MDI Ventures, the corporate venture capital arm of state-owned telecom network Telkom Indonesia, expects startup founders to become more confident in raising funding this year after months of figuring out the best and most cost-efficient model for their businesses.

"This year, I think, we will see founders become more confident in raising money vis-a-vis last year. However, we'll still be a bit more cautious compared with last year," Aldi Adrian Hartanto, Vice-President of Investments at MDI Ventures, told DealStreetAsia in an Exclusive interview.

Hartanto is also a partner at Arise, an early-stage joint fund between MDI Ventures and Finch Capital.

The world started 2023 on a frosty note amid talks of a tech winter, growing concerns of the global economic outlook, and an overall decline in deals.

Capital raised across Southeast Asia dropped 16.4% in the first nine months of 2022 compared with the same period a year earlier, while the number of transactions increased 19.6% indicating a reduced investor appetite for late-stage deals, according to DealStreetAsia's Southeast Asia Deal Review.

With the markets flush with funds since around 2014 when e-commerce giant Tokopedia received $100 million from SoftBank, there was a lot of unnecessary over-hiring and over-spending. People were burning money to grow, Hartanto had said at the time. This is now leading to corrections as capital becomes scarce.

At the height of liquidity in the market, it was considerably easy to raise funding five times a firm's gross merchandise value (GMV), Hartanto said. Series B and Series C companies were not even expected to show a positive contribution margin, he added.

At the end of 2022, market players finally woke up to the fact that the world is facing an economic downturn and heading into a recession. "But some markets were doing better than others," Hartanto said, "Indonesia, I think, is quite resilient given that most of our economy is driven by domestic consumption".

Indonesia's economy is expected to grow 5.2% in 2022, according to Finance Minister Sri Mulyani. This compares with a 3.7% growth in 2021 and an expected 5.3% GDP expansion in 2023.

Funding for Indonesian startups, however, has been somewhat impacted. "Majority of the capital available in the market was coming from abroad, especially from the US and Europe, which at the moment are being hit the hardest," Hartanto said.

Time to Unlearn

According to Hartanto, investors and founders alike will begin 2023 by unlearning some of the old practices that are no longer suitable for today's economy and the market's appetite.

"You will see a lot of inconsistencies. It also applies to me. You may see that this month I say a thing and the next month I say other thing because people are experimenting," Hartanto said, "In the second half of the year, people will start to re-learn. In economics, we call it the new equilibrium."

Despite claiming to be disciplined in pricing its portfolio companies, Hartanto admitted that MDI was "quite aggressive" last year.

"I think last year was pretty okay for us. We even have companies that grew 10 folds. A lot of companies maintain three-five times growth but they were profitable, or at least positive contribution margin, and still being able to raise money," he said.

According to Hartanto, there is no rigid target for the number of investments made by MDI each year, but he expects the firm to back at least 10 or a dozen companies from its early-stage funds and about five to six companies from its growth fund and special-mandate funds.

"At the moment, to be honest, we are not looking at the quantities," he said, noting that most of its LPs are expecting MDI to have better risk management and take its time to do some deep dive on its prospective portfolios.

"Initially, VC has always been a game of maximizing returns to cope with the risk. You have a very high upside and hope at the upside, you will be able to cope with your risk... I think now, it'll be better to have a balance of that," he said.

Hartanto declined to describe of MDI's dry powder but said it "it is more than enough to deploy in the next three to five years", and the firm is still expecting to deploy at the pace it usually does without expecting any slowdown.

MDI Ventures announced some of 12 investments in 2022, compared with 20 a year earlier. Hartanto noted that sometimes MDI chooses not to announce its investments. He insisted that fewer investments last year did not mean that MDI was holding back.

Without elaborating further, Hartanto said MDI is currently closing a couple of funds which could be successor or new funds. Among the funds being finalised would be an impact fund which will be announced in the coming months.

DealStreetAsia reported in May last year that the firm was exploring a $100-million impact fund keen on tapping LPs with greater exposure to impact and environmental, social, and governance (ESG) investment theme.

Despite uncertain economic conditions and market volatility, Hartanto said MDI is seeing a healthy appetite from both its existing and new LPs.

"I think this is actually the best vintage to invest in. The market is going down significantly. That's why a lot of LPs are very excited when we talk to them," he said.

DealStreetAsia