#Asia Indonesia should aspire to be like China, not India: Donald Wihardja

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Looking to invest in Indonesia? You might want to pay attention to what the Convergence Ventures Partner got to say

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Indonesian tech startup scene is growing rapidly in the past years, and it seems like everyone is looking for a way to get into the market.

But what does the future hold? What is the most notable trends – and warning signs – in the market, and how can investors and startups take advantage of this opportunity?

e27 sits down with Convergence Ventures Partner Donald Wihardja to learn about the dos and don’ts of investing and starting up in Indonesia.

The following is the edited excerpt of the interview.

Also Read: Baidu Indonesia teams up with Jakarta-based Convergence Ventures

What are the most notable trends in Indonesia? DailySocial reported 2015 as the year of e-commerce, while predicting 2016 to become the year of on-demand services.

From investment perspecive, investing in e-commerce requires a large amount of fund. Only big VCs are able to tap into the sector … This is why on-demand services are popular because it is still a blue ocean, while e-commerce has turned into a red ocean.

So if you don’t have US$100 million yet, don’t jump into e-commerce.

But the case is different with ‘vertical’ e-commerce [companies]. The one that is most common [to invest in] is ‘horizontal’ e-commerce which sells various kinds of goods. Those that focus on cosmetics, drugs, services, there are still not enough investors investing in.

B2B e-commerce seems to be getting more traction lately.

B2B e-commerce such as Bizzy, Perkakasku, and many more are big enough, but they tend to fly under the radar since they are not customer-based. With such large value of transaction, it is easier for them to reach the same size as retail e-commerce.

For example, B2B e-commerce can make up to IDR7 million (US$527) per transaction, while retail e-commerce usually make IDR250,000 (US$18).

Also Read: Alpha Startups enters Indonesia, searching for new top dogs in local startup scene

Is there anything that we need to beware of? Some believe that, sooner or later, we are going to experience a bubble

Bubble will happen [in a situation] where the value of “stupid money” is bigger than “smart money.” This happen because there is a much bigger demand for people to take part in investing.

Funding in Indonesia is not that big yet. For example, transaction volume in Indonesia is not that different from in India. We are closing in to India’s transaction volume really quickly. How come? Because even though India has bigger population, they also have higher poverty rate.

The Indian society are divided into two groups: Those who are highly educated and well-connected to Silicon Valley, and those who are poor with zero access to Internet.

You may look at India and Indonesia’s per capita income. Indonesia may not have it as high as India, but we don’t have such huge social gap.

Money invested in Indonesia is not big enough to create a bubble. The price is still normal, perhaps half of the same company had it was built in Singapore. And a quarter of a company with the same traction that was built in India.

So we don’t think a bubble will happen anytime soon for tech startups in Indonesia. The value is increasing from last year but is still normal, unlike in India or US.

But will it happen someday? We certainly hope so!

Look closely when our friends in the field are starting to reach exit altogether. It’s the sign that things are getting too expensive. Those are the warning signs.

Also Read: Alpha Startups Indonesia’s first batch winners: Moms, renters, and new graduates take center stage

What are the biggest challenges for startups and investors in Indonesia?

For startups, the biggest challenge is that they need to build not only their own business, but also the whole battlefield itself. E-payment is not sufficient, logistics is still far from perfect, and the public perception itself … We are accustomed to online shopping, but how about those farmers in rural areas?

E-commerce only made up one per cent of the whole transaction in Indonesia. Not 13 per cent like in China.

For investors, we also start to balance it out. One or two of our friends in the community have already secured a good niche. They grow rapidly. Companies such as Go-Jek, Tokopedia, Traveloka, and our friends at the second layer such as Bukalapak, Tiket.com, they have reached the stage where local VC firms are yet to be able to raise such big funds for these companies.

Go-Jek is already beyond the range of what local VC firms can attain, which usually falls under US$50 million.

So we have to focus on seed and Series A, while our friends have already invest in Series B and beyond.

The idea is that once we are successful here, we are going to raise even bigger funds. But we have no track record yet.

So local VCs have to hand over these startups to regional and international players who are yet to understand Indonesian market, who are also scared to invest due to bubble in US and India.

This is why there needs to be structural ease for VC firms, and a marketing assistance from Indonesian government, so that there’ll be an increased awareness to invest here.

Also Read: Indonesian SMEs can now accept cashless payments as Moka raises US$1.9M funding

Any advice for those who wish to enter Indonesian market?

First and foremost, you have to be in Indonesia. You need to familiarise yourself with the battlefield, and [refrain from] generalising between Asian countries. Your success depends much on the small yet significant differences between these markets.

For example, Go-Jek will never be successful in US or Singapore. There are several characteristics of local small businesses that are just different with those in the US, which Tokopedia then exploited.

Luckily the battlefield in Indonesia is unlike other Southeast Asian country. Indonesia has a big market size, it’s a fertile ground for tech startups to grow into the size of a unicorn.

If you are in Singapore, with only five million people, you have no choice but to study neighbouring markets such as the Philippines, Thailand, or Vietnam. But Indonesia is able to be self-sufficient.

Because there are plenty of untapped markets in Indonesia, right?

Exactly. Rather than studying five markets, we are enough with just one. At least for the next four to five years.

What can Indonesia learn from China and India?

We always say, be like China, not like India.

From these two countries, we can see that the opportunity for tech to transform [lives] is real, but it differs greatly between these markets.

We can also see it from the perspective of scale. It is easy to build tech for a smaller scale, even freshgrads can do it well. But if we are talking about building a system that can accommodate 100,000 users, or 100,000 transactions per minute, then it is a whole different game. This is what we need to study.

And the most ideal place to study is not in universities, but in companies that are dealing with such issue.

Eager to learn more? Get your last minute tickets here and meet these exhibitors up close and personal at Echelon Asia Summit 2016!

Image Credit: Convergence Ventures

The post Indonesia should aspire to be like China, not India: Donald Wihardja appeared first on e27.

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