Southeast Asia is a flourishing startup zone, and Indonesia, in particular, is a major hotbed for venture capitalists (VCs). The archipelago’s scattered 17,000 islands contain an approximate 261 million people, and as millennials and Gen Z continue to transform the market, digital participation will increase to a projected 150 million users by 2023. Digital penetration rates were approximately 50% last year, leaving an ample slice of the market open to rising tech-based startups in Indonesia. It’s no wonder VCs are diving into the market and trying to incubate startup growth across the region. As international and local VCs circle, in their search for promising startup projects, they do need to exercise caution, as the recent WeWork IPO tumult showed. The coworking startup’s potential losses will deeply impact its major investor, SoftBank Group Corp, who poured more than $10 billion USD into the company. WeWork’s devaluation demonstrated what can happen with an overvalued unicorn and optimistic VC’s investing money with abandon. It’s quite likely we could see more of these scenarios in the future, as expert Keith Wright quoted on CNBC, “Expect to see more dead unicorns.” WeWork’s misadventures revealed the high risks and potential losses of startup investment. So what are VC’s now looking for in Indonesian investments?

Local rules the roost

Startups in Indonesia are drawing bundles of investment capital to grow their businesses, but before expanding into Southeast Asia and global markets, they need to have a steady grasp on local territories. Establishing strong local acceptance is key for stability and lasting growth. Accordingly, at the 2020 Indonesia PE-VC Summit, the primary focus was Indonesian markets first, global expansion later. Equity company Asia Partners predicted that 30% of tech startup “winners” in SE Asia would be Indonesia focused. Companies like Tokopedia, Traveloka, and Snapcart are powerful examples of startups who are thriving and digitally engaging consumers. Once startups in Indonesia have that strong local foundation and are ready for expansion, customisation of products and services for their new target market is the next step. Saboo of General Atlantic explained, “Your product, your service will need to be customised to the different needs of different markets. Even if you have a successful product in your home market, you need to customise”. Sorabel, the fashion Artificial Intelligence (AI) e-commerce is one startup shooting for regional expansion in 2021.  

man wears black helmet

Sustainable growth and logistics 

Another critical trend discussed at the Indonesia PE-VC Summit this month was sustainable growth for startups. In our current venture capital environment, startups are seen as potent investments with a tendency to push for untenable growth. Industry leaders have recognised this and have decided to move away from that trend in 2020 consciously. As startups in Indonesia leave behind impossible growth pressures, vanity metrics and overvaluation, a more accurate era of valuation will emerge, which should protect against more cases like WeWork. Another promising sector of startup growth is in logistics. Due to Indonesia’s unique geography, connectivity issues and vast population, logistics is an area where startups and technology can change the game and enact better transport and delivery systems. Indonesia has one of the worst levels of logistics costs in Southeast Asia at the moment, making up 24% of the GDP. According to Gitta Amelia, the CEO at Everhaus, “The field is still wide open for logistics tech startups as no single player currently dominates this sector.” VC’s looking for Indonesia investments would be wise to pay attention to logistics and transportation startups. JNE, J&T Express and SiCepat have large stakes in the market, but competitors like Deliveree from Thailand and NinjaVan from Singapore are also in the game. Unicorns Gojek and Grab are also involved in digital delivery services.

The youthful $1.1 trillion USD economy of these islands is a lucrative potential market for VC’s interested in startups in Indonesia. As this Southeast Asian star progresses in 2020, we should see more startups emerge, worthy of the attention of venture capitalists. The market is guaranteed to evolve, with hubs like Bandung in West Java and encouragement from the president Joko Widodo, who wants to create 1,000 local startups worth $10 billion USD by 2020. This will create more jobs and improve the lives of locals. Domestic dominance, customisation in target markets and sustainable growth will drive the market this year, and even though investors will likely be more prudent with investments, the market will still see persistent growth.