Indonesia, Southeast Asia’s largest economy, and also its most populous nation, launched its own sovereign wealth fund last month. The Indonesia Investment Authority (INA) was inaugurated with US$1.1 billion startup capital from the Indonesian government and is expected to receive a further shot of US$5.4 billion from the country’s 2021 budget. The INA will be a strategic partner for domestic and international investors and is initially expected to focus on infrastructure developments.

In Indonesia, old fortunes were built in sectors such as oil and gas, minerals, crude palm oil, rubber products and manufacturing. But according to Jakarta-based Chandra Tjan, co-founder and general partner at Southeast Asia venture capital firm Alpha JWC Ventures, venture capital will be the new wealth creation vehicle in the next five years.

“The fastest lane to creating wealth will come from technology and startups, with these founders becoming billionaires after building unicorns,” Tjan tells The Asset in an interview. “There are over six unicorns in Indonesia, and there will be at least ten more in the next decade.”

Tjan says he is seeing more prominent Indonesian companies and conglomerates venturing into startups and venture capital. However, he points out that engaging with the digital economy requires an inherently different mindset and an eye for long-term sustainability instead of fast returns.

“In the next few years, I think large corporations will be more flexible and open with these direct and indirect investments as well as collaborating or forming joint ventures with young startups.”

Digital growth

Indonesia has enjoyed a period of stability under President Joko Widodo, and this has added to the country’s appeal as an investment destination.

“Indonesia has proven to be a hotspot for digital growth. As investors, we have witnessed the transformation in the quantity and quality of local companies, products, founders, investment opportunities and its market potential. It has been great and we haven't even scratched the tip of the iceberg,” Tjan says.

“In terms of the digital industry, the potential is still largely untouched, the ecosystem is growing, the infrastructure is improving, the population and its middle class are also growing. The government is also pushing for more direct investment in Indonesia by simplifying procedures and licences, improving infrastructures, and creating new laws to facilitate investment, such as the Omnibus Law. All that being said, this is the perfect time to enter and invest in Indonesia.”

To gain access to up-and-coming Indonesian tech startups, Tjan recommends connecting to local players and start exploring through that network. It also helps to keep a watch on media announcements and listings in sectors that match investors’ interests. “Alternatively, family offices or [ultra high net worth] investors can invest indirectly, through a [venture capital] fund first, to get familiar with the landscape,” he adds.

Startup ecosystem

Indonesia has experienced a significant increase in tech startups' quantity and quality in the past five to ten years. The startup ecosystem took off in the early 2010s when leading tech players such as Tokopedia, Bukalapak, Gojek, and Traveloka were just beginning. 

“The successful growth of these startups inspired a new generation of young and technology-savvy Indonesians to become entrepreneurs and help support the development of the country’s startup ecosystem. This movement has spurred rapid growth starting in 2015 and has been giving birth to many unicorns in the past years,” says Tjan. “2020 was quite bumpy due to the pandemic, but now that startups have had the time to rebalance and adapt, 2021 is off to a great start, and the industry will continue its accelerated growth.”

As for Alpha JWC Ventures, Tjan says: “We've always been sector-agnostic, though most of our investments are in the fintech and consumer space. Moving forward, we'll remain opportunistic for any high-growth, high-potential sectors, especially those who have proven to be able to adapt to changes rapidly, including from the Covid-19 turbulence.”

Indonesia has been struggling to contain the spread of the virus and faces logistical challenges in vaccinating its population, with its more than 270 million people spread across thousands of islands. But Tjan remains optimistic on investment opportunities.

“Overall, we don’t see any slowdown in the prospects; businesses still need capital to grow and survive and the right partners to open new doors. The pandemic has adversely impacted many aspects of economics on a micro and macro level, but it has also created numerous commercial opportunities. We see some silver lining, especially in our line of business.”