2018 was the year when Indian startups have seen a surge of new investors, signs of maturity and even welcomed eight new unicorns.
Fintech services were the star performer as ecommerce bid goodbye to Flipkart from the funding stakes following its acquisition by Walmart.
In terms of venture capital investments, funding in business-to-business (B2B) startups had specially set new records in 2018.
According to venture capital data firm Tracxn, last year had saw investments of US$3.09 billion in B2B startups across 415 rounds, that is 28% more than the US$2.41 billion allocated in 2017, across 534 rounds.
Fewer rounds and bigger values also point to large deal sizes, as investors focus on a few winners from each segment.
But where had the money gone to?
Moving on, investors had said that the access to large global markets and growing focus on Deep Tech in 2019 could be even bigger.
Deep tech startups – businesses driven by AI, Machine learning, and the Internet of Thing – has witnessed record funding in the past year.
Investments in deep-tech startups have touched an all-time high of US$247.78 million so far in 2018, that is more than twice the US$96.8 million in 2017.
The biggest was robotics startups GreyOrange’s US$140 million led by Peter Thiel’s Mithril Capital. Investors believe the rising interest in niche technology segments is driven by a growing talent pool.
“A surge in deep-tech talent in data science, AI and ML, is driving higher interest in deep tech startups,” said Sanjay Nath, the managing partner of Blume Ventures who has made an investment in GreyOrange.
Sectors like healthcare have a huge potential for deep-tech disruption, with models of predictability and a broad reach that can make up for India’s poor doctor-patient ratio.
For instance, health startup Concept Medical that makes a special kind of catheter has raised US$60 million from angel investor Dr. Kiran Patel, in the second biggest tech deal in 2018.
Besides, deep-tech startups are scaling up faster and facing fewer challenges in monetizing business models.
However, if you are looking at it in terms of deal volumes. The deep-tech sector fell for the third straight year from 63 in 2016 and 58 in 2017 to 39 in 2018, indicating larger ticket sizes for individual deals—a trend seen in the broader venture space.
The challenge in India then has been to find AI and deep tech companies that have scaled up in revenue, but this will be resolved with time.
Today, Indonesia is home to four unicorns – Go Jek, Tokopedia, Traveloka, and Bukalapak – and thousands of startups.
The potential for growth in the country’s digital industry has made it attractive to both investors and entrepreneurs so much that Google and Temasek said that Indonesia’s digital economy is projected to become the largest in Southeast Asia with its market value estimated to tripling from US$27 billion in 2018 to US$100 billion by 2025.
Financial investments in Indonesia
In fact, Indonesia’s startup landscape is one of the most dynamic in Asia. Daily Social reported that Indonesian startups have secured at least 51 investments in 2018, including
Not including the funding received by the unicorns, Indonesian startups has received a total investment of IDR4 trillion (about US$274 million).
Among the industries, e-commerce and fintech received the most funding, while AI-based services bolstered those platforms and others by creating chatbots for them.
For the edtech sector, the only major announcement was Ruang Guru’s grant from the MIT Solve Programme in May. Two Natural Language Processing/Understanding platforms also secured funding last year, namely Bahasa.ai that received seed investment from East Ventures in August, and Prosa that received funding from Kaskus.
New retail sector has also been promising, as Warung Pintar, which translates to Smart Kiosk, raised two investments in 2018—US$4 million from East Ventures in February, and then the same amount from Vertex Ventures, Pavilion Capital, and Line Ventures in August.
Expectations for Indonesian Startups in 2019
In 2019, fintech is expected to continue as the forefront of Indonesia’s digital industry, with the potential of collaborations with financial institutions.
Bhima Yudhistira Adhinegar. an economist at the Institute for Development of Economic and Finance predicts that small commercial banks with capital less than IDR1 trillion (about US$69 million) may form partnerships with fintech platforms as a move to keep their services up to date, while the bigger banks with more capital are looking to develop their own fintech platforms.
