Indonesia is Southeast Asia’s largest economy, and also its most populous one with 270 million people, a large portion of which are young. The country accounts for a significant portion of the total venture funding that Southeast Asia receives, totalling just above US$2 billion in 2020.
Indonesia is home to four unicorns (Bukalapak, Tokopedia, Traveloka, OVO some of which are already harbouring IPO aspirations), a decacorn (Gojek), and a total of close to 2,500 start-ups. Indonesia ranks fifth among countries with the most startups, behind the US, India, UK, and Canada.
So, what is it about Indonesia that has caught the attention of venture capitalists globally?
Macro factors
Indonesia has consistently seen GDP growth of above 5.0% over the last few years, barring 2020 – although it has still contracted by 1.0%, compared to a broader 3.8% decline for Southeast Asia as a whole.
Given its growing young population, digital adoption and internet penetration has also skyrocketed. It has gone from sub 15.0% in 2013 to 74% in 2020. This equates to a staggering 196 million people that are now online, despite persistent challenges in unequal access and digital literacy.
The government has also made considerable efforts in doing its part to help boost the ecosystem. It has approached it from multiple aspects – from easing FDI regulations, to allocating over US$2.0 billion to accelerate digital transformation in tier 2/tier 3 cities, to reducing red tape. The country’s ambition is to reach the 40th position in World Bank’s Ease of doing Business ranking this year.
Early successes
While macro tailwinds are well and good, deployment of capital only really accelerates with proven successes. To its credit, Indonesia’s start-up ecosystem has seen this, with multiple unicorns added to its kitty over the last few years.
The first wave of successes were start-ups that solved the first level of digitization of commonly used services.
Gojek attacked ridesharing, Bukalapak and Tokopedia attacked e-commerce, Ovo attacked payments, and Traveloka attacked online travel. These start-ups succeeded, primarily because they took problems faced globally, and modified them to fit a local context – all the four mentioned have Indonesian co-founders, with deep experience in the local ecosystem.
Once they proved traction with their first use-cases, they had the ambition (and capital) to attack other use cases he ultimate aim to become super-apps.
The thesis behind this approach is that, in a market like Indonesia, once you gain mind and market share of consumers via one hero product, you have effectively gotten over the big obstacle of trust. This then allows you to use your first use case almost like a “trojan horse” and then expand into adjacent categories. For example, decacorn Gojek now offers food delivery, payments, and now aims to gain a sizeable share of mobile banking.
Similar models
Our first Southeast Asia story spoke about how Southeast Asia could look to India (and China) to possibly find its next set of unicorns. Indonesia, in particular, shares multiple similarities with these two countries – young workforce, rising middle class incomes, and small-business dominated economy.
The fact that Indonesia has a lower proportion of venture capital dollars invested per consumer despite ranking higher than India in terms of GDP per capita, indicates untapped potential. This could be particularly useful in terms of seeing “second wave” models that worked in India, now being adopted in Indonesia, in areas such as EdTech, logistics, social commerce and others.
With these factors at play, it is clear that exciting times lie ahead for Indonesia, and sky’s the limit for those leading innovation in its ecosystem.