Indonesian tech startups pique investors

Big market size and consumers hungry for Web and mobile services drive tech startup scene in Southeast Asian nation. Investors have eyes on market but local startups must focus on stronger innovation to capture funds.
Written by Vivian Yeo, Contributor

Indonesia's tech startup scene is abuzz, thanks to various factors including its viable market size and consumers who are hungry for Web and mobile. These young businesses, however, will need to pump up their innovation to attract investor funds.

#StartupLokal, a local community for tech enthusiasts, startups, investors and media, estimates that there are currently around 500 startups in the country. In an e-mail interview with ZDNet Asia, Natali Ardianto, co-founder of #StartupLokal, said around 10 to 15 new startups spring up every month. The community, which was initiated in April 2010 in partnership with venture network Mekar.biz, aims to help 5,000 startups attract investment within the next three years.

Ardianto, who is CTO of golfnesia.com, a booking Web site for golf courses in Indonesia, noted that several startups in the country have penetrated the international market, including eevent.com, sixreps.com, autosally.com and koprol.com. Ardianto is himself an entrepreneur, having helped found Urbanesia.com, a business directory with promotional and social elements.

Observers say the bustling startup environment is driven by several factors. For one, mobile penetration in the country is significant, and growing.

The Nielson Company reported in a blog post in February that Indonesia's mobile penetration as of 2010 was 54 percent, up from 20 percent in 2005.

The local population is also perceived to be receptive to social media. ComScore said last month that Indonesia boasted a social network penetration of 90 percent, and is No. 4 globally in terms of Twitter reach.

Gian Carlo Binti, Southeast Asia senior market analyst for peripherals at IDC Indonesia, said in an e-mail the high availability of affordable mobile devices and services in the country is the key driver for mobile apps entrepreneurship.

"Telcos aggressively promote service plans, and more than 80 percent of the total telco spending is for mobile devices and services," Binti explained. "The top three service providers--Telkomsel, Indosat and XL--have also launched their mobile ad platforms, which in turn have helped to spur startups to provide MMS (multimedia messaging service) content, RBT (ringback tone), games and other apps."

Indonesia's growing Internet penetration is also spurring online shops and related opportunities, he noted.

This observation was backed by #StartupLokal's Ardianto, who added that about 25 daily deals sites have emerged within the past year. Other than group-buying deals, news portals are another dominant category of tech startups sprouting up in the country, he said.

Investor interest mixed
Indonesia's healthy startup culture has caught the eye of venture capitalists (VC), though not all have committed funds to entrepreneurs there.

Singapore-based East Ventures, which focuses on early-stage mobile and consumer Web startups, has invested in five Indonesian companies and plans to make further investments in coming months. The VC firm has also committed to two Singapore outfits, Apps Foundry and Foound.

Wilson Cuaca, managing partner at East Ventures, pointed out that Indonesia is one of the biggest Internet markets in Southeast Asia and has "huge potential", given its low Internet penetration.

"Many U.S. or non-local digital consumer products are used by Indonesian users even though the product has no sales or representative office here," he noted in an e-mail. "Somehow, the users are able to adopt the product and work around it and integrate it with Indonesian culture."

East Ventures chose the five startups--Tokopedia, Urbanesia, Disdus, Trendie.st and Pricearea--because they have "good teams and big potential", Cuaca said, even though they may not be profitable yet.

He observed that the startup landscape in Indonesia is vibrant but lacks the necessary understanding of how to take themselves forward. "Many good ideas fly around but they find it hard to execute because of the lack of funding and knowhow [of] where to start," he said in an e-mail. "Many of the founders are first-time entrepreneurs and still very young, with passion for technology and good technical skills."

"East Ventures help them by offering funds, focusing on what they are good at, advising on corporate governance and helping them build a cool product that fits into the Indonesian market," Cuaca said.

Azione Capital, on the other hand, considered eight Indonesian startups but eventually made no investments as the companies lacked "groundbreaking innovation", said Dennis Phua, an executive director at the company.

The world's fourth most populous nation, Indonesia has a sizeable domestic market and one that is "willing to try new mobile applications", he explained in an e-mail, adding that this paves the way for "very ordinary ideas to do massively well".

According to Phua, startups that develop for mobile platforms including Symbian and Blackberry, are predominant, particularly in Jakarta and Surabaya.

In addition, consumers in Indonesia are "sufficiently sophisticated" and experimenting costs are low, he said.

However, startups in the country are relatively inexperienced and are not actively looking for professional investments, he revealed, adding that online startups in general imitate successful U.S. startups without any localization.

"The Web-driven startups are a knee-jerk reaction to the influence of successful Silicon Valley startups. However, as they simply copy the models, they do not customize their products for Indonesian consumers and do not have good takeup," he said.

Acknowledging this, East Ventures' Cuaca said: "The majority of Indonesian startups build 'me too' products, but some of them have fresh and innovative products. We are okay with that and still invest in them.

"We think that will evolve as the startup community gets matured," he said.

Limited government support, impact
When asked about the role of the Indonesian government in facilitating the growth of local startups, both Ardianto and Phua pointed to a lack of specific programs targeting tech entrepreneurs. Cuaca, on the other hand, said there are initiatives such as incubation, mentorship and business competitions.

Janet Chiew, research manager at IDC Government Insights Asia-Pacific, said the government does recognize the role of technology and importance of promoting growth among Indonesia's small and midsize enterprises (SMEs).

"Whilst there are limited structured funding mechanisms for technology entrepreneurs, the establishment of the SME innovation center in 2007 is targeted to address intellectual property rights, and resourcing and funding issues entrepreneurs face in Indonesia, through coordination of activities across different government departments, as well as promoting public-private partnerships in research," Chiew noted in an e-mail.

#StartupLokal's Ardianto added that perceived government corruption is also not an issue for local startups in reaching out to overseas markets and investors.

According to the results of Transparency International's Corruptions Perception Index 2010, Indonesia scored 2.8, out of a possible 10 which are awarded to uncorrupted and transparent government.

Indonesian startups, Ardianto pointed out, have more international investors than local investors. On top of that, the four initiators of #StartupLokal were invited by the government of Ireland, through Enterprise Ireland, to visit Europe's Silicon Valley last month, he added.

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