To take VC money or not: Indonesia’s profitable bootstrapped startups at a crossroads

Jakarta-based SME payment startup Paygua has been on the radar of several VC firms for a while now. The company, which enables small businesses to accept mobile banking and e-wallet payment methods, says it has spoken with over 20 venture capitalists over the seven months of its existence and has had four term sheets put on the table.

Image credit: Timmy Loen

However, to this day, it has chosen to continue to bootstrap its operations – and for good reason.

“We have a growing community using our product, and our margin from this simple business model can cover the cost of the operational expenses of seven people by our third month. We booked our first profit in our fourth month,” says Paygua co-founder Mahardika Prima.

As an early-stage B2B startup with low customer acquisition costs, Paygua has the luxury of opting out of the cash-burning game and is happy building an efficient and prudent “real business” instead.

As of today, the company says its monthly margins give it a three-month runway to maintain its 11-employee team, and therefore it sees no reason to accept offers of dilutive financing any time soon.

(From left) Paygua co-founders Singgih Akbar Prakoso, Mahardika Prima, and Kailash Raghuwanshi / Photo credit: Paygua

Paygua is not the only one hesitant about taking VC money.

Orderkuota, a startup that helps people make payments via the banking system, processes around 250,000 transactions a day and says it has not even considered raising VC money, as it feels it is doing well financially. Similarly, Topscore.id, a commerce startup focused on footwear products, says it is exploring opportunities with VCs but is adopting a “take it or leave it” stance. The company earns some US$2.5 million a year and says it has no pressing need for additional capital.

With profitability and sustainability increasingly becoming buzzwords for VC firms given the current global economic downturn, startups with proven business models and quick paths to profitability are bound to be in demand. In fact, global investment firm Sequoia Capital has hinted at this in its message to its portfolio founders.

However, convincing such bootstrapped companies with positive cashflow to take the VC route may be easier said than done.

Not playing the VC game

While investors are used to competing with one another for deals, they’re also up against other kinds of financiers when it comes to tapping profit-generating companies with solid fundamentals.

Startups with positive cash flow typically have access to a variety of financing options such as loans that are non-dilutive or profit-sharing investment schemes that put emphasis on generating profits rather than chasing high top-line growth and valuations. For some entrepreneurs, these options are more appealing than giving up equity for VC funding.

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