Consumption tech offers hope amid challenges in startup funding

In the challenging landscape of startup funding, characterized by economic uncertainties and fluctuating investment climates, consumption tech offers a beacon of potential recovery, said panelists at DealStreetAsia’s Indonesia PE-VC Summit 2025 last week.

At a panel discussion titled “Will consumption tech theme put startup funding on recovery path?”, the participants indicated that by focusing on delivering tangible value through innovative solutions, startups can capture significant market shares and drive sustainable growth.

Christin Djuarto, Executive Director at Shopee Indonesia, said, “Our experience is that if we bring good innovations and real value to buyers, we’re still able to capture a sizeable part of the market.”

Their strategy underlines the importance of focusing on genuine user value to maintain relevance and grow profitability.

“I think my takeaway is more in regards to the market, and it’ll be good to just focus on what value are we bringing to the users. In e-commerce, for example, we spent a lot of effort over the past few years to look into the core of the user experience, making sure that when buyers really purchase, they get value out of it,” she added.

Strategic targeting amid economic challenges

Roderick Purwana, Managing Partner at East Ventures, pointed out that in recent discussions, there’s been considerable focus on declining consumer spending capabilities, which can be attributed to several factors such as the election cycle — both nationally and regionally — as well as global economic challenges and rising inflation. These elements have certainly had an impact.

However, when you break down the data for a large country like Indonesia, not all sectors and regions are affected equally, he said. Some sectors are performing better than others, and certain areas of the country, like secondary cities, are actually experiencing growth, he added.

“For example, in the coffee industry, we see that some of the top-performing stores are located in cities like Manado, Balikpapan, and Medan, surpassing even some bigger markets. This indicates that in these areas, consumer demand is still strong and growing. Overall, despite these challenges, Indonesia’s GDP continues to grow at around 5%,” Purwana explained.

He said that interest rates in the US remain high, leading to currency challenges in Southeast Asia and other parts of Asia. With President Donald Trump’s looming tariffs, there are concerns about increased inflation and a stronger US dollar.

“For US investors, their market is large, diverse, and deep, making it their primary focus. Meanwhile, Chinese investors are increasingly looking abroad due to challenges at home, turning to regions such as Southeast Asia and India. Many investors from China and the Middle East see potential in these areas, particularly in Indonesia, which is considered a bright spot in Southeast Asia. Investors are interested in knowing which specific markets offer the best opportunities,” Purwana said.

The power of human capital

According to Mesty Ariotedjo, CEO, Tentang Anak, the decline in purchasing power and perceived underperformance of the startup ecosystem are not particularly surprising. This situation is partly due to Indonesia’s low ranking on the Human Capital Index, which is below the average even within Southeast Asia. Consequently, when startups aim to expand rapidly and effectively, they often encounter a workforce that is not yet adequately prepared.

The key lies in enhancing Indonesia’s human capital. Ariotedjo stated, “Investing in human capital is vital for startup growth; it means addressing fundamental societal challenges.”

Startups focusing on education and community advancements can attract investors looking for meaningful impacts. This focus on human development could serve as a crucial factor for the recovery of startup funding, appealing to stakeholders interested in long-term societal benefits.

Striking a balance between growth and valuation

Randolph Hsu of Ondine Capital emphasized the need for balanced growth and realistic valuations. “From our observations and analysis of the macroeconomic indicators, we continue to see growth across various sectors in the Indonesian market. While we are still in the early stages of market penetration, as investors, we must carefully consider pricing,” he said.

“Valuations might be slightly inflated compared to three years ago. This indicates that the market is still in the process of adjusting. Therefore, even though we remain enthusiastic about this market, we are proceeding with caution and slowing down our investment pace,” Hsu added.

According to Djuarto of Shopee, while challenges persist, insights from leaders indicate that focusing on delivering value, addressing real problems, and strategic growth could steer startups toward recovery.

“Consumption tech, rooted in enhancing consumer experiences and solving real-world needs, presents a fertile ground for new funding avenues,” she added.

As investors become more discerning, placing a premium on sustainability and innovation, startups aligning their goals with broader societal needs will likely secure the funding necessary to thrive again.

“We focus on measuring and analyzing conversion rates as part of our strategy. AI enhancements, particularly improved reviews, have led to significant commercial growth. Our AI-assisted chat system, trained on numerous interactions, helps sellers respond to buyer inquiries, improving efficiency by over 50%,” Djuarto added.

Purwana of East Ventures said: “We are a sector-focused investment fund. Our recent focus has been on healthcare, an area we see significant potential for growth in Indonesia. Over the past few years, we’ve made considerable progress in developing the healthcare ecosystem, including improvements in the capacities of doctors, nurses, and hospitals. However, there is still much more to be achieved. We encourage capable and passionate founders to enter the healthcare sector and start new ventures, further advancing this important field.”

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The original article was published on DealStreetAsia, on 22 January 2025.