Economist: Domestic funding provides support for local startups

Digital Economy Director at the Center of Economic and Law Studies (Celios) Nailul Huda believes domestic funding can provide more sustainable support for local digital technology startups. “I hope there will be domestic funding capable of meeting the demand from local digital startups. So far, only a small percentage of funding comes from within the country. I hope domestic VCs (venture capital) can provide full support,” Huda said when contacted in Jakarta on Monday. He highlighted this following a “talent restructuring” carried out by digital companies in Indonesia, including TikTok-Tokopedia, some time ago. Huda believes that an acquisition without efficiency measures or workforce streamlining is difficult to avoid. “In every acquisition, there will certainly be overlapping work units and costs that must be streamlined. Therefore, terminating employment (PHK) becomes the easiest option for the acquiring company. So I say, these employee layoffs are a consequence of the merger,” he stated. Furthermore, Huda assessed that another factor driving digital companies to streamline their organisations is the company’s financial condition. “Especially for global companies with high cost burdens. When there is a need to be profitable, the step taken is to reduce burdens. They also need to improve their balance sheet to look good in the eyes of investors,” Huda said. “Investors today are not only looking at valuation but also at the track record of profits or future profit potential,” he added. He cited the example of how a holding company like ByteDance, which oversees TikTok, intends to conduct an initial public offering (IPO). This leads the holding company to opt for efficiency, thereby reducing the influence of national interests on the strategy of the companies they acquire, such as Tokopedia. “Therefore, I hope the situation occurring at Tokopedia does not happen to other digital startups,” Huda said. In addition to encouraging sustainable domestic funding for local digital companies, he also hopes the government can ensure the rights of laid-off workers are upheld. “The government must also ensure that the rights of laid-off workers are paid in full by the company. There must be no losses suffered by the workers who are laid off. The government must ensure that severance pay and other entitlements are paid by the company,” Huda concluded.