2022 ends with a continuing storm of layoffs at Indonesian startups.
How could this happen?

By Sebastian Togelang, Managing & Founding Partner of Rigel Capital

Massive layoffs are happening amongst tech companies. These companies have cut up to 30% out of their total workforce in order to adapt to today’s challenging economic circumstances. Despite the turmoil, many  of these companies have ensured that these former employees are well-compensated at exit and are actively assisting them in transitioning to other opportunities.

 I was invited to @CNBC Indonesia’s “Tech A Look” to discuss how we ended up in this situation in the first place, if layoffs are the only way to improve efficiency, and what the future holds for Indonesia’s startup ecosystem.

This is time for a reality check. Growth should never have  been separated from sustainability. Profitability and unit economics should always remain in the focus of investors. Unfortunately for some, today’s layoffs appear to be the inevitable result of the  “growth no matter what” mindset from the past cycle. The fact that companies have been competing in securing talent by offering higher and higher salaries, and buying customers through lavish marketing and promotions that have not generated true loyalty and “stickiness”, worsens the situation. While it is entirely the management team’s decision, there are certainly a lot of steps founders can consider to trim excess prior to laying off employees  by focusing on performance initiatives and conserving cash first.   At some startups, this might mean voluntary salary reductions, cutting back on R&D initiatives that do not have a short time horizon to positive cash flow, and reducing spending in discretionary areas that do not specifically drive revenue.

We, at Rigel Capital, are emphasizing sustainable growth. We always have an open conversation with our portfolio companies to set a high standard of discipline in gaining profit while growing our topline. With years of experience in this field, we strive to work together with founders to be market leaders with sustainability value. 

This phenomena, however, is not all about negativity. It presents both challenges and opportunities as some companies actually do enjoy a huge boost from the current situation. For companies who can turnaround out of this situation, by being disciplined and finding creative ways to achieve organic growth through collaboration and consolidation, they are transforming themselves to become  stronger for the long run. This situation causes a stir in the market, thus it is an opportunity for some companies to lunge forward  in market share. For investors, this causes a reset in how they evaluate opportunities also for the long run and we expect that fund vintages during this time will have the opportunity to achieve exceptional performance.

At the same time, from a growth opportunity standpoint, I believe Indonesia’s currently only tapping into the tip of the iceberg. There still remains excellent growth opportunities for retail and consumers, green technology, and electric vehicles. I am  bullish that Indonesia, and its ecosystems, is positioned to be a leader in the future global economy.

Watch the full interview on CNBC “Tech A Look: Ramai PHK Startup, Venture Capital Ubah Strategi Investasi?"