Since Indonesia’s e-money market is largely untapped, the country’s digital payment sector still has room for development. Major fintech players like TCash, Go-Pay, and OVO are seeing continuous growth, and the adoption of QR code technology will also address demand.
Local media outlet Katadata quoted Bhima saying, “Payment trends with QR codes will be carried out by new players, especially from China, such as Alipay and WeChat Pay.” Fintech players will also need to form partnerships with merchants of various sizes, from small and medium enterprises (SMEs) to big businesses, to facilitate wider adoption. Insurance and wealth management also hold potential for fintech applications, as many Indonesians currently do not have insurance coverage of any form.
For e-commerce, the race between major platforms—Tokopedia, Bukalapak, Lazada, and Shopee—will be increasingly tense, so Bhima doesn’t expect new e-commerce platforms to emerge this year. The latest iPrice statistic shows that local players like Tokopedia and Bukalapak are far ahead of the competition.
More SMEs are expected to be active on e-commerce platforms, as the market research agency Nielsen Indonesia estimates local products offered by SMEs accounted for 46% of product purchases during the national shopping day in December last year.
Startups in other sectors may also find a foothold in Indonesia this year, as suggested by Yansen Kamto, initiator of the 1000 Digital Startups movement in Indonesia. “I am very hopeful with new sectors like healthcare and educations,” he told KrAsia. “We can expect new unicorns coming from these two sectors in 2019, and I’m also particularly excited with the food-related ecosystem, including delivery, grocery, agriculture, supply chain, as well as a payment solution.”
This is in line with what was stated by the Minister of Communication Rudiantara last year. He projects that Indonesia will have more than five startups each valued over US$1 billion in 2019, with healthcare and education being the most promising sectors for new unicorns in Southeast Asia’s biggest economy.
To support Indonesia’s digital ecosystem, the government has developed several programmes, including Nexticorn, SMEs Go Online, and Farmers and Fisherman Go Online. The government also promises to strengthen its e-commerce roadmap and digital certification this year.
So as regional players enter Indonesia’s startup scene, new opportunities for collaboration and expansion may emerge for local firms, both within their home country and across the region.
Southeast Asia is expected to produce at least 10 new unicorns by 2024, according to a report released by Bain & Company.
This is given the region’s investment growth as an important catalyst amidst a maturing line of startups. Bain & Company reports that the new phase of investment growth with deal value projected to a total of US$70 billion over the next five years.
“Since 2012, 10 unicorns including Grab, Go-Jek, and Traveloka have created a combined market value of US$34 billion, ranking Southeast Asia third in the Asia Pacific (APAC) region, behind China and India,” the firm added.
Deeper integration of the Association of Southeast Asian Nations (ASEAN) markets encourages companies to expand across borders, accelerating their growth.
Bain & Company’s report drew on Grab as an example which received US$340 million in several rounds of venture funding in 2014 after moving its headquarters from Malaysia to Singapore. By adding new services, Grab expanded rapidly across eight ASEAN countries and eventually bought out rival Uber’s regional business in 2018.
“Grab is the region’s number one ride-hailing business and its biggest startup success story, with a market capitalization of US$11 billion,” Bain & Co stated.
In 2017, the number of recorded venture capital deals saw a four-fold increase to 524, as compared to 2012, and private equity deal value increase 75 percent to US$15 billion, breaking out of a decade-long phase of flat growth, the report highlighted.
A bulk of new capital went to technology companies, with deal counts rising 40 percent in 2017 from 20 percent in 2014, the report highlighted. More than 60% of Southeast Asian investors surveyed cited that technology is their main target for 2019, primarily fintech. The region also produced its first set of unicorns during this time frame.
“It’s a jarring acceleration,” Bain & Co said. “Investment in Southeast Asia over the past decade has been surprisingly low, given the region’s average economic growth of 7% a year, a burgeoning middle class and a rapidly growing pool of digital natives.”
