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Indonesia Venture Capital Outlook 2017

Firman Nugraha
Firman Nugraha

1. The document analyzes trends in venture capital investments globally and in Indonesia. It finds that while the US remains the largest hub, Asia is growing rapidly led by China and Southeast Asian countries like Indonesia. 2. Indonesia's VC investments have increased dramatically in recent years to $3 billion in 2017, led by e-commerce and transport. Chinese investors accounted for most of Indonesia's VC funding in 2017. 3. Interviews with local and foreign investors in Indonesia found they are optimistic about investment opportunities in fintech and healthcare and see potential for growth if talent, funding options and the startup ecosystem are further developed.

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Indonesia Venture Capital Outlook 2017
1. Highlight key global and regional (Asia) trends in VC investments 2. Review the VC investor and start-up landscape and growth in Indonesia 3. Showcase the VC investor confidence and outlook for Indonesia 4. Provide recommendations for further bolstering the start-up ecosystem in Indonesia Objectives
Google and A.T. Kearneys joint study on Indonesias venture capital (VC) outlook Methodology More than 25 VC interviews Data inputs from VCs A.T. Kearney research Third-party research Google research
The US remains the global start-up hub with more than 50% of the deals and investment value Note: Deal value represents only reported deal value. Sources: Crunchbase; A.T. Kearney analysis Global deals trend 2012-2016 Investment value ($bn) Number of deals $524 bn63,924 2,010 $5 bn $7 bn1,306 $225 bn12,733 $104 bn21,688 $7 bn673
Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis But, Asia is catching up quickly Global investment value Others 1% Asia 13% North America 75% Europe 11% Asia 33% Europe 15% North America 49% Others 3% $73 bn 4x $274 bn 2012 2016
Note: SEA is Southeast Asia. Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Within Asia, investment values have soared on the back of China and Southeast Asia Asia investment value Others 31% China 55% SEA 3% India 11% China 64% India 9% SEA 8%Others 19% $10 bn 9x $90 bn 2012 2016
Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Within Southeast Asia, Singapore remains the main hub but other countries are quickly catching up, with Indonesia leading the way Southeast Asia investment value Singapore 83% Others 2% Indonesia 14% Others 40% Singapore 41% Indonesia 19% $0.3 bn $6.8 bn 20162012 9x23x
Sources: Crunchbase; A.T. Kearney analysis While still nascent, investments in Indonesia are soaring, reaching ~$3 bn in 2017 (year-to-date) Indonesia investment value 2012 2016 2017 (Jan-Aug) $3.0 bn $44 mn 31x $1.4 bn 2x
Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Most of the investments are still in the seed or early stages; however, late-stage investments are generating most of the value Indonesia investment (Jan-Aug 2017) Series C or later 15% Series B 8% Series A 30% Seed 43% Debt/PE 4% Series C or later 43% Series A 15% Debt/PE 40% Series B 1% Seed 0% $3.0 bn53 # of deals Investment value
E-commerce and transport categories heavily dominate investments Note: Numbers may not resolve due to rounding. Sources: Bloomberg, TechCrunch, Techniasia.com, Crunchbase; A.T. Kearney analysis 100% 38% 58% Grand total Others Payment 2% 1% 1% Finance Classified/ directory Transport 1% E-commerce % total investment value (2012 Aug 2017) ~$1.8 bn ~$1.4 bn ~$500 mn Total funds raised (to date) Top categories in Indonesia
Note: The total investment cannot be attributed to Chinese investors, as there were also non-Chinese investors that participated in the funding rounds involving Chinese investors Sources: Crunchbase; A.T. Kearney analysis Indonesia investment value ($bn) ~$1.2 bn ~$1.1 bn 6% 1.4 2% 98% Chinese investors involvement Others 2017 (Jan-Aug) 3.0 94% 2016 ~$500 mn In 2017, Chinese investors became heavily involved in Indonesias start-up environment, accounting for ~95% of its investment value
Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) To capture investor outlook and priorities, we interviewed more than 25 local and foreign investors Respondents By category By fund size By role Foreign Local 54% 46% Foreign 42% Local 58% 29% $100-500 mn $50-100 mn >$500 mn 13% US$50 mn 38% 21% Investment officer/manager 21% 42% Founder/CEO 38% Partner/director
Investors are generally bullish on the outlook of the Indonesian market Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) What is your investment outlook for Indonesia? (% of responses) Local investors Foreign investors 21% 21% 57% 20% 80% Decrease investment (-10% or more) No change (+/-9%) Increase investment (+10% or more)
