Forward thinking founders of Chinese breakout companies and Chinese VCs have been exploring and expanding their efforts in the Southeast Asia market. Indonesia, representing almost 40% of the economic output of Southeast Asia is attracting fresh investments and “SEA turtles”, the Southeast Asian returnees who had studied in top universities overseas. Some breakout companies founded by SEA turtles include Go-Jek, Grab, and Traveloka.
Chinese tech giants have tapped into the Southeast Asian market these years. Alibaba invested US$ 1 billion in Singapore-based e-commerce startup Lazada in 2016 and Tencent invested US$ 1.2 billion to Indonesia-based logistics and payment startup Go-Jek last month.
A newly established Silicon Valley fund is following the steps of Chinese money and is dedicated to co-founding and investing in early-stage companies capitalizing on the rapid growth of private consumption in the Indonesian market.
Previous backers of PayPal and SpaceX are founding an Indonesia-focused independent venture capital firm Intudo Ventures, and announced on June 13th, the closing of their first fund with more than US$ 10 million in funds. Eddy Chan (based in Silicon Valley) and Patrick Yip (based in Indonesia) are leading the fund, joined by founding advisor Timothy Chen (based in China, Hong Kong, and Taiwan).
We talked with co-founders of Intudo Ventures, Eddy Chan and Patrick Yip about the 5 reasons why Chinese breakout companies should head to Indonesia.
1. Indonesia is China 10 years ago
There was a window of time in the 2000s when the venture capital ecosystem was emerging in China, where “SEA turtles” were unique and had several distinct advantages over their local counterparts. Now Indonesia is China 10 years ago.
“We feel the Indonesian venture capital ecosystem is still emerging, making it ripe for SEA turtles to return to help build out best practices and infrastructure, which will allow them to capitalize the growth of the venture capital ecosystem. If they do not do return in the next few years, the window may have closed and they may be left on the outside looking in,” Eddy says.
2. Indonesia’s government support
Historically, the internet and physical infrastructure have proved to be a challenge in the Indonesian market.
However, improving Indonesian infrastructure is the top policy priority of the government, and has since made a concerted effort to improve this by upgrading the internet and physical infrastructure and supporting companies. In the 2016 budget, the Indonesian government led by President Joko Widodo earmarked the highest amount ever allocated for infrastructure development (approx. USD $22.9 billion) according to the World Bank.
The Jokowi administration has continued with many initiatives intended to increase infrastructure spending over the period to 2019, and the PWC report suggests that overall infrastructure will rise above the historical average of 5.7% of GDP.
3. Booming sectors: Travel, fintech, and education
China is now Indonesia’s largest tourist source, making 1.43 million trips to Indonesia in 2016, up 25 percent YoY, according to data released by Indonesia’s Central Statistics Agency. Fintech and education are also promising sectors to tap into.
“Indonesia is still a cash-based economy with adult credit penetration of 1%, so there are substantial opportunities in fintech. Education spending is a small portion of GDP, so we feel there is significant potential for online learning and other technical/vocational training,” Patrick says.
4. Rising middle class
In Indonesia, 58-60% of GDP is driven by private consumption and the rising middle class, mostly based in Jakarta. The GDP per capita in the Jakarta metro area is US$ 9,984 which is substantially higher than GDP per capita for the country of US$ 3,620. The percentage of middle class and affluent consumers in Indonesia will double to 141 million people by 2020 from just 74 million people in 2013.
“There are striking similarities to China’s consumer spending and venture capital ecosystem 10-15 years ago. We anticipate continued growth in e-commerce, F&B, fintech, and digital payment companies in Indonesia,” Eddy says.
5. Low cost and high efficiency
“Silicon Valley-based companies generally raise US$5-15 million in a Series A financing, which we feel is similar to China. In Indonesia, a company generally raises US$1-3 million in its Series A financing. We generally raise a US$2-4 million initial financing into the newly incorporated joint-ventures we set up for the breakout companies we bring into Indonesia from China, Silicon Valley, and other overseas markets,” Eddy says.