VVSEAI Event | Startup Insights: Four Myths About Building A Startup

Besides investing in remarkable startups, we believe it’s important to build and nurture our startup ecosystem. We have been actively participating in ecosystem events but lately, we decided to re-start our in-person events too! Since the last quarter, we started organizing Vertex Knowledge events in Indonesia to connect founders, foster knowledge exchange, and provide valuable insights across Indonesia's dynamic startup ecosystem. This time, we partnered with Singapore Global Network (SGN) for the “Startup Insights” panel at St Regis on 20 July 2023. We thank SGN for making it happen!

At this event, we had the privilege of hosting Anggara Pranaspati, the CEO and co-founder of Mauva (formerly known as Tjetak) and our Executive Director for Investment Joshua Agusta to share more about the current Indonesian investment landscape and how to overcome obstacles along the way. Together, they uncovered the untold truths behind four common misconceptions that founders might have that can either make or break a startup.

Myth 1: When raising funds, startups should avoid talking about the challenges they face

Truth: Founders face hiccups in the business every day, be it in research and development or in operations. Most think that these hiccups, if severe, may pose a challenge when they wish to raise additional funds - presenting a dilemma. Should they paint the company to prospective and existing investors in a realistic manner? Would they be drawing too much attention to the problems in the company? These questions can be difficult to answer but lying is not the solution to this. When investors probe further, they may find out that the founder was not telling the truth and this could destroy trust, making it harder to raise funds in the future.

Instead, what founders could do is understand what an investor might be looking out for - which is "whether the company has the potential to grow sustainably". By understanding this context behind investors’ questions, founders should give a bird's eye view of their company's progress and highlight the trajectory of a company, and its potential to perform in the future. Moreover, when investors ask more questions about the specifics, founders should not be afraid of sharing the finer details because even high-performing startups face hurdles on their path to growth. The key to a great investor-founder relationship is communicating openly and building trust.

Myth 2: Dilution of stake is bad

Truth: From the investment perspective, Joshua has observed that certain founders focus too much on how much their equity will be diluted after the funding round. This may motivate the founders to intentionally raise less capital than they actually need. As a result, the company may not have enough liquidity to give them a runway till their next one and need to waste time and efforts to raise it shortly after.

The key is keeping the end in mind (building a successful company) and aiming to raise a healthy amount of capital that can give them enough runway to sustain their operations and optimize their cash flows (18 months or more). After all, the best way for founders to maintain their cash is by prioritizing capital efficiency. The lower the amount of money a startup needs to grow, the higher the amount of proceeds founders tend to get at the end of the day.

Myth 3: Rejection is the end of the road

Truth: Founders will experience many rejections from different people, be it customers, suppliers and potential investors. When presenting to an investor, founders often share their story about why they started the company, their passion and their drive to stay on this journey. This is why it can be discouraging when facing rejection from potential stakeholders. Founders may start questioning themselves, “Did I start the right thing? Did I dream the right dream?”

In the rollercoaster of entrepreneurship, having the right mental space can help founders get back their balance. For Anggara, whenever he feels low, he searches for positive energy somewhere else, by spending time with his team. For him, he gets his stride back when he notices how hard his team is working. Seeing that his team is committed to making their company successful rejuvenates and motivates him to carry on. Having a positive mental space can help founders remain focused on their goals and mission, even in the face of rejection.

Myth 4: The business model a company has right now is the best one

Truth: As a founder, validating one’s business model is an ongoing process and the need to evolve one’s model may arise along the way. This was true for Manuva and their old business model which was focused on producing custom-made packaging for their customers. However, this model was brought into question when the company observed that the growth of its custom-made packaging line reached a plateau. As an innovator, Manuva tried to remedy this by launching a new line of ready-made packaging for their customers. After some time, they saw that their ready-made products were performing better than their Original Equipment Manufacturer (OEM) and custom-made products. For an agile business like Manuva, this presented an opportunity to pivot towards ready-made products and see greater profitability. However, making this change would also mean that the founder has to reshape the whole organization.

As Anggara shared, this transition can be painful, but necessary. The sobering reality is that founders like Anggara have to go through that process to put the company first and do what it takes to truly add value to the customers who are willing and able to pay. Anggara and Joshua’s advice to founders that have to make such crucial changes is that they should empathize with their team and deliver the message that the change was taken for the betterment of the company, with compassion at heart.

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