INDONESIAN ride-hailing company Go-Jek raised US$2mil during its first round of venture capital (VC) financing in mid-2014.
Two years later on Aug 4, 2016, Go-Jek secured US$550mil from a VC consortium to become the country's first technology unicorn and inadvertently opened the floodgates to VC financing.
“The trend of VC [financing] skyrocketed in Indonesia and will certainly continue into 2019, thanks to the proven successes of Go-Jek,” Steven Okun, the Asean representative of the Emerging Market Private Equity Association (EMPEA), said on Jan 24 during the Asia PE-VC Summit 2019.
In less than a year, Tokopedia, Traveloka and Bukalapak followed Go-Jek as the first generation of Indonesian unicorns, all of which won VC funds in their first few rounds from firms like East Ventures, NSI Venture, Gree Ventures and Sequoia.
It was these four success stories that planted confidence among venture capitalists in Indonesian startups while also setting a trend among startups to seek VC financing.
EMPEA's data shows that venture capital investments in Indonesia skyrocketed from US$2.3mil in 2014 to US$136mil in 2017 at an average compound annual growth rate (CAGR) of 290%.
In comparison, VC investments in South-East Asia grew at a slower CAGR of 40.9% from US$180.3mil in 2014 to US$504mil in 2017.
VC’s soaring popularity even prompted two of Indonesia's largest banks, Bank Mandiri and BCA, to form their own venture capital investment arms, respectively Mandiri Capital Indonesia in 2016 and Central Capital Ventura in 2017.
The latest EMPEA data shows that Indonesia captured 17.8% of the US$731mil VC investments in South-East Asia during the first three quarters of 2018.
Reflecting similar investor confidence, a Google-Temasek report found that Indonesian startups captured 25% (US$6bil) of the region's US$24bil in VC funds from 2015 until the first half of 2018.
However, VC’s popularisation also had a detrimental effect on private equity (PE) investments in the country, even though PE investments have greater monetary value.
“PE investment had a record year in South-East Asia, but had its worst year in four years in Indonesia,” Okun said during a panel discussion at the summit.
EMPEA data shows that PE investments in South-East Asia reached a 10-year record high of US$7.495bil in January-September 2018.
In comparison, only US$285mil in PE investments were made in Indonesia during the same period, the lowest since 2014 when the country captured US$223mil in PE investments.
Nevertheless, representatives from major private equity firms Creador, Emerald Media, TAEL Partners and UOB Venture Management agreed during the panel discussion that they would remain in Indonesia with slight adjustments, motivated by the country’s solid fundamentals.
TAEL co-founding partner Ati Sugiharti said that her firm remained enticed by Indonesia’s 5% economic growth, but that it would also invest in more startups from Vietnam, which had higher growth of 6.9%.
The firms also reminded investors, particularly VC firms, that they “must remain disciplined” in vetting businesses to avoid bursting the bubble as Indonesia became an increasingly hot market.
Sebastian Togelang, a founding partner of VC firm Kejora Group, expressed certainty that investors – including venture capitalists – would remain disciplined in the years to come since the US unicorn crisis of 2016.
“Investors have calmed down now,” said Sebastian.
Okun, who is also a business advisor, added that if private capital investors wanted to succeed in Indonesia, they needed to possess solid local knowledge such as in health care and education, offer operational assistance such as in cross-border expansion and recruiting a chief financial officer, and be oriented toward environmental, social and corporate governance (ESG).
“Sectors [related to] domestic consumption would be the most attractive. Not just in fast-moving consumer goods, but also those related to education and health care,” he said. — The Jakarta Post/ANN