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INVESTOR confidence in Indonesia’s startup market is rising with investment growing 68 times over the past five years to reach US$1.4 billion in 2016 and jumping to US$3 billion in the first eight months of 2017.

The “Indonesia Venture Capital Outlook 2017” was carried out by by Google and global management consulting firm, AT Kearney, between May and August 2017.

Due to the massive growth, the value of startup investments in Indonesia may surpass the nation’s oil and gas investment which was US$5 billion in 2016,” said AT Kearney partner Alessandro Gazzini at a press conference.

Based​ ​on​ ​both​ ​a​ ​comprehensive​ ​analysis​ ​of​ ​the​ ​VC​ ​landscape​ ​and​ ​investment​ ​flows,​ ​as well​ ​as​ ​a​ ​broad​ ​range​ ​of​ ​interviews​ ​with​ ​over​ ​25​ ​local​ ​and​ ​foreign​ ​VCs,​ ​the​ ​study​ ​seeks to​ ​understand​ ​investor​ ​outlook​ ​and​ ​priorities​ ​in​ ​Indonesia​ ​and​ ​is​ ​the​ ​first​ ​in​ ​what​ ​is expected​ ​to​ ​become​ ​an​ ​annual​ ​publication.

Pie Chart Courtesy Crunchbase & AT Kearney Analysis

Pie Chart Courtesy Crunchbase & AT Kearney Analysis

According to the report, most of the investments are still in the seed or early stage funding. There was a total of 53 investment deals, 43% of which were seed funding and 30% Series A.

Late-stage investments, however, generate most of the value as 43% of the US$3 billion investment value was generated from Series C or later funding.

Bar Chart Courtesy Crunchbase & AT Kearney Analysis

Bar Chart Courtesy Crunchbase & AT Kearney Analysis

In 2017 95% of the total investment value in Indonesian startups came from China, with only 6% coming from other investors.

China’s Tencent invested in US$1.2 billion in Go-Jek, Alibaba Group invested US$1.1 billion in Tokopedia and JD.com invested US$500 million in Traveloka.

Venture capitalists (VCs) remain extremely bullish on Indonesia as an investment opportunity, given the country’s growing economy, emerging middle class and massive population of digitally savvy young people.

Pie Chart Courtesy AT Kearney Analysis

Pie Chart Courtesy AT Kearney Analysis

According to the report, 21% of local investors are likely to decrease investments, while 21% will maintain their investments and 57% will increase them.

On the contrary, only 20% of foreign investors said they were likely to decrease investments with 80% saying they were likely to increase them.

East Ventures managing partner Willson Cuaca says that local investors may decrease investments in startup because of a lack of role models.

They have not seen any successful local investors, while everybody from China is already successful. This is what we called small winning when we want to build strong and big sustainable companies. It is okay to make small investment and have a quick win as it will create a different kind of signal.

 

Ecommerce and transportation come out top

The report shows that e-commerce and transportation heavily dominate startup investment in Indonesia.

Fifty-eight percent of total investments from 2012 to August 2017 was in e-commerce, followed by 38% in transportation.

It is anticipated that fintech and healthcare will emerge as top investment categories in the next few years as 67% of respondents voted for fintech and 25% for healthcare.

The report also highlighted four key focus areas to accelerate the growth of the Indonesian startup ecosystem, namely, talent development, fiscal incentives, funding or exit options and startup facilitation.

Pie Chart Courtesy AT Kearney Analysis

Pie Chart Courtesy AT Kearney Analysis

Sequoia Capital principal Abheek Anand says that there is a need to have “smart” entrepreneurs as startup founders. “The culture of taking risks needs to be there. It is okay to fail,” he says.

