Indonesian Startup investments are Booming
Category: Column By : Alessandro Gazzini Read : 283 Date : Friday, November 10, 2017 - 08:31:03

In October, we released our joint Google AT Kearney Amvesindo Indonesia startup investment report which included a review of capital flows over the last five years as well as investor insights from all the leading players.

From a global perspective, investment values continue to soar, though deal flow has stabilized and shifted to later stages (Series C+) as VCs focus more on the path to profitability. The U.S. remains the world’s startup hub with over 50% share of cumulative deal flow (64,000 transactions) and in value ($524 billion), but Asia is growing the fastest with a yearly 75% growth rate.

Drill down further and it’s clear that investment values in Southeast Asia are growing the fastest, with Indonesia leading the pack. The startup investment landscape in Indonesia, while still in a relatively early stage, is now effectively exploding, driven by the e-commerce and transport categories and Chinese investor appetite. Over the past five years, Indonesia’s startup investment has grown by 68 times, reaching $1.4 billion in 2016, and jumping to $3 billion in the first eight months of 2017.

To put this in perspective, for the first half of 2017 digital investments attracted more capital than several more traditional industrial sectors such as consumer, electricity, metal/machines and electronics, and a similar level of investment as the mining sector but still less than the oil and gas sector. However, if we were to normalize the current trend for only private sector investments (non-BUMN) then the digital sector would already be the defacto no. 1 sector.    

Not surprisingly, given the expected growth of the digital market, both domestic and foreign investors are incredibly bullish, and preferring Indonesia to other Southeast Asian countries, with close to 70% expecting to increase their positions over the next two years. The new “hot” investment targets we should expect, and source of the next wave of unicorns, are the fintech and healthcare sectors.   

While the outlook is very positive, investors also highlighted a few critical areas for further improvement such as availability of tech and entrepreneurial talent, fiscal incentives, funding and exit options, as well as startup facilitation instruments. By far though the most critical is the need for a massive increase of technical and entrepreneurial talent in Indonesia. This must be achieved in the short term by increasing “imports” from the global talent pool but most importantly, in the long term, must be addressed by radically enhancing the country’s education system. 

The extent of the country’s skill gap is staggering. Consider that, according to data released from the Ministry of Research, Technology and Higher Education, Indonesia produces yearly approximately 280 engineers per one million of population compared to 1,830 for Malaysia, 1,100 for Vietnam and 1,250 for Thailand. India is in a (super) league of its own with 1,160 equivalent, to 1.5 million engineers graduating very year. 



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