Indonesia’s start-up scene: The land of plenty

Indonesia is the largest economy in Southeast Asia and home to tech success stories like GoTo and Bukalapak, but thanks to the market’s size and scale, we are only at the very beginning of its start-up story.

When Jakarta-based John Riady started investing in Southeast Asia’s technology sector almost a decade ago, he put together an internal deck to detail the size and scale of the asset class in Indonesia.

His list compiled all the start-ups active in the country, and their valuations at the time. According to his calculation, this number stood at $60 million. Since, the same segment has grown to an estimated worth of between $30 to $60 billion.

“Indonesia is one of the few remaining large markets that is somewhat undigitised and this is important, because technology requires scale. This is what makes Indonesia one of the most exciting markets for innovation,” Riady told FinanceAsia. Appointed as a young economic leader by the World Economic Forum in 2018, Riady is co-founder and managing partner of Venturra Capital, and is executive director of his family’s business, the Lippo Group.

This sentiment is echoed by Withersworldwide partner and co-lead of the law firm’s Withers Tech Asia team, Joel Shen, who recounted how much the market’s very own Java Jazz Festival had evolved through the years. When he first started attending it in 2009, he had to buy a physical ticket through a tour agency, which was paid for in cash. To access the venue, his hotel arrange would arrange a car and while on site, any food and drinks had to be paid for in legal tender.

Today, tickets are purchased using an app and entry is gained through scanning a QR code. Shen uses a ride hailing service to arrive at the venue, and a myriad of digital payment options are available for purchasing food or drinks on site.

“This is the power of digital technology,” he told FA.

“The average Indonesian consumer and merchant entrepreneur has seen their life change and improve in deep and appreciable ways. Technology is transforming the world’s largest archipelagic country whose unique geography - its 17,000 islands span the distance between London and Baghdad – impede the delivery of basic products and services.”

The next big opportunity

Indonesia is home to over ten tech unicorns including Blibli, Bukalapak, Traveloka and GoTo, according to Credit Suisse’s ASEAN Unicorns report.

“The region has witnessed the first generation of tech companies – the Tokopedias, GoJeks and Grabs – but in the coming cycle, we will see a new generation of companies in many sub-segments and sectors, and many of them will be truly technology-driven companies,” said Riady.

The Venturra Capital team identifies particular opportunity to be in the B2B segment, and within it, the firm has invested in online tech talent recruitment, Ekruit, and B2B e-procurement platform, MBiz.

Making waves

One company that is hoping to make a splash as one of the country’s next unicorns, is agritech start-up, eFishery. The aquaculture firm closed its Series C round in January with $90 million, the largest fundraise by any of its kind, according to a company press release. The investment round was co-led by Temasek, Softbank Vision Fund 2 and Sequoia Capital India, and included a new investment from its first financial backer, Aqua-Spark.

These funds will see eFishery expand regionally. It recently completed a pilot in Vietnam and is now testing Thailand and India – the latter in which it plans to prioritise expansion. While the eFishery team would not comment on its current valuation, it emphasised that the firm's recent successful fundraise was a huge contrast to when it first started business, in 2013.

“99% of the investors that we approached when we started out rejected us because our focus constituted such unfamiliar territory,” the company’s co-founder and CEO, Gibran Huzaifah, told FA in an interview from Bandung.

“Initially, investors were focussed on marketplaces, fintechs, consumers and later, edtech. But this has since changed, and now they understand the potential of agritech and aquatech companies like ours.”

During a brief stint as a fish farmer, Gibran had a dream of growing from one farm to thousands. But he quickly ran into a roadblock, commonly encountered by large-scale fish farmers: manual feeding is inefficient.

It was at this point, that he conceived the idea for eFishery. He took it upon himself to build a smart feeder prototype that communicated via smartphone to enable farmers to feed their fish remotely. Through feed schedules and sensors, farmers were now in a position to control the amount of food pellets being released. Improved efficiency translated into more productivity, and better income for the fish farmers.

Today, eFishery serves over 62,000 fish and shrimp farmers across 234 districts in Indonesia. Aside from technology, its integrated platform also provides access to feeds and offers a marketplace for the distribution of produce.

“Indonesia is the second largest aquaculture market in the world and small-scale fish farmers make up the majority of the farms. Given the land mass that we’re sitting on, we can add to the source of one of the country’s fastest growing food sectors,” added Gibran.

Although eFishery may be capitalising on the potential of Indonesia’s aquaculture industry, it is on a mission to ensure the sustainability of the ecosystem, for its farmers and stakeholders. The company is achieving this through technology.

From feed to funds

Gibran recognised that to scale the business, he would need farmers to scale their farms also. But this is when he encountered another issue – access to working capital across the full breadth of the supply chain.

Farmers only get paid when their fish is harvested and typically, this process takes three to four months. When considering the proportion of any loan that is taken by middlemen or financial agencies, Gibran estimates the working capital levels of most farmers to be at around 50 percent. It is for this reason that he sought to pioneer a more efficient way to provide working capital to farmers, through the launch of eFishery’s financial services product.

Almost a decade into its start-up journey, eFishery has registered positive cash flow for the past four years. When it comes to the next move, Gibran said that the firm is considering an IPO, but that currently, there is no specific timeline.

“As with all IPOs, it’s about market timing and external factors. But we have certain milestones that we are targeting first, like business expansion,” he said.

The external factor

According to Preqin’s H2 2022 Investor Outlook, currently, investors are firmly in “risk-off” mode. With market volatility and deteriorating economic conditions, the report suggests that there is little room for fresh capital commitments and a slower pace of deployment towards private assets.

The market correction, however, is not deterring investors such as Riady.

Riady explained that when Venturra Capital started investing in 2013, the market was at a low point, but the firm’s first investment vehicle, Venturra Fund 1, took a chance on investing $80 million. So far, the fund has generated over $755 million in returns. On a distribution to paid-in (DPI) metric, that is a return of at least nine times, but Riady noted that this figure may end up even higher, as currently, the fund still has some unrealised gains.

Riady draws a parallel between that period and the current cycle, and sees “the next two to three years being another amazing time” for investors active in the region. It is with this in mind, that Venturra Fund 2 was launched in the middle of the pandemic, at the start of 2021.

“I think this correction is very healthy because the last eight years were unprecedented in terms of the amount of capital being deployed in the space. The ecosystem could use a bit more discipline and the correction will cause a filtering mechanism. Over the next five to ten years, we will see the real companies, the real champions emerge,” Riady told FA.

As the G20 host country this year, Indonesia and its tech ambitions are emerging on the global stage. It is already the largest economy in Southeast Asia and is poised to become the seventh largest economy in the world by 2030.

As the country emerges as a Southeast Asian tech hub, its internet economy is expected to double, to be worth $146 billion by 2025. In tandem, a new generation of tech-enabled entrepreneurs including eFishery’s Gibran, is rising as well.

 

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