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6 takeaways from Startup Indonesia’s report on opportunities in the digital economy

Written by Khamila Mulia Published on     3 mins read

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E-commerce, fintech, and edtech were the most funded verticals in the past 18 months.

As the largest economy in Southeast Asia, Indonesia’s digital economy holds tremendous potential. In fact, the digital economy is the fastest growing industry in the country. It is projected to reach USD 124 billion in 2025, according to the “e-Conomy SEA 2020” report by Google, Temasek, and Bain & Company. This development results from a young population that is comfortable with new consumer tech and a rising middle class interacting with an accelerating e-commerce market and a vibrant startup landscape.

However, Indonesia still has various challenges to overcome before it can unlock even more opportunities. First, there are not enough tech professionals in the country; the World Bank estimates that there will be a shortage of 9 million skilled and semi-skilled tech workers in Indonesia by 2030. Second, most micro, small, and midsized enterprises (MSMEs), especially those outside metro areas, have not yet adopted digital tools to grow their businesses, despite their prevalence and significance in the country’s economy.

Startup Indonesia, a platform that hosts online databases related to tech companies, released a report titled “The Indonesia Digital Lookbook: The New Frontier of SEA Technology” to unpack opportunities in the digital economy. Here are six key points from the report.

#1. Indonesian startups received the most tech investments in Southeast Asia

Tech companies in Southeast Asia picked up USD 19 billion in investments in the past 18 months. Firms in Indonesia captured 38.7% of that capital, the largest share in the region. Seed round financing is the fastest-growing segment. In this time frame, the most funded verticals in the country were e-commerce with 54 investment deals, followed by fintech with 51 deals and edtech’s 20 deals.

#2. Logistics startups ride the cresting growth of e-commerce

There are approximately 4.9 million e-commerce deliveries in Indonesia each day, with 65% handled by last-mile delivery platforms. The logistics sector had 14 investment deals in the past 18 months, led by a new unicorn, J&T Express, which raised USD 2 billion in April and SiCepat’s USD 170 million round in March.

#3. Edtech is on the rise

Around 60 million students are not able to attend in-person classes, so users of edtech platforms rose 200% in 2021 compared to the pre-pandemic era.

#4. All eyes on D2C brands

Direct-to-consumer brands have attracted the attention of venture capital firms in the past three years, Startup Indonesia’s report said. More than 50% of D2C investments were in the food and beverage sector, led by coffee chain startup Kopi Kenangan, which raised USD 124.5 million, and competitor Fore’s USD 21.8 million funding.

#5. MSMEs are key

MSMEs are the backbone of the country’s economy, as they make up 99% of businesses and provide jobs for 97% of the workforce. As such, a number of tech startups are racing to digitize small businesses. In the last two years, VC firms have poured nearly USD 3 billion into MSME-focused companies, including logistics and shipping startups, as well as developers of microfinance and bookkeeping platforms.

#6. A promising market for SaaS

The SaaS sector in Indonesia is still in its nascent stage but holds a promising future. Indonesia’s software spending in 2020 is estimated to be USD 900 million, a 33% increase from 2017’s estimated USD 672.5 million. The two major parts of the SaaS market are point-of-sale systems (27.8%) and human resource information system software (16.7%). Moreover, 58.3% of SaaS startups are currently in the seed stage.

Read this: As millions come online each year, rural Indonesia is in for monumental changes

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