Private equity investment in the region in the past decade hovered roughly between US$6 billion to US$9 billion, the firm added.
“The tipping point took longer to reach but years of solid economic growth, government support for startups and perseverance by private equity funds created the conditions for a rapid transition to the next phase of growth,” Bain & Co said.
The report also noted how investors are attracted by the region’s strong macroeconomic fundamentals, the chance to invest in emerging regional firms and a deepening secondary market for deals of all sizes.
Meanwhile, strong exit momentum and healthy returns are also contributing to a faster pace of investment by accelerating a healthy recycling of capital, Bain & Co. highlighted.
In 2017, exit deal value in the region rose to US$16 billion, up 86 percent from the previous five year average, the report noted.
“That virtuous investment cycle helps private equity fund managers feel more confident about raising new funds and putting capital to work,” the firm said. “And as private equity funds expand their portfolios, they broaden the potential market for secondary transactions.”
Whilst Singapore as Southeast Asia’s investment hub, the report noted that startup ecosystems are emerging across the region. A separate survey indicated that nearly 90% of investors see Indonesia and Vietnam as the ‘hottest’ Southeast Asian market outside of Singapore in 2019.
“Together, Indonesia and Vietnam generated 20 percent of the region’s private equity deal value over the past five years, and that percentage is likely to grow,” Bain & Co added.
With growth of investment in the region and a strong and healthy ecosystem in the region, another line of Grab, Go-Jek and Traveloka in the fintech industry might come to light in the next few years.
Since Matahari Mall has entered the market with its Online-to-Offline (O2O) concept, the adoption of the service has been taken up by various players in Indonesia’s ecommerce industry.
Indonesian online marketplace firm Tokopedia has also finally joined the O2O commerce tide with its newly launched app ‘Mitra Tokopedia‘. The application will extend its commerce battle into the O2O space, which has become an appealing market for a number of tech companies.
By reaching out to offline consumers, Tokopedia said it is targeting the 45 percent of Indonesia’s 240 million population that are not connected to the internet.
Its O2O service, according to Tokopedia, will allow anyone with the app to sell a variety of the startup’s digital products including internet data, electricity tokens, and online game vouchers.
Mitra Tokopedia, which translates as Tokopedia Partners, is particularly aimed at owners of small shops and kiosks as a business opportunity. The application makes it easier for anyone that would like to start or develop their businesses by bridging the gap between the online retail space to offline customers.
“We believe Mitra Tokopedia can be a solution for traditional retail players to be able to participate in technological development trends, especially related to online trading, in a way that makes it easier, faster, and more efficient,” said Tokopedia COO Melissa Siska.
Besides selling digital products, the application also presents a wholesale feature, which allows users to buy basic goods that can be delivered directly to the customer’s location. For every purchase, business owners will get immediate benefits in the form of discounts and cashback promotions.
But of course, Tokopedia is not the only player in this O2O market. Just months earlier, Indonesia’s other ecommerce unicorn Bukalapak has started implementing an O2O commerce business model which signs up mom-and-pop shop owners to become agents and help shoppers without internet access or those reluctant to make online purchases to order online products while paying in cash.
Bukalapak said it has enlisted more than 300,000 kiosk owners in little over a year to offer its range of services. Muhamad Fajrin Rasyid, Bukalapak’s co-founder and president said the kiosks, otherwise known as warungs, will help the company tap into 90 percent of the population who have never bought something online.
Indeed, to stay relevant in the market and capture more market share, brands must engage with their customers on various retail touch points, provide an excellent shopping experience both online and offline, as well as ensure brand recall through visibility.
The fight for domination in the ride-hailing market is heating up as ride-hailing giants Singapore’s Grab and Indonesia’s Go-Jek are forging new financial services alliance.
With Go-Jek’s Singapore entry closing in, the Indonesian ride-hailing giant announced a tie-up with DBS Bank for regional payment.