Investors have a positive outlook even when compared with other Asian markets Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) How does Indonesias outlook compare to other Asian markets? (% of responses) Local investors Foreign investors 14% 57% 29% 30% 50%20% Worse Similar Better
Sources: BPS, Bappenas, EIU, Nielsen, World Bank, UN, Statista; A.T. Kearney analysis Indonesia has a strong macroeconomic outlook and favorable demographics Indonesia consumer trends 2016 vs. 2021 2021 2016 88mn 150mn 63mn 128mn 85mn 148mn 13mn 23mn 11mn 42mn 3.6K 5.7K Banked population Upper and middle class Smartphone penetration Higher- educated base Online shopper base GDP per capita (USD)
1 SEA consists of Singapore, Malaysia, Indonesia, Vietnam, Philippines, Thailand, Cambodia, Laos, Myanmar, and Brunei. Sources: Crunchbase, World Bank, Internet World Stats, Statista; A.T. Kearney analysis With a current investment of $15 per Internet user, Indonesia has high potential for growth VC investments per Internet user ($, 2016) China 79 US 473 SEA average1 21India 19 Indonesia 15
Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Fintech and healthcare emerge as the top investment categories Top two categories in which to invest in Indonesia (% of responses) Fintech Healthcare 67% 25% Fintech is still in its infancy, but there is growing demand to transact online and to find alternatives to traditional banking/ financial services. There is an increasing demand for tech- enabled consumer services, and healthcare is the largest untapped vertical.
Investors highlight four key areas of improvement Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Key challenges Talent development Fiscal incentives Funding and exit options Start-up facilitation
Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Government can play an important role in boosting the start-up industry Select quotesKey asks from investors Develop more-qualified founders and (technical) engineers Streamline work permit process for foreign talent Lower capital gains tax to attract more investment into the tech sector Introduce tax shield for returning expats (or repatriation of skilled Indonesians) Create an exchange to buy and sell privately held tech shares Create an Indonesian sovereign fund to actively invest in tech sector Simplify regulatory processes relevant to start-ups, e.g. company incorporation, patent certification Build start-up parks with conducive infrastructure and synergistic ecosystem Talent development Fiscal incentives Funding and exit options Start-up facilitation
Source: A.T. Kearney analysis Government needs to play a strong role, as evidenced in other markets Set up national VC fund Set up SME Board/ChiNext/New Third Board, special board/market for high-tech and fast-growing enterprises Start-Up Chile, a public start-up accelerator which helps start-ups at all stages of growth by providing funding and mentorship French Tech Visa, a 4-year visa for start- up founders/employees/investors French Tech Ticket, a 1-year benefits package Fiscal incentives Funding and exit options Start-up facilitation 1. Work with educational institutions to develop engineers and entrepreneurs 2. Attract overseas entrepreneurs and talent 3. Provide tax incentives for investments in start- ups and for start-up operations 4. Set up government funds/government-led VCs aimed at start-ups 5. Establish multi-tier system in the public market for high-risk, high-tech start-ups 7. Simplify legal/administration requirements to start and operate start-ups 8. Develop start-up ecosystem to facilitate start-up growth, e.g. mentoring Talent development Establish start-up Intellectual Property Protection (SIPP) Various tax exemptions for investments by VC and incubator funds in start-ups 1 2 3 4 5 6 7 Recommendations
Authors Alessandro Gazzini, partner A.T. Kearney alessandro.gazzini@atkearney.com Shekhar Chauhan, principal A.T. Kearney shekhar.chauhan@atkearney.com Emmanuel J. Kuesar, consultant, A.T. Kearney emmanuel.kuesar@atkearney.com Henky Prihatna, country industry head Google henky@google.com Mifza Muzayan sales operations & strategy lead Google mifza@google.com Astri Suhaimi, senior industry analyst Google astrisuhaimi@google.com
Glossary Term Definition Amvesindo Asosiasi Modal Ventura Untuk Start-up Indonesia Banked population Population that has an account at a financial/banking institution Debt/PE Deals that are driven by non-VC sources such as private equity, debt financing, IPO. VCs may be involved in the deals, but are not the lead investors Foreign investors Investors that are based, and/or have majority of investments, outside of Indonesia Higher-educated base Population that has at least a university degree Local investors Investors that are based, and/or have majority of investments, in Indonesia Smartphone penetration Smartphone-using population SME Small and medium-size enterprise Upper and middle class Socioeconomic group based on the number of households earning more than $10,000 per annum VC Venture capital

