FDI

Strategies for Startup in Indonesia to Attract Investors

Trường Lăng

October 25, 2024

FDI

Strategies for Startup in Indonesia to Attract Investors

Trường Lăng

October 25, 2024

investor-startup-indonesia-1

Exponential growth has been witnessed over the last few years in the number of startups, largely propped up by rapid advances in technology, newer ways of doing business, and the growing demand for digitization. Unlike traditional enterprises, startups are created to scale up fast with scalable solutions that address critical market needs, many a time riding on disruptive technologies. These range from Fintech and E-commerce to Healthtech and Ed-Tech platforms offering seamless, innovative solutions to daily problems.

With such remarkable growth, Indonesia has secured a position as a hotbed for the most vibrant startup ecosystem in Southeast Asia, placing it as a strategic market for nascent ventures. A large population into technology, along with a fast-growing appetite for digital services, has eventually turned Indonesia into an important destination for both domestic and overseas investors looking for potential opportunities.

This article will provide an overview of the rapidly growing ecosystem of startups in Indonesia, explaining how startups can capture investors’ interest and describing different types of investors in the context of the startup economy. For entrepreneurs in search of funding to enthusiasts of the fast-changing landscape, this is the go-to guide into the dynamic and growing world of Indonesian startups.

Key Takeaways:

  • Where traditional companies are created to solve a problem, scale up fast, offering scalable solutions for critical market needs often using disruptive technologies.
  • Indonesia has emerged as a standout in Southeast Asia’s vibrant startup landscape, recording remarkable growth that positions the country as a key market for emerging ventures.
  • In his explanation, according to Eddiwan Danusaputro, CEO of PT BNI Modal Ventura, Indonesia now ranks as the world’s sixth-largest startup hub. Therefore, it maintains a very strategic position in the global entrepreneurship community.

About Investor Startup Indonesia

According to Eddiwan Danusaputro, CEO of PT BNI Modal Ventura, Indonesia is the world’s sixth-largest hub for startups, and that is an indication of how great a position it occupies within the world entrepreneurial map (Eddiwan Danusaputro, 2023). Although the hub for startups has been in a state of slowdown, the country remains one of the leading spots sought after by investors, particularly due to its strong market and growth prospects.

On a wider scale, global startup funding has been hard hit, mainly driven by falling interest rates and increasing economic uncertainties. From the second quarter of 2022, funding had been on an upward path; however, in the third quarter, this started to nosedive towards the end of the year. This clearly shows the kind of impact that global economic situations have on the field of startups both globally and within Indonesia.

However, in spite of all these challenges, investors remain optimistic about investment; they are far more prudent and selective in strategy but nonetheless continue to value and pursue opportunities in the startup ecosystem. This cautious but continued interest indicates that despite the tightened market conditions, Indonesia’s startup environment is still ripe for growth and future investments.

Also Read: FDI Companies in Vietnam: From Isolation to Global Opportunity

Characteristics of Indonesian Startups

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This definition alone can describe a company in Indonesia as a startup if it is at the early stages or the formative stage, characterized by usually limited financial resources and a small operational team. As explained in the book ‘Perkembangan Startup di Indonesia’, which elaborates on startups within Indonesia, Muhamad Bakhar et al., a set of experts that are interested in the Indonesian startup ecosystem, several defining traits commonly distinguish startups in the region (Muhamad Bakhar et al., 2023).

Company Age

Most of the startups in Indonesia are operating for less than three years, which is still very young and at an infant stage for development in the digital area.

Size of Workforce

The workforce size for these companies is usually below 20 employees, sometimes just the founding members and a few key operation employees. Revenue

They usually operate on less than $100,000 annually when they are in their infancy, because the cost for product or service development is very high during this stage of a venture.

Developmental Progress

This is actually the growth stage where scaling up of operations and building of markets is done.

Industry Focus

The majority of the startups fall under the category of technology because they utilize digital platforms and applications for innovation and disruption of traditional industries.

Product or Service Offering

These range in everything from software solutions to online platforms for the offering of services and products.

Operational Channels

Indonesian startups operate mainly via digital channels, such as through websites or social media, which again is a reflection of their technology-driven business models.

