
But overall, I think the ecosystem in Indonesia is quite excellent and supportive.
Amir Karimuddin: Any last tips about approaching and pitching from startup to venture capital from you and East Ventures?
Melisa Irene: Try to learn what problems you want to solve and what solutions you try to offer. Ideas are important, but it isn’t easy to measure success without a clear execution plan. It is important to be critical of your ideas and solutions.
Next, expand networking. Find friends to help you with the learning process. Remember, this fundraising process can be very long, identify the type of funding suitable for your business, and choose the most suitable venture capital.
Amir Karimuddin: Thank you, Melisa, for coming and providing lots of helpful information and tips.