Indonesian startup scene draws over $3 billion in venture capital

09 January 2018 Authored by Consultancy.asia

Indonesia’s start-up and scale-up economy has more than doubled in less than half a year according to a new study, and investors remain bullish.

A joint study by management consulting firm A.T. Kearney and internet behemoth Google has underscored the promise of Indonesia’s start-up scene, with investment funding in the sector rising from $1.4 billion in 2016 to an estimated $3 billion in the first half of last year – up from below just $50 million only the five years ago.

Indonesia investment value

The rising investment figures have seen Indonesia’s share of the Southeast Asian venture capital (VC) pie rise from 14% to 19% over the half-decade to 2017, eroding, in tandem with other regional hotspots, Singapore’s traditional ascendancy and majority percentage across the same period to just 41% from a previously all-dominant 83% share. As a bloc, however, the Southeast Asian VC score has increased by a factor of 23 during the 2012-2016 timeframe, from $300 million in 2012 to $6.8 billion by 2016.

Southeast Asia Investment Value

SouthEast Asia’s mini-boom in start-up funding represents a five percentage-point jump to 8% in Asian contributions, with the region fast-gaining ground on India – down from 11% to 9%. Yet both regions are dwarfed by a rollicking Chinese market which increased its imposing shadow from a 55% share of the $10 billion in Asian start-up investment in 2012 to 64% of last year’s $90 billion pot.

Asia Investment Value

While the U.S. still rules the roost with regard to VC funding, China’s economic influence has contributed to Asia (inc. the Middle East) rapidly closing the gap, carving off twenty percentage points from the North American supremacy in just four years, leaving the respective regions at 49% and 33% each of 2016’s $274 billion global stake.

Notably though, in relative terms the big money resides in Asia, with its total $225 billion take across 2012 to 2016 coming from 12,733 deals, compared to the 69,924 handshakes making up North America’s $524 billion in VC investment, and the $104B comprised of 21,688 deals in Europe – less than half the funding of Asia from nearly twice the amount of activity.

Global Deals Trend 2012-2016

In fact, Indonesia’s upward start-up investment trend can be mostly attributed to China, at least in terms of source market and the size of the increase. To the mid-point of 2017, Chinese input accounted for a whopping 94% of Indonesia’s $3 billion VC sum, a not inconsiderable reversal from the just 2% from the nation in 2016, while the funding of Go Jek and Tokpedia by Chinese tech and ecommerce outfits Tencent and Alibaba Group alone combined for $2.3 billion of the total – or roughly 70% – with the e-com and transport sectors consequently dominating the local market.

Top categories in Indonesia

Nevertheless, a survey of investment decision-makers by A.T. Kearney and Google suggests a bright outlook, with 57% of local and 80% of foreign investors projecting a personal increase of ten per cent or greater up ahead. In reference to the rest of Asia, an encouraging 29% and 50% of local and foreign investors in turn believed Indonesia’s VC outlook to be ‘better’ than its neighbours, while another 57% and 20% labeled it as ‘similar’. 

The country’s budding fintech and healthcare sectors could be the next in line to attract interest, due to an increasing demand for tech-enabled products and services in the market, cited by 67% and 25% of respondents to rank as the top two categories in which to invest in Indonesia.

Indeed, ‘increasing demand’ could be seen as a catchall to describe the country’s outlook as a whole, with an already consumer-driven economy expected to double its tech-savvy middle- and upper-class patrons over the coming five years, from 63 to 128 million people, driving smartphone penetration to 148 million users (up from 85m now) and the country’s online shopping base from 11 million to 42 million browsing customers. 

Related: M&A activity in Indonesia bounces back from recent slump.

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