This is an image of East Ventures' partners, Avina Sugiarto, Roderick Purwana, and Melisa Irene.
East Ventures


15 December 2023


Investing in Southeast Asia’s digital ecosystem: Interview with East Ventures’ Partners

Southeast Asia is resilient in a global tech landscape marked by turbulence, showcasing distinctive strengths amidst adversity. As a pioneering and leading sector-agnostic venture capital (VC) firm, East Ventures holds a unique perspective. Our firm remains committed to fostering and investing in Southeast Asia’s digital ecosystem.

Dive into our insights and strides of 2023 with our Partners — Roderick Purwana, Melisa Irene, and Avina Sugiarto. They also shared their perspectives and a glimpse into our 2024 outlook. 

Considering the changes in the global macroeconomic climate, how do you view the tech investment landscape in Indonesia and Southeast Asia this past year?

Roderick: Given the shifting global environment, adaptability remains crucial. We've always maintained a long-term view. We course-correct, but stay true to our trajectory. The uncertainty in the global environment, including higher interest rates, has also impacted Southeast Asian businesses in the short term, favoring cash-flow-focused enterprises over growth-oriented companies.

This uncertainty affects the fundamentals of the tech industry, both locally and globally. It is a matter of short-term reorientation. The key lies in refocusing on essentials for founders, investors, and all stakeholders to capitalize on existing opportunities.

The disparities between Southeast Asia’s startup landscape and the United States (US) are evident in their baselines. Indonesia's metrics, as the largest economy in Southeast Asia—GDP per capita, consumer spending, tech industry landscape, and online penetration—are still modest compared to the US. While US startup valuations have taken a dip, Indonesia's startups, though experiencing valuation declines, are showing revenue growth due to the country's overall economic progress.

For instance, if a US-based startup previously had a US$100 million revenue and a five-fold valuation of US$500 million, and now its revenue dropped to US$80 million with a two-fold valuation, Indonesia's startups might have seen revenue grow from US$20 million to US$30 million, with a similar valuation adjustment. 

It means the fundamentals of Indonesia’s startup landscape are still growing. The two markets have distinctive growth trajectories shaped by each country's business nature, ecosystem maturity, and market focus.

What are the opportunities that you see in Southeast Asia amidst geopolitical risks? 

Roderick: There is a shift in capital flow from China to other countries like Korea and  Japan for their technology, and Southeast Asia for our market. The sustained growth in GDP per capita, consumer spending, online penetration, and the tech industry landscape across Southeast Asian countries signifies a burgeoning ecosystem. Despite starting from lower baselines, the region is maturing, which has caught the attention of US investors in Korean tech companies. 

To unlock the immense potential in Southeast Asia, where we focused on, and particularly in South Korea,  we launched the US$100 million East Ventures South Korea fund in partnership with SV Investment in October 2023. This collaboration will open the investment corridor between the Southeast Asian and Korean venture ecosystems, enabling them to scale up in the global market.

As Southeast Asia's tech and VC landscape evolves, there's a clear need for an improved exit market. However, the region's regulatory environment is very supportive, and there is a collaborative spirit among founders and nations, signaling substantial growth prospects.

In this spirit of collaboration between ASEAN countries, how has East Ventures supported the ASEAN ecosystem, and why?

Roderick: We actively contribute to shaping Indonesia’s policies and recognize our pivotal role in fostering an ASEAN ecosystem conducive to investments. East Ventures’ initiatives span legacy projects like ASEAN Business Entity (ABE), facilitating benefits for companies operating in multiple ASEAN countries. The program can also aid our portfolio companies in expanding their businesses across Southeast Asia.

Southeast Asia is doing well in comparison to the global slowdown. How has East Ventures interpreted the reduced investment disbursement and deals in 2023 from a local perspective?

Irene: The drop in the overall funding market is a sign of investors recalibrating their expectations on both the industry and the region. From 2020 to 2021, there was a significant jump in private funding as a result of the prediction that consumers would predominantly shop online rather than offline. We have seen an aggressive flow of funding to categories like e-groceries, eB2B, edutech, etc. in which growth has proven to be over-projected because as the market reopens, consumers spend their money also at offline channels. The shift of hypothesis for the region, combined with global uncertainties and a high inflationary environment, creates an environment where global investors might be reassessing opportunities that are right for them.

We are one of the oldest venture capital firms in Indonesia. Given our long-standing history, the phenomenon of funding going down is not novel because it is natural for the market to have a cycle. Our team presence on the ground helps us understand what happens to each portfolio company to generate an understanding of the market. Thanks to those insights, we can still make investment decisions this year. 

Were there any notable sectors that you saw rising this year?

Irene: We see different opportunities in each sector. In consumer, we have invested in a number of direct-to-consumer (D2C) companies such as Compawnion (pet food), UENA (hyperlocal F&B), SoLeLands (educational gaming), and Prep VN (language test preparation).

The B2B sector experienced rapid growth and gained more attention. We invested into a diverse set of sectors mainly Health, SaaS, Fintech, Logistic. We invest in Hukumku (legal tech), Moosa (biotech), and continue supporting existing portfolios: McEasy (telematics), Ringkas (mortgage fintech), Bababos (manufacturing), Fresh Factory (cold chain), Rekosistem (waste management), and many more. We are also seeing activity in nascent sectors like healthcare and climate tech picking up. 

