Funding for Indonesia’s tech startups to stay sluggish in H1 2024, say investors

[JAKARTA] Investors in Indonesia expect the level of funding in the country’s technology sector to stay turbulent for the first six months of 2024, with a potential pickup in the second half of the year.

Persistent inflation and expectations of a prolonged period of higher interest rates mean that the industry is unlikely to see meaningful liquidity levels as it did two years ago, and this will push companies and investors to prioritise profitabilitysaid panelists at a conference in Jakarta.

Kabir Narang, the founding general partner of B Capital Group, a US-based venture capital (VC) firm that focuses on emerging markets, said the current funding trend is reflecting the repercussions of the “exuberant period” from 2021 to 2022.

“There was a lot of capital raised in 2021 that is still waiting to be deployed, and the second half of 2024 looks ripe to benefit from that. Many good business models will still receive funding this year,” he said at a private equity and VC summit organised by DealStreetAsia.

The speakers noted that funding in the first half of 2024 is expected to see a continued fallout from the slowdown in 2023, which was marked by mass job cuts and business closures.

After enjoying rapid growth during the pandemic years of 2020 and 2021, Indonesia’s VC ecosystem hit the brakes hard on growth last year.

A recent report by AC Ventures and Bain and Company projected a year-on-year decline of between 70 per cent and 80 per cent in total deal value in Indonesia for 2023, having maintained its deal value in 2022 at US$3.6 billion.

The report, released in November, found that consumer tech investments fell sharply to US$81 million in the first half of 2023, from US$580 million in the same six-month period the year before.

For South-east Asia as a whole, private capital raised by startups fell 51 per cent year-on-year in 2023 to US$7.96 billion. The total number of venture deals fell by 30 per cent to 718, according to a report by DealStreetAsia and Singapore-based VC firm Rigel Capital.

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At the summit, Anthony Tjajadi, a partner from Trihill Capital, said the current scarcity of capital means that startups need to work harder to attract investors, especially with some degree of uncertainty ahead of next month’s presidential election.

Indonesia goes to the polls on Feb 14 to elect a new president to succeed the outgoing Joko Widodo, and Tjajadi said that many companies, especially the larger players, are unlikely to take many risks until the political situation stabilises.

“With limited consumer spending and potential investor hesitation, startups must prioritise healthy unit economics and capital efficiency,” he said.

Sebastian Togelang, the founder and managing partner of Rigel Capital, identified a silver lining for investors amid the market uncertainty, saying that there are opportunities aplenty for them to invest at a discount.

He noted that many investors are shifting their focus to making decisions that are driven by data. Beyond just looking at a company’s profit-and-loss statements, they are placing greater emphasis on metrics such as operating performance, unit performance and financial stability.

“More VCs are putting a priority on companies that have early profitability. They are looking for signs of traction or revenue, even on a smaller scale,” he said.