These qualities indicate a high congruence among startups with regards to technology and information sectors. Indonesia’s startup scenario began to take flight in the early 2000s, mainly by young entrepreneurs. Indeed, due to the following reasons among others, Indonesia has remained one of the hot markets regarding startup initiatives.

Tech-savvy Population

With 212.9 million internet users as of January 2023, which is 77% of the population, Indonesia’s openness toward new technologies gives fertile ground to digital startups.

Enormous Market Potential

The population size is so immense that it is an enormous marketplace for startups to scale their businesses.

Customer Satisfaction

Those startups that gave superior quality service had high levels of satisfaction among customers-a very important reason for long-term success.

Capital from Investors and Support by the Government

Access to venture capital and government initiatives are key enablers of startup growth, ensuring better access to finance and a supportive regulatory framework.

How to Win Over Investors: A Guide for Indonesian Startups

Raising investor funding is a key turning point for any startup on its way to achieve scale and sustainability. For this, it’s important that any startup be viable, scalable, and profitable.

Following are some key ways to make a startup more attractive to investors. Some of the listed best practices in the industry were cited from Forbes Business Development Council, a community uniquely designed for senior-level business development executives and leaders to share and discuss innovative ideas in the online platform. (Forbes Business Development Council, 2023).

Prove Traction

Fundamentally, investors invest in a startup with a good degree of traction. Any growth through increasing user numbers, significant revenue generation, and the adoption of the product forms traction. Traction is a proof that demand for your solution exists. So, if there’s growth in customer or user acquisition, highlight it as a sign that your business solves real market needs.

Milestone Reached and Targets Exceeded

Investors love predictability. Startups that repeatedly hit leading indicators-whether product development milestones, market entry, or revenue growth-prove their ability to execute on their business plan. Demonstrating the ability to adapt and maintain growth builds investor confidence in the team’s capability.

Clearly Define Financial Goals and Unique Selling Points

Investors seek clarity both on financial projections and differentiation in business. A clear vision of how the finances will shape up coupled with clarity on the product differentiator instills confidence and showcases long-term promise.

Highlighting Customer Value

As an investor, they would like to know how your product or service has impacted the end-user. Identify the problem you are trying to solve and the value your solution brings about because this too would help investors estimate the long-term sustainability of the business.

Team Expertise and Market Knowledge

The team is as important as the product. Present a dedicated, knowledgeable team with a clear understanding of the market and how your startup intends to capture it. Investors are attracted by teams that are much vested in their company’s success and growth.

Present a Robust Business Plan with Strong ROI Projections

It is paramount that there is a well-articulated business plan, complete with a full-scale financial model replete with Return on Investment forecasts. Investors need to see a clear path to profitability backed by sound market analysis and strategies for mitigation.

Lever Growth Opportunities

Start-ups where there are clear opportunities for growth will attract investors. This can be through expansion in the market, strategic partnerships, or diversification of offerings-such is important in showing that your startup indeed has possible traction for future growth.

Network for Warm Introductions

Leverage your network to get introductions to investors, greatly improving your likelihood of success. A timely, to-the-point executive summary through a connection can be the setting for a successful investor meeting.

Show Passion about Sustainability

Investors indeed have a growing attraction to founders passionate about building sustainable businesses. The demonstration of your commitment to long-term success, coupled with your company’s vision, will strike a chord with potential investors.

Consider Subscription-Based Models

Subscription models are attractive to investors because of the predictable, recurring revenues they ensure. Startups with such models are bound to have more accurate financial forecasts, while their customer retention rates are usually very strong, something very attractive to investors.

Clearly Articulate an Elevator Pitch in a Succinct Mannera

Investors are busy, and any startup that can articulate clearly its value proposition in a two-sentence elevator pitch will stand out from the crowd. That shows clarity of thought on the business and the ability to articulate its potential.

Check other article: PT PMA Indonesia: An Entry Point for International Investors

Types of Investor in Startup Indonesia

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The variety of investors for Indonesian startups is increasing, each with their own set of advantages and opportunities. Knowing how to raise such investors is important for any startup seeking to raise capital and scale up operations.

