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Startups in Indonesia

According to Wikipedia, a startup is an entrepreneurial venture which is usually a new, fast-growing, and rapidly growing business that aims to meet market needs by developing viable business models around innovative products, services, processes, or platforms.

Startups are typically companies designed to effectively develop and validate scalable business models. The essence of startups themselves is generally related to the concepts of ambition, innovation, scalability, and growth.

Usually, startups offer products/services that are not currently offered or are not well known in the market. At the beginning of the formation of a startup, usually, the expenses are greater than the income. Most startup companies are usually sponsored by other people, other companies, or bank loans.

According to Paul Graham, a startup is a company designed to be scalable quickly. Focused on growth, a startup is expected to grow regardless of geographic location. This is also what distinguishes startups from small businesses.

Indonesia has risen to first place in the category of “startup frontier markets,” according to a CB Insights assessment of 50 nations. The “hotspots of raising venture capital (VC) outside of regions where mainstream VC is concentrated” are included in this category.

While numerous businesses are flourishing in the world’s biggest archipelago, there are several aspects of its regulatory, market, and funding landscape that can either help or hinder company growth.

The good of running a startup in Indonesia

Biggest economy in South East Asia
You’ve probably heard that this archipelago of more than 17,000 islands is the world’s fourth most populous country. This means you’ll have a consumer base of at least 270 million people. Having your startup firm here will allow you to test and refine your new product or service in a diverse environment.

Furthermore, the government has negotiated numerous Free Trade Agreements (FTAs) with other countries, allowing your company to expand. Indonesia is a member of ASEAN and has numerous free trade agreements with European nations such as Norway and Switzerland.

Indonesia is regarded as having the largest online market in Southeast Asia. Since 2012, the country has received the most venture capital investments from emerging economies throughout the world.

Giant International companies such as Alibaba, Rakuten Ventures, Tencent Holdings, JD.id, are pouring massive sums of money into Indonesia in the hopes of taking a piece of the ever-expanding pie.

According to AT Kearney study released in late 2017, startup investments in the country have increased 68 times in five years, from US$1.4 billion in 2016 to at least US$3 billion in 2017. The startup scene was still in its infancy at the moment; think how much it will expand in the next few years.

Market
Indonesia is receiving more attention than ever before. This developing market is mostly attracting overseas startups.
Despite the fact that only 62.6 percent of Indonesian nationals were online in 2020, the country’s enormous population provides prospects for a market of 143 million internet users, which is 26 times greater than Singapore’s. While much of this is concentrated on Java Island, particularly in Jakarta, low-cost mobile devices are assisting the rest of the archipelago in catching up.
Because of easy access to devices, 44% of individuals use the Internet solely through their mobile phones; this is fantastic news for anyone who wishes to establish a new business by combining mobile apps and digital platforms.
Government
The influence of Indonesian President Joko Widodo, who is a strong promoter of technology and digital innovation, is helping to boost this sector. One of his goals in this developing sector is to create 1,000 domestic digital businesses worth a total of $10 billion in 2020 by providing money, community building, and regulatory support.

The low initial cost to set up a local company
When you start a local business, you will have lower initial costs. When starting a business in Indonesia, there are numerous entities to consider. They’re primarily:
Representative offices for local limited liability companies (PT PDMN) and foreign limited liability companies (PT PMA) (KPPA)

Challenges of running a startup in Indonesia

Most people don’t have a bank account
Other countries may be surprised to learn that Indonesia is a severely unbanked country, with only a small fraction of the population possessing a credit card.

Shortage of skilled talent
Indonesia is presently facing tremendous hurdles in terms of skills needs and abilities to keep up with workforce requirements as a result of expanding globalisation, innovative technology, and altering work patterns, according to the International Labour Organization.

Poor education, according to The World Bank, is one of the factors that contribute to skill and ability gaps. Inadequate education also causes people to lack critical thinking skills, which are especially important when starting a business in Indonesia.

Regulations are challenging to get into
Because of the fast pace of the startup industry and the complexity of the bureaucracy, the country is slow to adjust. The country rose from 91st place in the World Bank’s Ease of Doing Business Index in 2017 to 72nd place in 2018 before dipping to 73rd place in 2019.

