The next tech hub no one can ignore. It's called Jakarta
Go-Jek, the app-based ride-hailing service, is Indonesia's first local startup to achieve unicorn status — a start-up company valued at over $1 billion — after being valued at approximately $1.3 billion.
Go-Jek has become a household name in Indonesia with a fleet of motorcycle taxis offering a variety of on-demand services including transport and food delivery.
The company's latest valuation has now publicly proven there are billion dollar opportunities in Indonesia.
Quoting Hugh Harsono’s post on Tech Crunch, "Indonesia presents many opportunities for e-commerce among other emerging Asian economies, with current projections putting this archipelago nation’s e-market at $130 billion by 2020 [coming third behind China and India]."
There is no doubt Indonesia presents an abundance of investment opportunities, especially in technology. But, why does Indonesia, especially Jakarta, have the potential to be a regional technology hub?
Jakarta is the largest metropolitan area in Southeast Asia, with around 10 million people residing in the city, and 30 million in Greater Jakarta.
Greater Jakarta alone, is as big as Malaysia, or five times bigger than Singapore and four times larger than New York City in terms of population. Jakarta is the epicenter for business, politics as well as education in Indonesia.
The city is also the local base for global tech companies such as Facebook, Google, Uber and Microsoft for operations in Indonesia.
There is no doubt that Jakarta is a compelling location for technology-enabled businesses as it is the capital of Southeast Asia’s largest economy and fourth most populous nation in the world, but can Jakarta become the next technology hub?
Set out below are some key factors that may propel Indonesia to become the next technology hub.
Compelling market opportunities
Indonesia’s market opportunities are undeniable and for early stage ventures having easy access to large pools of untapped growth is critical for early success in proving user and revenue metrics.
We’ve seen several businesses grow explosively in recent years as products perfectly fit the market. Strong execution has also helped this.
Companies such as Go-Jek, Traveloka and Tokopedia have likely achieved a gross merchandise value that has surpassed $1 billion faster than any other business in Indonesia historically.
Regional companies observing this market potential have rushed to Indonesia to grab a share of the market.
Increasing availability of capital
Where there is an opportunity, there is money. The funding landscape in Indonesia has shown constant growth every year since 2011 to 2015.
Venture capital firms are also quite active in this area. Venturra, backed by Lippo Group, announced that it will invest $150 million in Southeast Asia, including Indonesia.
Convergence Ventures, most recently announced that they will invest $30 million in exceptional entrepreneurs targeting the Indonesian market.
Corporate venture capital companies, as well as angel investors, have also flocked to Indonesia to invest in opportunities.
Tokopedia’s $100 million and subsequent $147 million as well as Go-Jek’s $550 million and MatahariMall’s $500 million and recent $100 million in funding have shown that Indonesia is the next place to invest.
The government has also done their part in helping the startups flourish through their “1000 Startups Movement.” The program’s goal is to grow 1000 startups by 2020, with a hope that they will reach a combined value of $10 billion.
Globally renowned venture firms have also begun to invest directly in Indonesia. This includes Sequoia Capital, KKR, Rocket Internet, which have invested hundreds of millions of dollars into Indonesian Internet businesses.
Increasingly regional venture firms have set up a permanent presence in Jakarta as well.
Increasing availability of talent
Finding talent is inevitably one of the key drivers to be an effective tech hub as well as to bolster the ecosystem.
Jakarta produces thousands of graduates every year from reputable local universities with computer science programs such as University of Indonesia, Bandung Institute of Technology and Binus University.
However, despite the rising demand for talented engineers, there is an excess of demand with some technology companies going so far as to acquiring overseas based technology outsourcing companies to fill the gap.
As an emerging technology ecosystem, Jakarta also has a shortage of Internet executives experienced in key skill sets including digital marketing, business intelligence and data analysis among others.
But, as more people see the opportunity in the market, we are likely to see Indonesian diaspora studying overseas choose to come back to Indonesia, and more expatriates who will come to Indonesia to help fill this talent gap.
Also as international technology companies bring in seasoned experts there will be a transfer of talent to local employees that will help bridge the gap in the long term.
A converging ecosystem for technology and business
Jakarta is the epicenter of business and government activities in Indonesia.
Major multinational companies, the largest banks, local companies and international technology companies make Jakarta their central base. If startups need partnerships to grow and scale, there’s no better place than Jakarta to serve as an address for customers, find talent and capital.
Jakarta has always served as the center for business with most of the large traditional businesses locating their headquarters in the city.
It also serves as the political center for Indonesia with the president and its administration based in Jakarta.
With the government’s focus on initiatives such as the 1000 startups movement being launched, Jakarta will be the first city to reap the benefits from such programs.
Having the critical mass for an ecosystem is important as clustered networks of entrepreneurs, investors and talent create greater opportunities for all stakeholders to engage and address challenges and capture opportunities.
As both regional and local companies converge in Jakarta, this will increase the city’s significance both as the national technology center but also as a future regional hub for digital businesses.
Jakarta is definitely not an easy city to live in, but the size and attraction of the market potential in Indonesia are undeniable.
Indonesia will continue to attract people from across the world to solve large and pressing problems through innovative technology solutions and Jakarta will consolidate its importance as a national and regional hub.
To this end, we believe that within a decade we’ll see Jakarta as the leading technology hub for all of Southeast Asia with a significant number of local and regional Internet companies running their core operations from this city.
Adrian Li is the founder and managing partner of Convergence Ventures, a technology venture fund that invests and accelerates early stage technology companies in Indonesia and Faiz Rahman is senior investment analyst at Convergence Ventures.
This article is published in The Jakarta Post