In late May, as the global tech cooldown began to trigger layoffs in Jakarta, Gibran Huzaifah, the 32-year-old founder of Indonesian startup eFishery, wrote a Twitter thread that quickly caught fire. In it, he took venture capital firms to task, criticizing the growth-over-profit, money-burning model propelled by the region’s investors. He also took a jab at his founder peers who used splashy funding rounds for media exposure — and who would be the ones most deeply affected by a potential funding crunch.

“Yes, it’s the founders and VCs who drive this aggressively. Yes, in many cases, the business model is chaotic,” one section read. “But it’s also about the way that cashburn is seen by consumers, talent, and the media.”

With 4,000 retweets and over 10,000 likes, the post reflected a deep current of dissatisfaction: the opinion that VC cash had disproportionately funded discounts and promotions to gain new customers and win market share, instead of building valuable infrastructure and creating something truly sustainable. Academics and economy experts, too, lashed out across Twitter and other social media. Huzaifah seemed to channel the frustration — in part, too late — of a tech community that witnessed and enabled a first-time Jakarta boom built on the fast churn of venture money. Now, it was beginning to unravel. 

In June, when Rest of World recently met Huzaifah in a high-ceilinged café near his headquarters in coastal Bandung, the capital of West Java, he was calm and soft-spoken. But he grew animated when recalling how pushy investors needled him at the height of the tech boom. “Why are you profitable? You should chase growth over profitability,” he recalled one berating him when he tried to raise money.

The aquatech startup eFishery, which he had bootstrapped in 2013, first attracted seed capital in 2014, and swung into profit four years later. Its technology infrastructure promises to streamline the process of fish farming — a vast but tricky-to-manage industry the world over. In January of this year, eFishery attracted big-name investors like SoftBank Vision Fund, Sequoia Capital India, and Temasek in a $90 million funding round. That’s a remarkably slow fundraising journey for a Southeast Asian tech startup. 

“I had experienced how building a long-term and profitable [business] was not properly appreciated by investors,” Huzaifah said, visibly frustrated. “[They] don’t get the same opportunities.”

VC investors in Southeast Asia closed almost 600 deals last year —  nearly seven times the number of deals closed a decade ago — injecting more than $32 billion into startups, data from Tech in Asia show. East Ventures, Sequoia, Wavemaker, 500 Global, and Alpha JWC Ventures were among the most active investors, having funded over 12,000 startups in the region. During the pandemic, valuations shot up as investors threw money into tech firms, many of which had been operating by the acknowledged rule of the ecosystem: grow first, make profits later. Some startups course-corrected. Those that didn’t, however, face the reality that, when the money dries up, they’re typically forced to resort to cost-cutting measures, such as layoffs and pay cuts.

To some, the current backlash is a reaction to something obvious. “We all know how VCs work, right?” Pang Xue Kai, CEO and cofounder of crypto trading platform Tokocrypto, told Rest of World over Zoom. “[VCs] take the valuation … and then they will pass it on to another VC or another fund, so that they ultimately will be able to get that upside number of multiples in terms of valuation.” 

“I do agree that this model, the growth-at-all-costs model, is not a sustainable way to go,” added the Singaporean mechanical engineer turned entrepreneur. 

Tokocrypto, which claims to have turned a profit last year, has gone through only two fundraisings since its inception in 2018 and raised just $5 million, according to Kai. (There’s no public record of the company’s funding history.) That kind of modest fundraising is unusual for crypto startups, many of which rode the crypto enthusiasm wave to its heights. Kai believed that the funding base gave the company, which now has 2.6 million customers, more leeway to navigate the current market downturn. The company has kicked off the auditing and director due diligence processes, in preparation for going public on the Indonesian stock market.

Lingga Madu learned his lesson about prioritizing growth over profit even before the latest crunch. Once the co-founder of a rising e-commerce star in Southeast Asia — Sale Stock, later rebranded as Sorabel — he raised a $20 million series A funding in 2015, one of the largest such rounds that year, he said. 

“The model just didn’t work.”

The company, backed by Gobi Partners, Alpha JWC Ventures, and Kejora Capital, among other VCs, grew quickly with the promise of “honest pricing” — the idea that advertised prices wouldn’t change, responding to a peeve of disappointed customers who purchase a product only to find it heavily discounted the next day. Speaking to Rest of World, Madu held that the business was healthy and was structured to cover its customer acquisition costs in six months.

But along the way, Madu said he felt the need to grow, prompting him to introduce discounts. The number of customers grew, but its customers’ lifetime value (CLV) — a metric showing an existing customer’s purchase value over the longer term — fell. 

“There was a lot of pressure to grow,” Madu said. “It was something that’s misguided.” In 2020, Sorabel went bankrupt and shut down. “The model just didn’t work.”

Sorabel’s investors Alpha JWC Ventures and Kejora Capital declined to comment. Gobi Partners did not respond to a request for comment.

Some of the less fundraising-dependent companies, like Huzaifah’s eFishery, are feeling vindicated, saying they’ve expanded organically and are better able to withstand the new environment of belt tightening and expectation management. Modest fashion e-commerce site Hijup, which has been profitable since 2017, told Rest of World it is no longer pursuing fast growth, and that it plans to expand its online third-party marketplace to compete with giants like Tokopedia and Shopee. “Our management believes that the ones who will thrive are organic businesses, going forward,” said Hijup spokesperson Annisa Nurrizky during Rest of World’s visit to the company’s busily humming warehouse.

Dimas Ardian/Bloomberg/Getty Images

Others are publicly shrugging off the pressure: Edward Tirtanata, CEO and co-founder of profitable, tech-enabled coffee startup Kopi Kenangan, told local media in late May that his company aimed to open 50 new outlets over a single month, expanding into new food and beverages, from fried chicken to ready-to-drink coffee products. 

“Our startup climate is toxic due to ridiculous valuations from VCs and founders,” Harry Su, managing director at Jakarta-based advisory firm Samuel International, told Rest of World. VCs shouldn’t be entirely blamed, though, he added. The recipients of their money are complicit too. “Founders are also guilty as they thirst for more funding and greater exit valuations,” he said. “Hence, operating sustainability often falls by the wayside.”

Su pointed out that VCs investing in Southeast Asia tend to expect the growth rates of U.S. startups, leading them to invest with U.S.-comparable valuations. But unlike their American counterparts, Indonesian startups do not have the ability to scale globally, creating valuations that outstrip performance. 

Faced with what looks like a long winter — the U.S. Federal Reserve just approved another interest rate increase, aiming to curb inflation — VCs have also begun to put out messages emphasizing profitability and positive unit economics, the founders of eFishery and Tokocrypto noted. There will be more changes in the ecosystem, too, they believed.

“There’s a change in mindset,” Huzaifah said. He predicted that startups in niche verticals, such as agritech and port logistics, will have more opportunities to shine. 

Huzaifah, for his part, told Rest of World that eFishery was looking for 1,000 more employees across Indonesia this year to double its near-1,000-strong team. The startup is testing its first regional expansion, in Thailand and India, and aims to be in 10 countries in three years. At the same time, the company is developing its downstream business — selling fish to restaurants and food stalls. 

“What we need to focus on is actually to build products,” said Tokocrypto’s Kai. “Not just products that will make people spend, but products that will actually bring value to people that are using them.”