Quoting from Lexelerate.id, a leading legal and business consultancy service for Indonesian startups and small to medium enterprises (SMEs), the following are some types of investors in Indonesia (Lexelerate.id, 2023):

1. Venture Capital Firms

VC firms are instrumental in providing finance to early-stage startups. These firms collectively raise capital from various investors and then invest the same in promising startups in lieu of equity. A VC firm does not only provide financial support but also mentors, guides strategically, and connects the startups with industry linkages for rapid growth.

This also means that startups will attract VCs and have the power of experienced professionals to accelerate business development and scaling. Among leading VC firms in Indonesia are names like Sequoia Capital, East Ventures, and Golden Gate Ventures; quite influential in the ecosystem.

2. Angel Investors

Angel investors are usually high net-worth individuals who invest from their fortunes in early stage ventures. Besides providing the much-required capital, they can also contribute relevant experience and contacts.

Their role can be quite instrumental in guiding startups through the formative years of their operations with mentorship and strategic advice that could help them out of most challenges. Because they are so hands-on, startups that tend to attract angel investors often benefit from personalized attention and advice other than financial investment.

3. Corporate Investors

Large companies in Indonesia have been increasingly investing through corporate venture arms. Corporate investors include the likes of MDI Ventures, owned by Telkom, and Sinar Mas Group, which extend venture investments to incubating emerging businesses with the aim of fostering innovation.

Moreover, startups allied with corporate investors will benefit not only from financial input but also from extensive networks of distribution, proficiency, and experience within specific industries and strategic partnership opportunities. On the corporate side, this deal often provides an opportunity to stay in the lead regarding innovations, probably including new technologies in their operations.

4. Government Initiatives

The Indonesian government has initiated a number of programs supportive of startups, since from their end, the vital factors for economic growth and innovation could be ensured. The initiatives by the government include BKPM, which translates to Indonesia Investment Coordinating Board, and INA stands for Indonesia Investment Authority, through which incentives and regulatory supports are made available in order to attract domestic and foreign investments.

More stable and friendly regulation of the environment and access to various government-backed funding initiatives could further spur the ecosystem, among others. Among others, a more stable and favorable regulation of the environment and access to various government-backed funding initiatives will help spur further stimulation to the ecosystem.

5. Crowdfunding Platforms

Crowdfunding is one means of raising capital for a startup. KitaBisa and Wujudkan are some of these platforms through which entrepreneurs can rise from a pool of people, many times from their immediate circles of support.

Crowdfunding is especially effective in the case of startups whose focus is on social impact or other creative projects; that is, it provides a means of building public support and raising awareness about their projects while gathering the necessary funds to move forward.

6. Private Equity Investors

While venture capital generally targets early-stage businesses, the private equity investor is more interested in mature startups that have the intent to scale. Private equity firms give large tracts of capital in return for equity, often large tracts of equity. PE basically enables a startup to start scaling appropriately. Startups which attract private equity investment are usually placed for substantial growth or strategic consolidation, considering such investors come with deep pockets and a long growth strategy.

7. Impact Investors

Impact investors are increasingly common in Indonesia, particularly those that invest in a startup trying to solve a social or environmental problem. Like other investors, impact investors want to make a decent return on their investment. However, they also want to make a measurable impact on the social or environmental cause that the investment targets. In the case of a renewable energy, healthcare, or education startup, for instance, finding an impact investor may align its growth plans with a higher purpose and establish it in the league of socially responsible companies.

Conclusion

Indonesia’s startup ecosystem keeps flourishing, supported by a wide range of investors, from venture capital firms through angel investors and corporate ventures to impact investors. Government initiatives that promise innovation and growing sectors, such as fintech and e-commerce, will further provide reason for optimism among new entrepreneurs.

It requires strategic guidance, however, to navigate the regulatory landscape and secure investment of the right type. It is here that Viettonkin Consulting can provide invaluable support. Their legal and business consulting experience puts them in a position to support both startups and investors in overcoming regulatory hurdles and structuring investment efficiently in Indonesia.

Whether it be a startup or in pursuit of growth, partnership with a consultancy like Viettonkin will ensure your venture is set for success in Indonesia’s dynamic market. Click this link to learn more on how Viettonkin Consulting can help your business.

Related articles here: Reasons to Invest in Indonesia

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