Deal focus: Minnow finds favour in crowded Indonesia vertical

Restaurant and retail digitalisation in Indonesia is a rich theme. Enterprise resource planning (ERP) provider ESB has raised more than USD 40m; mobile point-of-sale (POS) player Moka over USD 28m; small business digital dashboard Majoo more than USD 19m; and omnichannel sales platform iSeller over USD 12m.

This is not to mention the ragtag kiosks and roadside stalls that are said to represent up to 70% of the overall micro and small to medium-sized enterprise (MSME) segment. Here, fundraising by GudangAda, BukuWarung, and Warung Pintar exceeds USD 125m, USD 80m, and USD 35m, respectively.

“A lot of people say it’s a red ocean, but it’s not. We’re just getting started. There are a lot of POS players in Indonesia. Every year they keep coming, but how many have mini-ERP accounting systems built in? Who can merchants call when they have a problem with the accounting system?” said Abdulla Lewis, co-founder of Jakarta-based retail software supplier Luna.

“If you’re a nano or ultra-micro player, and you need to have a freemium POS product, what is your revenue stream? You can make a simpler UI/UX [user interface, user experience] and disburse loans, but if it’s too easy to use, there will be fraud because it’s too easy to enter fake transactions.”

Luna raised its third funding round last week led by TNB Aura and featuring Seedstars, 1982 Ventures, Century Oak Capital, and domestic IT operator Prasetia Dwidharma. Previous investors include Azure Ventures. Total funding since the company was established in 2019 is less than USD 2m.

This suits Lewis fine. The plan is to grow sustainably with positive cash flow and achieve profitability in two years. The fresh capital will primarily go towards building out direct sales capacity by growing a currently 90-strong team to a still modest 200. Many of Luna’s competitors employ more than 500.

“VCs are not talking so much about growth anymore. They want to see the bottom line. For us, 200 is enough. We can hire for positive cashflow and let the higher valuations tumble,” Lewis said.

In the past year, Luna claims to have doubled its client base to more than 7,000 retail MSMEs, many in food and beverage, the rest comprising businesses such as barbershops, beauty clinics, and carwashes.

These are reasonably professional outfits, often chains. Lewis estimates there are 4.8m such businesses in Indonesia, and that this figure will grow as the nano and ultra-micro segment grows up. He believes his company could eventually service as many as 1m of them.

Luna’s claim to differentiation is all about operational diversification. In addition to the ERP and POS offering, there is a card payment enablement system, digital supply chain and online support, social media and advertising service, and tools for HR management, loyalty programmes, and customer relationship management.

Like many companies in MSME services, non-bank growth financing is a core feature. Revenue is currently still mostly generated from POS system subscriptions, but transaction fees and lending services are expected to be bigger sources of income as the company scales. There are already partnerships with several major banks, as well as various P2P lenders such as Koinworks.

“We’re creating a whole vertical ecosystem,” Lewis said. “Whether you want QR payment systems or lending, we’ll keep enhancing the stickiness.”

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• Topics
• Southeast Asia
• Technology
• Consumer
• Early-stage
• Indonesia
• TNB Aura
• TMT
• enterprise software
• e-commerce
• Fintech