(From left) C88 Financial Technologies co-founder & group CEO JP Ellis; AT Kearney partner Alessandro Gazzini; Google Indonesia e-commerce head Henky Prihatna; East Ventures co-founder & managing partner Willson Cuaca; and Sequoia Capital principal Abheek Anand Photo Courtesy AT Kearney Analysis

(From left) C88 Financial Technologies co-founder & group CEO JP Ellis; AT Kearney partner Alessandro Gazzini; Google Indonesia e-commerce head Henky Prihatna; East Ventures co-founder & managing partner Willson Cuaca; and Sequoia Capital principal Abheek Anand Photo Courtesy AT Kearney Analysis

We​ ​were​ ​blown​ ​away​ ​by​ ​how​ ​enthusiastic​ ​the​ ​VCs​ ​were​ ​and​ ​how​ ​incredibly​ ​bullish​ ​they are​ ​on​ ​Indonesia.​ ​The​ ​potential​ ​for​ ​growth​ ​is​ ​incredible​ ​but​ ​so​ ​is​ ​the​ ​need​ ​for​ ​engineers. “​

This​ ​is​ ​not​ ​about​ ​incremental​ ​change. There​ ​needs​ ​to​ ​be​ ​a​ ​massive​ ​push​ ​to​ ​create​ ​more​ ​talent​ ​if​ ​these​ ​startups​ ​are​ ​going​ ​to​ ​be able​ ​to​ ​scale​ ​and​ ​meet​ ​demand,” says​ Gazzini.​

Photo Courtesy AT Kearney Analysis

Photo Courtesy AT Kearney Analysis

Government​ ​can​ ​play​ ​a​ ​strong​ ​role,​ ​as​ ​evident​ ​from​ ​mature​ ​markets,”​ ​the​ ​report​ ​finds.

Future​ ​investment​ ​in​ ​start-ups​ ​is​ ​highly​ ​dependent​ ​on​ ​investor​ ​confidence​ ​in​ ​the market,​ ​so​ ​it​ ​is​ ​crucial​ ​to​ ​understand​ ​how​ ​investors​ ​view​ ​the​ ​Indonesian​ ​market,​ ​in​ ​both the​ ​near​ ​and​ ​long​ ​term.

According​ ​to​ ​the​ ​report,​ ​a​ ​first​ ​for​ ​Indonesia,​ ​global​ ​investment​ ​values​ ​continued​ ​to​ ​soar over​ ​the​ ​last​ ​five​ ​years,​ ​though​ ​deal​ ​flow​ ​has​ ​stabilised​ ​and​ ​shifted​ ​to​ ​later​ ​stages​ ​(Series C​ ​and​ ​later​ ​stages)​ ​as​ ​VCs​ ​focus​ ​more​ ​on​ ​path​ ​to​ ​profitability​ ​versus​ ​topline​ ​growth.

Pie Chart Courtesy AT Kearney Analysis

Pie Chart Courtesy AT Kearney Analysis

Although​ ​the​ ​United​ ​States​ ​remains​ ​the​ ​world’s​ ​start-up​ ​hub,​ ​Asia​ ​is​ ​growing​ ​the​ ​fastest on​ ​the​ ​back​ ​of​ ​China,​ ​India​ ​and​ ​Southeast​ ​Asia​ ​(SEA)​ ​investments.​ ​ Drill​ ​down​ ​further and​ ​it’s​ ​clear​ ​that​ ​investment​ ​values​ ​in​ ​SEA​ ​are​ ​growing​ ​faster​ ​than​ ​anywhere​ ​else​ ​in Asia,​ ​with​ ​Singapore​ ​and​ ​Indonesia​ ​leading​ ​the​ ​pack.

By​ ​taking​ ​a​ ​deep​ ​look​ ​into​ ​the​ ​Indonesian​ ​start-up​ ​investment​ ​environment,​ ​this​ ​study provides​ ​a​ ​window​ ​into​ ​the​ ​investor​ ​mindset​ ​and​ ​suggests​ ​how​ ​business​ ​leaders​ ​and policymakers​ ​can​ ​implement​ ​improvements​ ​that​ ​will​ ​ultimately​ ​strengthen​ ​VC confidence​ ​and​ ​attract​ ​both​ ​local​ ​and​ ​foreign​ ​investment​ ​for​ ​many​ ​years​ ​to​ ​come. – Full version presentation can be find here. [1]

 

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References Sources:

[1] Taken from Indonesian startup investment hits US$3bil in 2017: Google – AT Kearney written by Yunnie Marzuki for DigitalNewsAsia





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