Global tech giant Google and management consulting firm A. T. Kearney today released a new report on venture capital investment in Indonesia which revealed that tech investment in the country has grown from US$1.4 billion in 2016 to US$3 billion in January-August 2017.
The growth was so rapid that A. T. Kearney Partner Alessandro Gazzini, a co-author of the report, stated that it might pass the country’s investment in oil and gas sector, which was US$5 billion in 2016.
Within Southeast Asian region itself, while Singapore remained the main hub for tech investment, other countries were quickly catching up with Indonesia leading the way.
“There is also a possibility that the pie might actually be bigger in Indonesia. Because, while many of the investments went to Singapore, these companies eventually expanded their business to Indonesia,” said Google Sales Operations & Strategy Lead Mifza Muzayan, who co-authored the report.
From January to August, the majority of tech investment in Indonesia are in seed stage (43 per cent). But in terms of investment value, the biggest came in Series C or later stage at 43 per cent.
All of these three unicorns raised their funding from at least one Chinese tech giant; from Tencent, Alibaba, to JD.
In fact, 94 per cent of tech investment value in Indonesia in January-August 2017 had the involvement of Chinese investors.
E-commerce and transportation continued to dominate tech investment in Indonesia up until August 2017. But for Muzayan, this indicates that there are plenty of opportunities in other sectors to invest in.
Local investors are reluctant
Investors were generally bullish on the outlook of the Indonesian market, as indicated by the numbers in 2016 and early 2017.
More than 25 local and foreign investors were interviewed to develop the report, with the majority of fund size ranging from US$50 million (38 per cent) to US$50-100 million (29 per cent). Their role varied from investment officer/manager (21 per cent), founder/CEO (42 per cent), and partner/director (38 per cent).
While 80 per cent of foreign investors agreed that they are going to increase investment in the Indonesian market by 10 per cent, with 20 per cent of them agreeing to continue investing in the country for the same value as today (no more than nine per cent increase), 21 per cent of local investors in Indonesia said that they plan to decrease investment in the market by 10 per cent or more instead.
According to East Ventures Co-Founder and Managing Partner Willson Cuaca, this is due to the lack of “role models” in the market.
“They haven’t seen any local investors that are successful, while from China, everybody is already successful,” Cuaca said.
“This is what we call ‘small winnings.’ Of course we want to build big, sustainable companies. But sometimes, it is okay to make small, quick winnings as it can actually create a different kind of signal to the ecosystem,” he explained.
The phenomenon becomes more interesting especially considering that 57 per cent of local investors in Indonesia said that they will continue on investing abroad, with 29 per cent of them planning to increase their investment by 10 per cent or more.
“The grass is always greener on the other side,” Cuaca said.
“Whenever I talk to investors or founders, everybody says [investing in] Indonesia is hard. They all want to go to Singapore, Thailand. Meanwhile, foreign investors continue to pour in to the Indonesian market,” he continued.
What Indonesia can do better
In order to boost the Indonesian startup industry, investors generally believe that the government needs to play a stronger role.
The following are the four sectors that is recommended through the report:
1. Talent development
2. Fiscal incentives
3. Funding and exit options
4. Startup facilitation
The report mentioned several models that are considered ideal as a solution for Indonesia. Learning from experiences of fellow Asian countries, it looks up to China for the setting up of its national VC fund and SME board. It also cited India’s Startup Intellectual Property Protection (SIPP) and ax exemptions as possible solutions.
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