East Ventures has recently launched the “Healthcare Fund”. What is the firm rationale for launching this fund? 

Irene: East Ventures’ initiatives always start with a problem statement and we form a thesis around it. Most of our initiatives are based on probability and we manage the risks of the investment.

Indonesia stands out to us as one of Southeast Asia’s most dynamic healthcare markets with enormous potential for innovation and growth. We have always been active in supporting the healthcare system in Indonesia through our investments and many initiatives in collaboration with the government and private sector. Our thesis continues on the growth potential of preventative healthcare, supported by recent legislative developments in Indonesia that will open up new opportunities for investment in healthcare.

East Ventures has pledged to become a net-zero emissions company by 2050. How do you reflect this in your investment process?

Avina: We undertake the ESG implementation in the whole investment process from the screening, due diligence, portfolio monitoring up to exit in our portfolio companies. 

At the screening stage, we first gauge the potential investee’s ESG risk and potential impact through our proprietary Sustainable Investments Toolkit, which has been calibrated to ensure the fit of application for each company’s stage of growth. Moreover, even if a potential investment doesn’t have existing sustainability-related practices, we actively seek ways to introduce and implement these practices, starting small if necessary, focusing initially on improving the governance aspects. 

We guide our portfolio companies on ESG practices, aligning with the proper IFC Performance standards and UN Sustainable Development Goals. We also incorporate customized ESG requirements in legal documentation to ensure the founders' and companies’ commitment to implementation. 

Annually, we survey our portfolio companies to measure their progress in ESG integrations and have our in-house ESG team available as a resource. This supports continuous improvement plans for better ESG performance year on year.

What are some of East Ventures’ ESG-related initiatives undertaken in 2023 and future plans to reach net-zero targets?

Avina: East Ventures has consistently tracked our greenhouse gas emissions in alignment with the global GHG protocol, and  our annual Sustainability Report has aligned with global reporting standards, such as GRI and SASB. After becoming the first signatory VC firm in Indonesia of the Principles for Responsible Investment (PRI), supported by the United Nations, we joined the KADIN Net Zero Hub and are committed to achieving net-zero operational emissions by 2030 and 2050 for our portfolio emissions.

We also contribute with real actions such as collaborating with local governments and communities to foster forest conservation and nature tourism. We also have mangrove planting projects like F2DT BAG 22, where we planted five mangrove trees for every purchase of the F2DT BAG 22. Additionally, we donated 200 mahogany trees to Jakarta's greening program in collaboration with the President of Indonesia. We continue to invest in climate-tech startups like Rekosistem, Xurya, and MAKA Motors among others, as well as through organizing the Climate Impact Innovations Challenge (CIIC), that would contribute to Indonesia's transition towards net zero.

Internally, we implement proper waste management, aim for zero waste to landfill, and prioritize energy-saving practices.

What has been East Ventures’ approach in helping your portfolio companies navigate challenges in 2023, and prepare for 2024?

Irene: The focus of 2023 for East Ventures is to support our founders in finding opportunities through this tough environment. We do it through: being their trusted sounding board, conducting community engagement, connecting to potential business partners, and exploring additional financing.

In this risk-averse environment, it is important for founders to have a strong conviction and understanding of both their company and their market. Therefore, depending on the stage of the companies, founders should strategize to balance their focus and resources. For early-stage founders, we recommend that they should not try to solve everything but rather concentrate on what their team is good at so they can find product-market fit to scale. They must also be calculative and efficient in their spending, not to be caught up in a situation of money running out while companies have no traction and story. 

While not all business models can be profitable from day one, companies that have been profitable or have a clear path to profitability can stand out among others. Thus, founders must strategize creatively on how to achieve profitability. 

For the short-term future, how will the tech landscape and East Ventures navigate upcoming macro and geopolitical changes?

Roderick: In the short term, upcoming macro and geopolitical changes, including the 2024 presidential elections in the US and Indonesia, could influence funding dynamics for the year ahead. While we don't anticipate an immediate reversal in 2024, East Ventures remains optimistic about the evolving tech landscape, preparing for potential economic adjustments.

Although these elections don't directly impact our day-to-day operations, we're attentive to potential business implications, from possible slowdowns to accelerated spending. As a venture capital firm collaborating closely with entrepreneurs, we maintain a neutral stance in political matters, engaging actively with administrations while upholding our commitment to neutrality. In our role as responsible corporate citizens, we prioritize engagement with stakeholders, including the government, to contribute to and align with the best interests of the business ecosystem.

Will this also have an effect on the exit market of tech startups in 2024? 

Roderick: We anticipate an uptick in mergers and acquisitions (M&A) activity as the market anticipates consolidation. At East Ventures, we actively aid our portfolio companies in securing subsequent funding by guiding them toward preferred investors and facilitating crucial introductions. However, the prospect of IPOs appears less likely, given the historical trend of investors and businesses adopting a 'wait and see' approach during election periods.