For archipelagic countries such as Indonesia, where infrastructure and connectivity are among some of many challenges, rapid technological developments have paved the way to improve access to education. (Reuters Photo/Aly Song)

Indonesia's Startup Landscape Still in Infancy, but Investment Value Growing Rapidly: Report


SEPTEMBER 20, 2017

Jakarta. A recent study by technology giant Google and United States-based global management consultancy AT Kearney shows growing investor confidence in Indonesia's startup market, with investment in the sector having grown 68-fold over the past five years to $1.4 billion in 2016.

The report titled "Indonesia Venture Capital Outlook 2017," carried out between May and August this year, suggests that the startup landscape in Indonesia is still in its infancy, but growing rapidly, primarily driven by e-commerce and transportation.

Investment in the sector so far this year has already more than doubled compared with $3 billion in the first eight months last year.

"We can see the momentum with investment levels already double from where they were in all of 2016. The findings in this report are eye-opening and we hope it will help drive further investment in the startup ecosystem here," Google Indonesia managing director Tony Keusgen said.

"Google is a strong believer in the potential of Indonesia's digital economy and this VC outlook report clearly shows that many local and foreign investors share our enthusiasm," he added.

The report – the first for Indonesia – is expected to become an annual publication, suggests that venture capital remains extremely bullish on Southeast Asia's largest economy, and sees investment opportunities, given the country's steady growth, emerging middle class and massive population of digitally savvy young people.

Financial technology and health care emerged as the top categories for future investment.

"We were blown away by how enthusiastic the VCs were and how incredibly bullish they are in Indonesia.  The potential for growth is incredible, but so is the need for engineers," says Alessandro Gazzini, a partner at AT Kearney.

"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," he said.

Venture capital players interviewed for the report highlighted four key focus areas to speed up growth of the startup ecosystem in Indonesia. These are talent development, fiscal incentives, funding/exit options and startup facilitation.

"Government can play a strong role, as evident from mature markets," the report says.

"Future investment in startups 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," it adds.

The report says global investment values continued to soar over the past five years, though deal flow has stabilized and shifted to later stages as venture capital funds focus more on profitability than topline growth.

Although the United States remains the world's startup hub, Asia is growing the fastest on the back of investments from China, India and Southeast Asia, the report says.

In detail, Southeast Asia posted faster growth than anywhere else on the continent, with Singapore and Indonesia leading the pack.

"By taking a deep look into the Indonesian startup investment environment, this study provides a window into the investor mindset and suggests how business leaders and policy makers can implement improvements that will ultimately strengthen venture capital confidence and attract both local and foreign investment for many years to come," the report says.