Burning Cash and the Industry of Selling Dreams: Indonesia's Startup Problem

Jakarta, MN— There is one term that has enjoyed a privileged place for too long in conversations about startups in Indonesia: ‘burn money’.

The term sounds like an inevitability. As if a serious startup must spend as much capital as possible to buy users, chase traffic, build traction, increase engagement, provide subsidies, place massive advertising, and then seek the next round of funding.

When asked when the company will generate profit, the answer is often simple: ‘We are still chasing growth.’

The next question should be even simpler: growth towards what?

Because in investment, money is not actually ‘burned’. Money is allocated to create value.

Advertising is paid for to acquire customers. Technology is built to produce better products. Subsidies are given to change consumer behaviour. Expansion is carried out to capture market share.

All of that spending should have an economic rationale.

If money goes out but does not produce better products, more valuable customers, greater revenue, or a stronger business foundation, then the term ‘burn money’ begins to lose its strategic meaning.

It turns into an excuse to spend capital.

Startups are indeed allowed to lose money

Criticism of ‘burn money’ does not mean startups must be profitable immediately.

Quite the opposite. Startups do have a different character from established companies. In the early stages, a company may not yet have revenue, may not have found product-market fit, or may still be testing various business models.

Even in Silicon Valley, investment at a very early stage is commonplace.

Y Combinator, one of the most famous startup accelerators in the United States, says around 40 percent of the companies they fund in each batch are on average still at the idea stage and the majority do not yet have revenue.

This means investors are indeed willing to finance something that is not yet perfect.

But there is a difference between financing something that is not yet perfect and financing something that is never proven.

Y Combinator’s guidance on seed-stage funding also emphasises the importance of the idea, the product, customer adoption or traction, and evidence that the product is truly needed by the market.

In other words:

risk may be high, but the hypothesis must be testable.

Silicon Valley does not buy bonfires

This is where the comparison with Silicon Valley becomes interesting.

Silicon Valley is not a world free from failure. American technology companies also experience bankruptcy, bubbles, layoffs, cash burn, and investments that end in vain.

But the important lesson is that capital is fundamentally meant to enlarge something that has potential, not to replace something that never existed.

Investors can finance a company that is still a prototype. They can finance a company that only has a few customers. They can even finance a company that has no revenue yet.

But there must be something that can be examined.

• There is a product.

• There is technology.

• There is a problem that is genuinely intended to be solved.

• There are potential customers.

• There is usage data.

• There is traction.

• There is a hypothesis about how the business will make money.

And there is an explanation of what will be done with the new capital.

Y Combinator even advises founders to explain the problem, customers, solution, market size, traction, business model, team, and what the investment will buy.

This does not mean Silicon Valley is always right.

No.

But there is a principle worth learning: capital is used to accelerate proof and value growth. Not merely to sustain a story.

When ‘growth’ becomes the goal

In Indonesia, the term growth is sometimes treated as the ultimate goal. Yet growth is only a tool. Ten million users sounds extraordinary.

• But how many are active?

• How many pay?

• How many return?

• How much does it cost to acquire them?

• How much profit is generated from each customer?

Likewise with traffic.

Millions of visits do not automatically become revenue. High engagement does not automatically mean loyalty. App downloads are not automatically customers. Traction is not merely a number that can be placed in a presentation.

This is where business terms can turn into cosmetics.

A company can look big on screen, but small in its financial statements. Healthy growth creates value. Poor growth only enlarges costs.

When losses become a source of pride

There is a paradox that needs to be discussed. A traditional company that loses money for years will usually be asked by its owners, creditors, employees, and the market: when will this business be healthy?

Yet a startup that loses heavily sometimes receives praise for ‘chasing market share’.

Losses are called burn rate. Discounts are called acquisition strategy. Users who come because of cashback are called traction. Visits are called traffic. Interactions are called engagement.

Future valuations are treated as if they are existing wealth.

Yet in the end there is one question that cannot be avoided:

Is this company able to create value greater than the capital it consumes?

If the cost of acquiring a customer is Rp100,000, but that customer only generates economic value of Rp50,000 during their use of the product, then adding more customers is not always good news.

The company is actually enlarging its losses. That is not business growth. That is the growth of problems.

The trail of fallen startups

The market has already provided many examples that growth stories do not always end happily.

Katadata’s records have listed a number of startups that went bankrupt or ceased services in Indonesia, including Fabelio, Sorabel, Stoqo, Airy Rooms, UangTeman, CoHive, Hooq, Beres.id, Brambang, MPL, Trafi, Blocknom, Bananas, Elevenia, and JD.ID.

Fabelio, for example, obtained Series C funding of US$9 million in 2020 and total funds raised were said to reach around US$20 million before it was declared bankrupt.

CoHive was also later declared bankrupt by the Central Jakarta District Court in January 2023. Meanwhile, JD.ID ceased all its services on 31 March 2023. Elevenia, which was once one of the major e-commerce players, closed its marketplace service in December 2022 after around eight years of operation.

But these facts must be read carefully. A failed startup does not automatically mean a scammer.

Airy Rooms, for example, faced a major blow due to the pandemic. Stoqo also ceased operations in 2020. There are companies that failed due to competition, some lost funding, some were affected by market changes, some changed strategy, and some faced financial problems.

Calling all of them fraud would actually make the criticism lose credibility.

What must be questioned is the culture and mechanism that allows capital to keep flowing without adequate economic proof.