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Indonesia Venture Capital Outlook 2017

  • 2. 1. Highlight key global and regional (Asia) trends in VC investments 2. Review the VC investor and start-up landscape and growth in Indonesia 3. Showcase the VC investor confidence and outlook for Indonesia 4. Provide recommendations for further bolstering the start-up ecosystem in Indonesia Objectives
  • 3. Google and A.T. Kearneys joint study on Indonesias venture capital (VC) outlook Methodology More than 25 VC interviews Data inputs from VCs A.T. Kearney research Third-party research Google research
  • 4. The US remains the global start-up hub with more than 50% of the deals and investment value Note: Deal value represents only reported deal value. Sources: Crunchbase; A.T. Kearney analysis Global deals trend 2012-2016 Investment value ($bn) Number of deals $524 bn63,924 2,010 $5 bn $7 bn1,306 $225 bn12,733 $104 bn21,688 $7 bn673
  • 5. Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis But, Asia is catching up quickly Global investment value Others 1% Asia 13% North America 75% Europe 11% Asia 33% Europe 15% North America 49% Others 3% $73 bn 4x $274 bn 2012 2016
  • 6. Note: SEA is Southeast Asia. Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Within Asia, investment values have soared on the back of China and Southeast Asia Asia investment value Others 31% China 55% SEA 3% India 11% China 64% India 9% SEA 8%Others 19% $10 bn 9x $90 bn 2012 2016
  • 7. Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Within Southeast Asia, Singapore remains the main hub but other countries are quickly catching up, with Indonesia leading the way Southeast Asia investment value Singapore 83% Others 2% Indonesia 14% Others 40% Singapore 41% Indonesia 19% $0.3 bn $6.8 bn 20162012 9x23x
  • 8. Sources: Crunchbase; A.T. Kearney analysis While still nascent, investments in Indonesia are soaring, reaching ~$3 bn in 2017 (year-to-date) Indonesia investment value 2012 2016 2017 (Jan-Aug) $3.0 bn $44 mn 31x $1.4 bn 2x
  • 9. Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis Most of the investments are still in the seed or early stages; however, late-stage investments are generating most of the value Indonesia investment (Jan-Aug 2017) Series C or later 15% Series B 8% Series A 30% Seed 43% Debt/PE 4% Series C or later 43% Series A 15% Debt/PE 40% Series B 1% Seed 0% $3.0 bn53 # of deals Investment value
  • 10. E-commerce and transport categories heavily dominate investments Note: Numbers may not resolve due to rounding. Sources: Bloomberg, TechCrunch, Techniasia.com, Crunchbase; A.T. Kearney analysis 100% 38% 58% Grand total Others Payment 2% 1% 1% Finance Classified/ directory Transport 1% E-commerce % total investment value (2012 Aug 2017) ~$1.8 bn ~$1.4 bn ~$500 mn Total funds raised (to date) Top categories in Indonesia
  • 11. Note: The total investment cannot be attributed to Chinese investors, as there were also non-Chinese investors that participated in the funding rounds involving Chinese investors Sources: Crunchbase; A.T. Kearney analysis Indonesia investment value ($bn) ~$1.2 bn ~$1.1 bn 6% 1.4 2% 98% Chinese investors involvement Others 2017 (Jan-Aug) 3.0 94% 2016 ~$500 mn In 2017, Chinese investors became heavily involved in Indonesias start-up environment, accounting for ~95% of its investment value
  • 12. Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) To capture investor outlook and priorities, we interviewed more than 25 local and foreign investors Respondents By category By fund size By role Foreign Local 54% 46% Foreign 42% Local 58% 29% $100-500 mn $50-100 mn >$500 mn 13% US$50 mn 38% 21% Investment officer/manager 21% 42% Founder/CEO 38% Partner/director
  • 13. Investors are generally bullish on the outlook of the Indonesian market Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) What is your investment outlook for Indonesia? (% of responses) Local investors Foreign investors 21% 21% 57% 20% 80% Decrease investment (-10% or more) No change (+/-9%) Increase investment (+10% or more)
  • 14. Investors have a positive outlook even when compared with other Asian markets Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) How does Indonesias outlook compare to other Asian markets? (% of responses) Local investors Foreign investors 14% 57% 29% 30% 50%20% Worse Similar Better