Shortly later, Grab revealed a strategic alliance with United Overseas Bank (UOB) Ltd to become its strategic credit card partner across five Southeast Asian countries.
It’s a battle to control user’s wallets.
For Go-Jek, whose backers include Tencent Holdings, Temasek, and Google, the deal came at a time ahead of its expansion into Singapore.
Under the partnership, Go-Jek will work with Singapore-headquartered DBS Bank on payment service offerings in the city-state, which will also be later extended to other markets in Southeast Asia.
The ride-hailing startup is set to launch its beta ride-hailing app in Singapore in the coming weeks where DBS customers in Singapore will get to enjoy certain privileges upon launch.
However, both DBS and Go-Jek did not elaborate when such services will be rolled out.
“We are very much looking forward to the launch of our beta ride-hailing service within the coming weeks,” said Go-Jek president Andre Soelistyo.
“We know that people are desperate for more choice in the sector and we believe we can satisfy this demand. The response from the driver community since we opened pre-registration has been overwhelming and we are confident that by working with DBS, we will see the same level of excitement from consumers too,” added Soelistyo.
In October, Go-Jek launched a Singapore pre-registration portal for drivers in the city-state.
“As Singapore’s leader in payments with over four million debit/credit cards in circulation and DBS PayLah! being the nation’s most popular mobile wallet, we are committed to making payments simple, seamless and invisible for our customers,” said Tan Su Shan, the group head of consumer banking and wealth management at DBS.
“In doing so we are stepping up to partner with like-minded companies like Go-Jek, one of Southeast Asia’s most iconic technology companies, to build inclusive digital ecosystems for our customers,” Tan added.
In a similar move, United Overseas Bank (UOB) is also working with Grab to deliver financial services to the ride-hailing startup’s growing digital user base in Southeast Asia.
The partnership will allow Grab to offer a number of the bank’s payment solutions directly from its app, accelerating the bank’s efforts to meet the region’s fast-growing customer need for mobile-first and mobile-only.
The bank is working with Grab to embed features of its upcoming digital bank within Grab’s mobile app, so users can access banking services quickly and conveniently. Customers will also enjoy privileges when paying for Grab services using UOB cards.
Besides, both firms will explore launching co-brand credit cards in the region, as well as introducing a new way to allow users to top up their GrabPay e-wallets directly from their UOB accounts.
UOB will also explore support for Grab in a number of other areas, including fleet financing, regional and centralized treasury management solutions and workplace banking services.
But above the deal, the partnership also entails an undisclosed investment from UOB into the ride-hailing unicorn.
“Yes, UOB has made a strategic investment into Grab as part of the deal, cementing Grab’s position as the go-to partner for leading organizations to collaborate with as they serve ASEAN’s growing number of consumers and small businesses. We plan to roll out the features with UOB in 2019. Specific details will be shared at a later stage,” said a Grab spokesperson.
Prior to this investment, Grab had raised a total of US$2.75 billion in an ongoing $3-billion Series H round.
On October 29, Go-Jek fired the first shot in the battle when it opened a portal for drivers in Singapore to pre-register on its platform.
The company also announced six months ago that S$671 million would be invested in its bid to expand into markets in Southeast Asia, namely Vietnam, Singapore, Thailand, and the Philippines within 2018.
Go-Jek was able to raise funds amounting to S$2.074 billion from investors such as China’s Tencent and Meituan Dianping, as well as Google, Temasek, and others.
With this recent collaboration, clients of DBS will have privileges in payment services, not only in Singapore but throughout Southeast Asia.
In the same way, Grab users who pay for services with their UOB cards will also enjoy special perks.
While the battle between the two ride-hailing giants is heating up, it’s still too early to say who will end up victorious in the end.
But if there’s any conclusion to draw, that is the winners through these initiatives are none other than the consumers of both Grab and Go-Jek as they are able to enjoy a fully digital and seamless banking and payments experience.