Mon, Oct 09, 2017 - Page 14 News List

Firms bet on Indonesia start-up scene

‘HUGE LEAP FORWARD’:Last year, US$631 million in disclosed venture capital flowed into the country, skyrocketing from US$31 million in 2015, according to CB Insights


Big-name investors, including Expedia Inc and Alibaba Group Holding Ltd (阿里巴巴), are pumping billions of US dollars into Indonesian tech start-ups in a bid to capitalize on the country’s burgeoning digital economy and potential as Southeast Asia’s largest online market.

Indonesia has seen a surge of cash into its technology sector over the past two years, helping support dozens of homegrown start-ups ranging from ride-hailing apps to e-commerce firms.

With a population of more than 250 million, a swelling middle class and growing availability of cheap mobile devices, firms from across the world are piling in.

“We believe that Indonesia is poised for a huge leap forward for its digital economy, following China’s growth and becoming the leading tech destination in the Southeast Asia region,” said Adrian Li (李家銘), a partner in Jakarta-based Convergence Ventures.

Last year, US$631 million in disclosed venture capital was ploughed into the country, according to research firm CB Insights, up from US$31 million in 2015.

However, that figure has already been shattered this year, with US$3 billion worth of deals clinched as of last month, said Meghna Rao, a tech industry analyst at the firm.

Tokopedia — a marketplace that allows users to set up online shops and handles transactions — in August won US$1.1 billion in capital from Alibaba, while motorbike on-demand service Go-Jek in May secured US$1.2 billion from Inc (京東) and Tencent Holdings Ltd (騰訊), according to data from Crunchbase.

In another sign of confidence, Koison this month became Indonesia’s first e-commerce service to go public.

“While it’s too soon to say that this investment is indicative of a larger pattern of Indonesian start-ups pulling in many big-ticket investors, it is part of a growing clutch of mega-rounds,” Rao said.

Internet use is growing faster in Southeast Asia than any other region in the world, with 124,000 users coming online every day over the next five years, according to a report last year from Google and Temasek Holdings Pte.

By 2020, about 480 million people in the region are expected to be connected to the Internet, up from 260 million last year.

Indonesia’s mobile-first market will comprise more than half of Southeast Asia’s e-commerce market by 2025, with an estimated value of US$46 billion, the report said.

“When you do start-up business in Malaysia, Singapore, Thailand and Indonesia, the cost, effort and time that you spend is almost even, but when you go to Indonesia [growth] is unlimited — the market is so big,” said Willson Cuaca, whose venture capital firm, East Ventures, specializes in early-stage investments.

As a result, big names like US venture capitalist Sequoia Capital, Japan’s Rakuten Ventures and travel company Expedia — as well as Chinese tech giants — have all made investments in the country.

Indonesian President Joko Widodo has been a vocal supporter of digital innovation, most notably in his plan to create 1,000 local tech start-ups worth US$10 billion by 2020.

However, the sector still faces a number of challenges.

A limited pool of engineering talent to draw from, low rates of Internet penetration outside densely populated Java, bureaucratic delays and poor-quality infrastructure are all obstacles to growth.

For e-commerce companies, the large number of “unbanked” Indonesians limits the scope of online transactions and logistics problems make it hard to move goods.

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