Indonesia’s startup ecosystem has boomed in the past two years and continues to defy gravity despite the global downturn, partly due to the willingness of the country’s state-owned enterprises (SOEs) to pursue corporate venturing.
The SOEs are takig part in some sizeable rounds. SiCepat’s $170m series B round in March 2021was backed by telecommunications firm Telkom Indonesia’s MDI Ventures unit and financial services firm Bank Rakyat Indonesia’s BRI Ventures fund was part of a $144m round for business finance provider Funding Societies 11 months later.
The trend can be seen in GCV data showing the 10 domestic corporates to have invested in more than five deals since the start of 2020 include Telkom and BRI as well as fellow SOEs Bank Mandiri (which runs Mandiri Capital) and Telkomsel, the mobile network operator majority owned by Telkom (which invests through its Telkomsel Mitra Inovasi subsidiary).
Indonesia is notable in that its corporate landscape is dominated by the SOEs, all of which tend to be listed on the Indonesian Stock Exchange. More than half of the top 10 companies in the country by market cap come under that banner and several have corporate venturing units.
In addition to boosting Indonesia’s startup space, the SOE model appears to be fostering collaboration rather than competition. The Merah Putih fund was launched by President Joko Widodo in December 2021 with a $200m target for its close and is being anchored by five SOE investment vehicles including MDI Ventures, Mandiri Capital and BRI Ventures.
The country’s most prominent corporate venturers also include conglomerates Sinar Mas, Astra International and Emtek in addition to GoTo, the digital services portal operator formed by two of Indonesia’s biggest startups – ride hailing service Gojek and e-commerce firm Tokopedia – which raised $1.1bn in a March 2022 initial public offering.
GoTo is not the only relatively new company in the country to be an active corporate venturer. Coffee chain Kopi Kenangan, online travel agency Traveloka, cryptocurrency exchange Tokocrypto and Xendit, the digital payment technology provider that raised $300m in series D funding last week, have all made multiple investments since the start of 2021.
A vibrant ecosystem of domestic investors has meant Indonesia’s startup scene has experienced some of the most notable growth outside of the major economies in the past two years.
PitchBook data indicates the number of venture capital funding deals reached a new peak of 239 in 2021, up 35% from the previous year, while the volume of capital in those deals more than doubled to over $9bn, following a 2020 where the volume had more than tripled to approximately $4.1bn.
The figures for 2022 showed the number of deals at 102 as of the end of last week, a figure which is on course to surpass the previous peak. They equate to $1.78bn in deal volume, below 2021 but still already more than the entirety of 2019.
Foreign investors for later stages
In addition to domestic investors, Indonesian startups are also getting increasing interest from foreign companies, particularly those from elsewhere in Asia.
Indonesia’s position as the largest nation in Southeast Asia makes it a prime entry point into the region for larger businesses, meaning it is often an early port of call for international corporate venturers, particularly those in more mature Asian markets such as China and Japan.
Japan-headquartered telecoms and internet group SoftBank is the most active foreign corporate VC in Indonesia, having been involved in 10 rounds since the start of 2021 according to GCV data. Notable investors also include compatriots Credit Saison, Gree and SBI, China-based Tencent and United Overseas Bank, from Singapore.
With SOEs investing mainly at early and growth stages, many of Indonesia’s largest venture-backed companies have sought investment from a range of international corporates.
The reason for the international interest is clear. Although it ranks relatively low for gross domestic product per capita – IMF figures put it at 104th in the world, between Mongolia and Jordan – Indonesia is the world’s fourth most populous country, with a population topping 270 million, giving consumer-focused companies a potentially huge customer base, particularly for mass-market products.
The country ranks 13th in volume of corporate-backed VC funding deals since the beginning of 2020 according to GCV data, below Singapore, which has a far more developed e-commerce and enterprise software sector, but with more than the next two nations in the region, Thailand and Vietnam, combined.
Southeast Asia is notable for its large number of micro-multinational enterprises: startups that tend to launch with a cross-border mindset, expanding quickly to consolidate their position in a range of countries in the region.
Indonesia is made up of some 6,000 islands and its geographical setting means homegrown startups are almost required to expand quickly. Moving into surrounding markets, especially given their demographical similarities, is not a significant conceptual jump.
Technological innovation has given startups the digital tools to launch in those countries while remaining relatively compact in size and, as in nearby China, this has in turn supported an attendant wave of digital payment and logistics technology developers.
Notable recent deals
Indonesia’s startups are continuing to raise money despite the market downturn for tech stocks. Xendit’s series D was its third round in the past 14 months and it is the fifth company to secure over $40m in a round so far this month, with online insurance marketplace Qoala and human resources software producer Mekari among the others. An ongoing digitalisation process makes the country well placed to expand outside of bull and bear markets elsewhere.
The largest VC deal closed in the country in the past 18 months came in November 2021 when delivery and warehousing service J&T Express secured $2.5bn in a Tencent-led round.
Although not on the same scale, the country’s archipelago structure made it a fruitful place for aquaculture startups, reflective of its status as one of the world’s largest farmers of prawns. The most highly funded startup, aquaculture monitoring software developer eFishery, secured $90m in a January round co-led by SoftBank’s Vision Fund 2, while farm productivity technology provider Delos and Jala have also raised money since autumn last year.
Photo courtesy of Muhammad Rizki via Unsplash.