Fleas that keep moving

Around an ecosystem filled with capital and jargon, there is always a risk of players emerging who live not primarily from building products, but from selling narratives.

They are like fleas that swarm. When a city or sector is busy, they come. When investor money flows, they appear. When an industry loses its appeal, they move on.

• The stage changes.

• The community changes.

• The company changes.

• But the jargon they bring is almost the same:

innovation, disruption, scalability, growth, traction.

And finally:

‘We are burning money.’

This metaphor is certainly not an accusation against all startup founders. Many Indonesian technology entrepreneurs work hard to build products and companies that genuinely produce value.

What needs to be watched is the pattern.

People who come when there is capital, sell dreams when there are investors, show off numbers when there is attention, then move on when resources dry up.

If such a pattern develops into a culture, the startup ecosystem can turn into a place where people trade dreams, not build companies.

Scammers do not always come with blatant lies

Scammers in the modern world do not always appear like fraudsters in films. Manipulation can appear in far more subtle forms.

• Selectively chosen numbers.

• Good metrics are highlighted.

• Bad metrics are hidden.

• Traffic is shown off without conversion.

• Engagement is shown off without transactions.

• Number of users is shown off without retention.

• Valuation is shown off without cash flow.

• Losses are wrapped up as burn rate.

Therefore, what must be built is not paranoia, but a culture of examination.

Investors must ask, the media must ask, fund managers must ask, the public also has the right to ask.

What is the product? Who are the users? Who pays? How much does it cost to acquire a customer? How much is that customer worth? How does the company make money? And what will actually be done with the new capital?

The larger the money requested, the more important those questions become.

Investors are not buying bonfires

Investor capital is not petrol. Capital is trust.

If a startup obtains Rp100 billion, the sensible question is not:

‘How much has been burned?’

But rather:

‘What has that Rp100 billion turned into?’

If it becomes strong technology, loyal customers, distribution networks, revenue, intellectual property, and an increasingly efficient company, then the capital is working.

If it turns into endless subsidies, advertising that does not produce quality customers, luxurious offices, expansion without foundation, traffic without transactions, and finally layoffs and company closure, then the term ‘burn money’ must not be used as a shield.

Because investor money is not fuel to maintain the founder’s ego.

What needs to be burned is the myth itself

Perhaps it is time for Indonesia to burn one thing: the myth that a great startup is the one that spends the most money.

No.

A great startup is one that is able to turn capital into value.

Startups may lose money, startups may provide subsidies, startups may pursue aggressive growth, startups may take risks.

But all of it must have a purpose, a measure, a limit, and an evaluation. Capital must produce something.

If it has not produced profit, at least it must produce increasingly strong proof that the company is heading towards a healthy business.

Not ‘raise, burn, raise again’

The greatest danger is when the ecosystem turns into a cycle:

Raise, seek capital, burn, spend capital, raise again, seek the next round of capital, and repeat.

If that cycle never produces better unit economics, stronger revenue, or the company’s ability to stand on its own, then the question that arises is no longer about how fast the company is growing.

The question is:

Is the company building a business or merely extending its lifespan with new funding?

This is where the difference between an entrepreneur and a capital hunter becomes important. An entrepreneur builds something. A capital hunter builds a story about something that will be built. An entrepreneur seeks customers. A capital hunter seeks the next investor. An entrepreneur measures value. A capital hunter measures how attractive their story is in front of financiers.

Silicon Valley offers a simpler lesson

The lesson from Silicon Valley is not that startups must already be profitable before receiving investment.

Not that.

The lesson is that even early-stage investment still has a logic of proof.

• The product can still be simple.

• Customers can still be few.

• Revenue can still be absent.

But there is a clear hypothesis and something that can be tested.

That is why traction becomes important. Not because traction is a mantra, but because it provides evidence that the market is beginning to respond to the product.

So the sequence is not merely:

Raise → Burn → Raise → Burn.

Ideally:

Build → Validate → Learn → Improve → Scale.

build, test, learn, improve, then enlarge.

Capital enters to accelerate that process. Not to replace it.

Indonesia does not lack dreams

Indonesia has a large market. It has technology talent, it has significant digital consumers post-COVID-19, and it also has unresolved problems.

Therefore, Indonesia does not lack dreams. What is needed is more proof. We need startups that make real products. Solve real problems. Acquire real customers. Generate real transactions. Pay employees properly. Respect vendors and also pay obligations and ultimately create real economic value.

We do not need more people who are only good at saying disruption. We do not need more presentations full of rising graphs. We do not need more terms that make simple businesses look complicated.

And of course, we do not need a culture that considers investor money as something that must be ‘burned’.

The final question

In the end, investment is not about how fast money leaves the company’s account. Investment is about what is created after that money is used.

Therefore, to every startup that says it is ‘burning money’, the simplest and most important question is:

• What has been built?

• What is the product?

• Who uses it?

• Who pays for it?

• How much does it cost to acquire a customer?

• How much is the customer worth?

• How much is the revenue?

• How are the unit economics?

• And when can the company create value greater than the capital it consumes?

If the answer is clear, measurable, and verifiable, then it is not merely ‘burning money’.

That is investment.

But if the answer is only traffic, engagement, traction, valuation on paper, and promises about the future, then investors deserve to ask harder.

Because in the end:

A startup is not a place where money is burned. A startup is a place where capital is turned into value. And if what keeps growing is only the need for new money, while the product, revenue, and economic value never catch up with that growth, perhaps the problem is not a lack of capital.

Perhaps from the very beginning, what was lacking was the business itself.