WeWork ‘Burning Money’ Effect, Investors Focus on Startup’s Profit This Year
Digitaraya’s Managing Director Nicole Yap said, global investors began to focus on startups that grew sustainably and were able to make profits. This change in mindset from focusing on valuation to profit came after WeWork had lost quite a lot.
WeWork is a startup that provides co-working space, which received investment from SoftBank. The Japanese company is losing money because the valuation of WeWork is said to have dropped from US $ 47 billion to US $ 10 billion today.
The United States startup was aggressive in its expansion. In 2017, the coverage was only in 100 locations. Now, WeWork has spread its wings to 500 locations. Based on data from analysts at Bernstein, WeWork spent US $ 700 million (Rp. 9.8 trillion) per quarter for promotion or ‘burn money’.
Nicole said the WeWork case made investors no longer interested in startups who did not have a strategy to make a fortune. “I think the conversation about profitability and how important it is for startups in the early stage, it will change (this year),” he told Katadata.co.id in Jakarta, Thursday (1/23).
To his knowledge, global investors began to think in terms of profit rather than just valuation. “We always believe that startups with a strong business model from day one can certainly make them survive and grow their business,” Nicole said.
Therefore, Digitaraya does not only focus on the acceleration program, but also attract other companies. McKinsey, for example, encourages the mindset of startup founders so that their business grows sustainably and looks for the right business model.
“In essence, after all the WeWork situations have passed, the mindset (of investors) will change,” Nicole said.
Startups Will Focus on Profit, not Burning Money
Deputy of Capital Access Kemenparekraf Fadjar Hutomo agreed that startups will start looking for profits compared to ‘burning money’ this year. “My prediction is that (startups are starting to look for profit) maybe for their investment they need cash flow support, long-term investment,” he said.
Mandiri Capital Office Chief Executive Eddi Danusaputro had said that investors actually fund startups that have a clear path to profit. “So it has been seen when they can profit,” he said in Bali, late last year.
According to him, start-up companies must show a signal that they will reap profits in the third or fifth year. Therefore, the startup cannot implement the ‘burn money’ strategy continuously.
He acknowledged promotions such as discounts or cashback (cashback) were implemented by many companies targeting broad consumers. “Because pre-sensitivity in Indonesia is high,” he said. Once the promotion is reduced, the customer switches. Promotion is carried out to attract consumers and increase competitiveness.
“Burning Money” Is an Unhealthy Strategy; Indonesian Unicorns Start Focusing on Business Growth
“The main purpose of the company ‘burn money’ to kill (business) competitors,” he said. This method is not healthy. The same thing was conveyed by Telkomsel CEO of Innovation Partners (TMI) Andi Kristianto. “The duration (promotion) is shorter, so investors can be more alert. We look in the mirror from the WeWork case, “he said.
Unicorns and decacorns of the country began to profit. Gojek for example, began to focus on sustainable business growth. “There is our desire to be at the forefront. But the method does not always have to be with promotion, instead it has to be more innovative, “said Chief Corporate Affairs Gojek Nila Marita in Jakarta, some time ago (1/16).
Decacorn or startup valued more than US $ 10 billion began to focus on innovation rather than promotions such as cashback and discounts. That way, they are optimistic that the service is more often used by consumers.
Three unicorns in the country such as Tokopedia, Traveloka, and Bukalapak also said they began to pursue profits before interest, taxes, depreciation, and amortization, aka positive EBITDA. Likewise with OVO which will reduce the ‘burn money’ this year.