C

span class="inline inline-left">Chain reaction: Sushi Chain, which became a top grossing game application in the Apple store, was created by Indonesian tech start-up TouchTen. The start up reportedly secured US$1 million in funds from local technology incubator and venture capitalist, IdeaSource. IdeaSource is one among other venture capitalists, including those from foreign shores, which see promise in Indonesia’s tech start up scene. JP/Wendra AjistyatamaA swelling pool of talent, buoyed by a dynamic market, has enticed a growing number of foreign tech incubators and venture capitalists to boost local start-ups with millions of dollars in fresh funds.

Steven Vanada, an investment manager at Japan-based CyberAgent Ventures, said that the company sought to accumulate 10 Indonesian start-ups this year.

“Our investments stretch from US$50,000 to $1 million. On average though, our investments lie between $300,000 and $500,000,” he told The Jakarta Post.

The target is an impressive leap given that the company currently holds only one portfolio, an e-commerce website called tokopedia.com, which they invested in during their entry into the Indonesian market last year.

Internationally, CyberAgent has at least 35 other partners, 13 of which already have their shares traded publicly.

Like other investors, Steven noted that the competence of the start-up team was foremost in determining investments, followed by the start-up’s strategy and market potential.

“We have experience in finding strong, business-minded teams enabling us to win in the market,”
he added.

He further said as the Japanese market shrinks due to the stagnant economy, investors were increasingly looking towards emerging markets experiencing improvements in infrastructure.

The close geographical distance between Japan and Indonesia made it especially more convenient for Japanese investors to travel and watch over their portfolios, said Ryu Kawano, founder of the Boost Conference, a platform for digital start-ups.

“I think there is also a good relationship between Japan and Indonesia. Indonesians have accepted Japanese culture and so, there is a cultural fit between the two countries,” he noted.

Ryu said “There is a lot of interest in Indonesia from all over the world, not only Japan.”

Takeshi Ebihara from Batavia Incubators pointed out that an advantage of foreign-based investors was the links it had to foreign affiliates. Batavia Incubator is affiliated with Japan-based Rebright Partners and Indonesian financial service firm Corfina.

“We are eager to enter this market so we could promote partnerships with Japanese tech giants,” he said.

He added that, with more experience in fund raising, foreign investors could provide guidance on choosing the “right strategy in capital financing”.

Japanese investors, however, are not the only ones pouring money into local start-ups.

Indonesian incubator and venture capitalist IdeaSource made headway into the tech sector last year by investing a reported $1 million in TouchTen, a start-up focused on mobile game applications.

Edward Ismawan Chamdani, director of IdeaSource, said that local and foreign investors had supported their approach in handling their start-ups.

“We usually prioritize [investments] the first year, although we could stretch this from three to five years. The first year is to stabilize the direction the start-up is headed, while the next strategy would be attaining the key performance indicators,” he said.

He noted that the edge of local venture capitalists was their ability to provide insight and access into the start-ups’ own market.

However, collaboration with other venture capitalists was still necessary in building up the young industry, he added.

“Our venture funds are intended to develop the industry which we are in,” he said, adding that venture capitalists owned a smaller share of around 35 percent of the business.

“We usually hold equity ownership. Like other companies, there could be multiple stakeholders,” he said. “The majority of shares go to the start-up founders, though.”

However, he pointed out that the absence of a universal online payment system remained a big challenge for tech players, who see e-commerce as a promising business category.

Deepak Natarajan, Southeast Asia, Australia and New Zeland director of Intel Capital, said that payment issues “stymied the growth of e-commerce”.

He added that Intel investors were still “cautious” of entering the Indonesian market because they have yet to find a start-up which aptly complemented Intel’s products and generated revenues of around $5 million.

Intel Capital is the venture capitalist firm under the US chip-making giant, Intel Corp. According to Deepak, Intel invested in Malaysia and Singapore, and usually starts investments at roughly $2 million.

Deepak added that investors were “always looking for models of success from which they can model the next start-up”.

Yet, Indonesia was already on the “right evolutionary path”, mirrored by the expanding broadband penetration and the influx of new talent in the start-up scene.

Broadband penetration in Indonesia remains low. There are at least 7.4 million broadband subscribers compared to the 250 million mobile phone users, based on the number of active SIM cards in 2011.

Yet, broadband subscription is expected to swell to around 17 million, data from the National Development Planning Board shows.

“That will change everything and bring more interesting start-ups that will serve people with those broadband connections,” he said.

“I have no doubt that by 2015, there will be at least one or two significant consumer e-commerce companies built in Indonesia,” he added.