Malaysia and Indonesia in startup ecosystem partnership
By Masyitha Baziad February 25, 2016
- Mavcap and Kadin initiate informal dialogue to develop B2B partnership
- Not merely about funding, but knowledge-sharing and mentoring as well
INDONESIA and Malaysia will work together to develop both countries’ digital economy and startup ecosystem.
The two Muslim-majority nations will leverage on each other’s strengths – Indonesia’s huge market potential and Malaysia’s digital transformation experience and capital – to attract more investments into their startup ecosystems.
The partnership was initiated by the Indonesian Chamber of Commerce and Industry (Kadin) and Malaysia Venture Capital Management Bhd (Mavcap) at a dialogue forum and networking reception in Jakarta on Feb 23.
The dialogue was supported by Shanghai-headquartered venture capital (VC) firm Gobi Partners and Indonesian early-stage venture capital firm Convergence Ventures.
“Indonesia still needs a lot of support to grow its startup scene, not only from the funding side but also in know-how and sharing of knowledge,” Kadin chairman Rosan Roeslani said in his opening remarks.
“We want to achieve the goal to be the largest digital economy in the region, yet we know we need to build the ecosystem well,” he added.
The Jakarta forum acted as an informal introductory dialogue between government bodies, investors, and entrepreneurs from both countries, in the hopes of establishing more partnerships and collaborations.
“The timing is just perfect, with the recent revision in its negative investment list and Indonesian President Joko Widodo’s visit to the United States,” Mavcap chief executive officer (CEO) Jamaludin Bujang told Digital News Asia (DNA) on the sidelines of the event.
“It sends out a message that Indonesia is opening up its tech sector.
“Both countries want to share the momentum and make the right moves to build the Asean digital economy. We will share our expertise and develop the tech ecosystem together,” he added.
The ‘negative investment list,’ known by its Bahasa Indonesia acronym of DNI (Daftar Negatif Investasi), specifies the sectors of the Indonesian economy in which foreign investment is prohibited or limited.
Last November, the Indonesian Government said it would review DNI as part of its effort to develop the digital economy. Earlier this month, it opened up 35 sectors to foreign investors.
Among the changes is that Indonesia now allows 100% foreign ownership of online transactions or marketplace companies which are valued at more than Rp100 billion (US$7.5 million).
Kadin established a Startup Technology Agency last December, aiming to bridge the communications gap between government and ecosystem players, especially with regards to regulation.
The agency is headed by Patrick Walujo, the cofounder of Northstar Group, a private investment firm that is headquartered in Singapore but with a distinct focus on Indonesia.
“Startups help create jobs, and this is what the country needs. We should give our total support to these players, especially since they have a good impact on the economy,” Kadin’s Rosan said.
He said Kadin is currently in discussions with the Indonesia Stock Exchange (IDX), the Financial Services Authority (OJK), and the Government to build an incubator to prepare startups to go public.
“We will introduce more facilities for startups, and greater flexibility for them to list on IDX, even if they have been operating for only a year,” he added.
Complete U-turn on protectionism
All these supporting initiatives for startups will be launched in June, Rosan told DNA on the sidelines of the main event.
Meanwhile, Indonesian Minister of Trade Thomas Lembong said the Government would no longer put up protectionist measures, especially when it comes to the digital and technology sectors.
“We are doing a total U-turn now. We are not going to slow things down, we want to speed things up.
“We want to become regional champions and therefore we need to expand and let investments in,” he said at a networking session during the forum.
“The government has [gotten] religious on technology – we really believe in technology and we have no choice but to leapfrog and use technology extensively,” he told Malaysian and Indonesian delegates.
According to Thomas, his ministry will soon launch a food product mobile app that farmers can use to monitor production figures, prices, and harvest times. The app will gradually include all of the country’s main commodity foods.
The time is definitely right to invest in the Asean startup scene, especially in Indonesia, going by the Venture Pulse paper recently released by KPMG and CB Insights.
The paper reported that despite a record-setting year for venture capital investment in Asia, with over US$39.7 billion invested, funding activities in China and India slowed down in the fourth quarter of 2015.
While both countries still led in overall numbers – China recorded total investments of US$27.3 billion with 380 deals, while India recorded US$7.9 billion with 480 deals in 2015 – the quarterly trend buckled.
South-East Asia’s investment activity – led by Singapore, Malaysia, and Indonesia – on the other hand, showed growth each quarter, although still small in terms of absolute numbers, totalling US$1.2 billion with 222 deals in 2015.
“A number of factors may be affecting the decrease in Asia VC (venture capital) activity, including concerns about a slowdown in China’s economy and a weakening retail sector.
“Prominent investors are also expressing concerns over overheating in India’s VC ecosystem,” the report noted.
Invest with local partnership
Gobi Partners, listed in the report’s list of the top 15 most active VCs in Asia, sees Indonesia as a strategic and natural investment destination.
Its managing partner Thomas G. Tsao said that the VC firm plans to open an office in Jakarta this year, after having opened an office in Kuala Lumpur last year.
“When you come to a new market, most people forget that they have to localise, there is no choice. You have to work with local partners because every market is different,” Tsao told participants at the networking session.
Gobi Partners aims to bring more Chinese investments and business opportunities to Asean countries, having previously worked together with Mavcap to launch a US$50-million Asean fund. Now the VC firm is looking to bring the fund to Indonesia.
“We have invested in 17 companies in Asean and four in Indonesia. We will soon announce two more investments in Indonesia,” Tsao said.
Via its partnership with Gobi Partners, Mavcap – the Malaysian Government’s VC arm – is also looking to expand its portfolio to Indonesia.
“We have the Gobi Mavcap Asean fund and our strategy is to work with local partners as well, and that is where Convergence Ventures comes in,” its CEO Jamaludin told DNA.
Convergence Ventures’ Indonesian investments include startups such as SMS-based virtual assistant solution company YesBoss and viral content producer Males Banget, to mobile food app developer Qraved.
Malaysia has skills, Indonesia the market
“Indonesia is the key market for Asean. If you want to have a footprint or make an investment in Asean, you have to cover Indonesia,” Jamaludin (pic above) argued.
“You cannot call yourself an Asean fund if you do not have a presence in Indonesia,” he added.
Convergence Ventures founder and managing partner Adrian Li echoed Jamaludin’s view.
“There cannot be any talk of Asean or South-East Asia without mentioning Indonesia,” he told DNA on the sidelines of the event.
“We have seen a lot of big tech companies coming out from Malaysia, and looking at the cultural similarities and geographic proximity, it is a natural fit and a lot of things can be done between these two countries,” he added.
Adrian said he is hoping that the Feb 23 dialogue can pave the way to tangible collaboration in the future.
He and his partner Donald Wihardja argued that the partnership should not be limited to funding, but must include building skillsets through mentoring programmes and accelerators.
“Malaysia has all the skills and the money, Indonesia has the market,” Donald said.
“We are not just opening the market. We want to allow partnerships so that investors can come to Indonesia, complying with government regulations, and bring their expertise into the country,” he added.
One such collaboration was the announcement that Kuala Lumpur-based 1337 Ventures was partnering Gobi Partners, Convergence Ventures and Baidu Indonesia to bring its Alpha Startups pre-accelerator programme to Indonesia.
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