The ongoing ratification procedure is likewise complicated by bureaucracy and red tape. In order to do business in Indonesia, investors will have to deal with a variety of organizations and ministries. Despite the introduction of the Online Single Submission system in 2018 to streamline processes, most firms still require a few weeks before they are ready to launch.

Infrastructure and Logistics
In terms of infrastructure, there is a significant gap between the westernmost islands of Java, Bali, and Sumatra and the rest of the country, particularly in transportation and technology.
Java has almost half of Indonesia’s Internet users, but internet and phone signals are only available in big cities on the more distant islands.

This makes it very challenging for e-commerce to distribute products to the eastern part of Indonesia. Although, the growth of e-commerce makes it faster for the development of infrastructure itself compared to 10 years ago.

Unicorn

Even with those limitations and challenges, there are several startups that can break those barriers and get listed as unicorns. For those of you who often read news about startups, you may have read the term Unicorn. Unicorns in the startup world are startup companies that have a value of more than US $ 1 billion. The term was first used by venture capitalist Aileen Lee, where she chose this one-horned horse to represent the statistical rarity of startup ventures.
We list 5 startups that already have unicorn badges, although the list might change in the future :

1. Gojek
Gojek is a startup in the technology and transportation industry that was founded in 2010 by Nadiem Makarim. At first, Gojek only offered online motorcycle taxi-based transportation services, then in 2015, a mobile application was created to facilitate ordering.

Gojek, which is now so big in Indonesia, cannot be separated from the help of investors, and this large amount of funding has earned Gojek the title of Unicorn because it has pocketed funds of more than USD 1 billion or equivalent to Rp. 14 trillion. Gojek achieved this status in August 2016, after six years of existence. With this, Gojek is the first unicorn startup company in Indonesia.

2. Bukalapak
Born in the same year as Gojek, Bukalapak is a startup company engaged in the marketplace or providing a means of buying and selling from consumer to consumer. Bukalapak received funding from Elang Mahkota Teknologi or EMTEK.

In 2017, Bukalapak finally officially bears the title of Unicorn. Now serving more than 6 million Pelapak, 5 Million Bukalapak Partners, and more than 90 million active users. Through both online and offline platforms, Bukalapak has been committed to developing small businesses from the start.

3. Tokopedia
Tokopedia was founded earlier than the two startups above, namely in 2009, by William Tanuwidjaja and Leontinus Alpha Edison. Is a startup company that stands in the field of e-commerce business, which allows each individual, small shop, and brand to open and manage an online store. After eight years of existence, Tokopedia followed Gojek to win the second Unicorn title in Indonesia through funding worth USD 1.3 billion.

In 2020, Tokopedia claims to have controlled 1.5 percent of the economy in Indonesia. This is based on a number of 7.2 million SMEs registered to join the number of monthly active users reaching 90 million users.

The recent merger of Indonesia’s two most valued startup companies, Gojek and Tokopedia to merge as GoTo Group has caused many investors and foreign entrepreneurs to set their eyes on this country as promising ground for startups.

4. Traveloka
The company founded by Ferry Unardi and his two colleagues in 2012 has also won the title of Unicorn. This company, which is engaged in online flight ticket and hotel booking services, with a focus on domestic travel in Indonesia, is still relatively young. This makes it the youngest Indonesian startup company to be able to win the Unicorn title until now.

Traveloka received an injection of investment funds from an American company called Expedia amounting to USD 350 million. The Unicorn title that has been achieved since 2017 strengthens Traveloka’s position as a market leader in the travel industry in Indonesia. Now Traveloka is not only known as a unicorn in the online travel vertical but has also penetrated other lifestyles and finances.

5. OVO
The next company is OVO as the fifth Unicorn company in Indonesia with a valuation of USD 2.9 billion. This valuation calculation is clearly higher than its predecessors, namely Bukalapak and Traveloka. OVO is an all-in-one payment application that is currently the largest fintech in Indonesia after running more than 1 billion transactions in 2018.

Now OVO has become a trusted payment partner in various e-commerce applications and is a digital payment for decacorn transportation applications in ASEAN, Graha.

Written by Hermanto