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<h4 style="text-align: justify;">As the Indonesian tech sector matures, investors are increasingly specialising in specific stages of startup funding. While seed funding and early-stage funds have seen the most activity to date, significant pent-up demand exists from the local conglomerates, foreign funds and foreign tech companies to make larger-scale acquisitions. This pent-up demand is beginning to drive increased scale and efficiency throughout the funding process.</h4>
<h5 style="text-align: justify;"><b>A broad range of investors that fall into five distinct categories</b></h5>
<p style="text-align: justify;">Over the past three years the Indonesian tech sector has seen over 25 deals of significance, plus the small-scale funding of hundreds of more speculative startups. An impressively broad array of investors has funded these ventures, which we categorise in five distinct groups:</p>

<ul style="text-align: justify;">
	<li>Early-stage funds (incubators, angels and seed funds, which can be local or foreign)</li>
	<li>Growth-stage funds (local or foreign)</li>
	<li>Foreign .coms and technology companies (primarily from Japan, the US and Europe)</li>
	<li>Local corporates and conglomerates</li>
	<li>Local mobile operators</li>
</ul>
<p style="text-align: justify;">Differing priorities and risk profiles lead each group to prefer different points in the startup lifecycle when they like to invest, and also lead to different appetites for the size of investment:</p>
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<p style="text-align: justify;">In addition, some groups (for example GDP Ventures) have spread themselves across more than one category by setting up a primary investment fund and a complementary incubator.</p>

<h5 style="text-align: justify;"><b>How each investor group has performed to date in Indonesia</b></h5>
<p style="text-align: justify;">Around ten <b><i>accelerators and incubators</i></b> are active in Indonesia, focused on providing tech entrepreneurs with startup mentoring and sometimes also offering low-cost office and technology facilities. The ‘tied’ incubators (those associated with a growth-stage fund) used to be more active than the independent incubators, but in 2012 the independents began to increase their activity level, as their critical role in moving inexperienced entrepreneurs to the later funding stages became better appreciated by early-stage and growth-stage funds.</p>
<p style="text-align: justify;">The <b><i>early-stage funds</i></b> have been very active for the past three years, led by East Ventures which has made 18 investments in Indonesia. This is currently the sweet spot for investing in the Indonesian tech sector, which reflects the relatively early stage of the industry</p>
<p style="text-align: justify;">The <b><i>growth-stage funds</i></b> are looking for tech firms with an existing track record and who are seeking funding to expand an already-proven service offering. Only a handful of tech companies fit this profile at the moment, so the activity level of the growth-stage funds is relatively low. It will pick up significantly over the next two years as the early-stage funds seek to move their investments into Series B and Series C funding rounds.</p>
<p style="text-align: justify;">The early-stage and growth-stage funds are mainly headquartered in Indonesia, Singapore and Japan.</p>
<p style="text-align: justify;">The <b><i>foreign .coms and technology companies</i></b> take one of three investment approaches: they form a JV with a local Indonesian company, they acquire an existing tech company, or they invest directly into their own local subsidiary by bringing in expat executives and hiring local employees. Investments by Yahoo, Groupon and LivingSocial have underperformed (although the underperformance has been more on the side of the acquirers rather than the Indonesian companies), while later investments by Google, eBay, Rocket Internet and a number of Japanese tech companies are still in their early stages.</p>
<p style="text-align: justify;">The <b><i>local corporates and conglomerates</i></b> who have been active to date have mainly been media companies, and have tended to make 100% acquisitions of relatively mature internet properties. Their acquisitions have largely been successful to date, enabling them to expand into digital media and defend against future competition. Note also that a number of Indonesian conglomerates have set up their own incubators and early-stage funds to explore opportunities with younger startups.</p>
<p style="text-align: justify;">The <em><strong>mobile operators</strong></em> have started a variety of incubator and accelerator initiatives, using these as a way to discover new talent. But the greater part of their resources has focused on expanding their own service platforms and billing systems to enable tech companies to deliver services to the mobile customer base. So it is important to understand while the operators are not the largest direct investors in the tech sector, in the Indonesian market they are amongst the most powerful influences that affect where startup opportunities exist.</p>

<h5 style="text-align: justify;"><b>Staged investments leading to successful exits are possible</b></h5>
<p style="text-align: justify;">The standard investment route for startups is now in place in Indonesia, with a number of companies in the process of moving through the stages of Seed → Series A → Series B → Exit acquisition. East Ventures has been the most successful investor to date, having achieved exits via the sale of Disdus to Groupon and Urbanesia to Kompas, as well as bringing later-stage investors into Tokopedia.</p>
<p style="text-align: justify;">This staged process will only expand over the coming years, both in scale and speed, in response to the demand from larger investors for large-scale acquisitions. The Indonesian conglomerates have woken up to the opportunities in the internet sector, as have the foreign tech companies, the Japanese in particular. As the tech sector as a whole continues to mature, Indonesia will develop a smoother and larger-scale process to take young startups up to scale and eventual exit.</p>

<h6 style="text-align: justify;">Sources: Wall Street Journal Asia, Jakarta Globe, e27, Daily Social, TechInAsia, TheNextWeb, sge, TechCrunch, East Ventures, Telkomsel, Yahoo, MNC</h6>