  • 15. Sources: BPS, Bappenas, EIU, Nielsen, World Bank, UN, Statista; A.T. Kearney analysis Indonesia has a strong macroeconomic outlook and favorable demographics Indonesia consumer trends 2016 vs. 2021 2021 2016 88mn 150mn 63mn 128mn 85mn 148mn 13mn 23mn 11mn 42mn 3.6K 5.7K Banked population Upper and middle class Smartphone penetration Higher- educated base Online shopper base GDP per capita (USD)
  • 16. 1 SEA consists of Singapore, Malaysia, Indonesia, Vietnam, Philippines, Thailand, Cambodia, Laos, Myanmar, and Brunei. Sources: Crunchbase, World Bank, Internet World Stats, Statista; A.T. Kearney analysis With a current investment of $15 per Internet user, Indonesia has high potential for growth VC investments per Internet user ($, 2016) China 79 US 473 SEA average1 21India 19 Indonesia 15
  • 17. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Fintech and healthcare emerge as the top investment categories Top two categories in which to invest in Indonesia (% of responses) Fintech Healthcare 67% 25% Fintech is still in its infancy, but there is growing demand to transact online and to find alternatives to traditional banking/ financial services. There is an increasing demand for tech- enabled consumer services, and healthcare is the largest untapped vertical.
  • 18. Investors highlight four key areas of improvement Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Key challenges Talent development Fiscal incentives Funding and exit options Start-up facilitation
  • 19. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017) Government can play an important role in boosting the start-up industry Select quotesKey asks from investors Develop more-qualified founders and (technical) engineers Streamline work permit process for foreign talent Lower capital gains tax to attract more investment into the tech sector Introduce tax shield for returning expats (or repatriation of skilled Indonesians) Create an exchange to buy and sell privately held tech shares Create an Indonesian sovereign fund to actively invest in tech sector Simplify regulatory processes relevant to start-ups, e.g. company incorporation, patent certification Build start-up parks with conducive infrastructure and synergistic ecosystem Talent development Fiscal incentives Funding and exit options Start-up facilitation
  • 20. Source: A.T. Kearney analysis Government needs to play a strong role, as evidenced in other markets Set up national VC fund Set up SME Board/ChiNext/New Third Board, special board/market for high-tech and fast-growing enterprises Start-Up Chile, a public start-up accelerator which helps start-ups at all stages of growth by providing funding and mentorship French Tech Visa, a 4-year visa for start- up founders/employees/investors French Tech Ticket, a 1-year benefits package Fiscal incentives Funding and exit options Start-up facilitation 1. Work with educational institutions to develop engineers and entrepreneurs 2. Attract overseas entrepreneurs and talent 3. Provide tax incentives for investments in start- ups and for start-up operations 4. Set up government funds/government-led VCs aimed at start-ups 5. Establish multi-tier system in the public market for high-risk, high-tech start-ups 7. Simplify legal/administration requirements to start and operate start-ups 8. Develop start-up ecosystem to facilitate start-up growth, e.g. mentoring Talent development Establish start-up Intellectual Property Protection (SIPP) Various tax exemptions for investments by VC and incubator funds in start-ups 1 2 3 4 5 6 7 Recommendations
  • 21. Authors Alessandro Gazzini, partner A.T. Kearney alessandro.gazzini@atkearney.com Shekhar Chauhan, principal A.T. Kearney shekhar.chauhan@atkearney.com Emmanuel J. Kuesar, consultant, A.T. Kearney emmanuel.kuesar@atkearney.com Henky Prihatna, country industry head Google henky@google.com Mifza Muzayan sales operations & strategy lead Google mifza@google.com Astri Suhaimi, senior industry analyst Google astrisuhaimi@google.com
  • 22. Glossary Term Definition Amvesindo Asosiasi Modal Ventura Untuk Start-up Indonesia Banked population Population that has an account at a financial/banking institution Debt/PE Deals that are driven by non-VC sources such as private equity, debt financing, IPO. VCs may be involved in the deals, but are not the lead investors Foreign investors Investors that are based, and/or have majority of investments, outside of Indonesia Higher-educated base Population that has at least a university degree Local investors Investors that are based, and/or have majority of investments, in Indonesia Smartphone penetration Smartphone-using population SME Small and medium-size enterprise Upper and middle class Socioeconomic group based on the number of households earning more than $10,000 per annum VC Venture capital