Google and A.T. Kearney s joint study on Indonesia s venture capital (VC) outlook

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2 Objectives 1. Highlight key global and regional (Asia) trends in VC investments 2. Review the VC investor and start-up landscape and growth in Indonesia 3. Showcase the VC investor confidence and outlook for Indonesia 4. Provide recommendations for further bolstering the start-up ecosystem in Indonesia

3 Google and A.T. Kearney s joint study on Indonesia s venture capital (VC) outlook Methodology More than 25 VC interviews Data inputs from VCs A.T. Kearney research Google research Third-party research

4 The US remains the global start-up hub with more than 50% of the deals and investment value Global deals trend ,688 $104 bn 63,924 $524 bn 12,733 $225 bn 673 $7 bn 1,306 $7 bn 2,010 $5 bn Investment value ($bn) Number of deals Note: Deal value represents only reported deal value. Sources: Crunchbase; A.T. Kearney analysis

5 But, Asia is catching up quickly Global investment value Asia 33% Others 3% Europe 11% Asia 13% Others 1% $73 bn 4x $274 bn North America 49% North America 75% Europe 15% Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis

6 Within Asia, investment values have soared on the back of China and Southeast Asia Asia investment value Others 19% SEA 8% India 9% Others 31% SEA 3% India 11% 9x $90 bn $10 bn China 55% China 64% Note: SEA is Southeast Asia. Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis

7 Within Southeast Asia, Singapore remains the main hub but other countries are quickly catching up, with Indonesia leading the way Southeast Asia investment value Others 40% Indonesia 19% Others 2% $0.3 bn Indonesia 14% 9x 23x $6.8 bn Singapore 83% Singapore 41% Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis

8 While still nascent, investments in Indonesia are soaring, reaching ~$3 bn in 2017 (year-to-date) Indonesia investment value 2x $3.0 bn 31x $1.4 bn $44 mn (Jan-Aug) Sources: Crunchbase; A.T. Kearney analysis

9 Most of the investments are still in the seed or early stages; however, late-stage investments are generating most of the value Indonesia investment (Jan-Aug 2017) # of deals Investment value Series A 30% Series B 8% Series C or later 15% Seed 0% Series A 15% Series B 1% Series C or later 43% 53 Debt/PE 4% $3.0 bn Seed 43% Debt/PE 40% Note: Numbers may not resolve due to rounding. Sources: Crunchbase; A.T. Kearney analysis

10 E-commerce and transport categories heavily dominate investments Top categories in Indonesia % total investment value (2012 Aug 2017) E-commerce 58% ~$1.8 bn Transport 38% Finance Classified/ directory Payment Others 1% 1% 1% 2% ~$1.4 bn ~$500 mn Grand total 100% Total funds raised (to date) Note: Numbers may not resolve due to rounding. Sources: Bloomberg, TechCrunch, Techniasia.com, Crunchbase; A.T. Kearney analysis

11 In 2017, Chinese investors became heavily involved in Indonesia s start-up environment, accounting for ~95% of its investment value Indonesia investment value ($bn) % Others ~$1.2 bn 98% 94% Chinese investors involvement ~$1.1 bn ~$500 mn 2% (Jan-Aug) Note: The total investment cannot be attributed to Chinese investors, as there were also non-chinese investors that participated in the funding rounds involving Chinese investors Sources: Crunchbase; A.T. Kearney analysis

12 To capture investor outlook and priorities, we interviewed more than 25 local and foreign investors Respondents By category By fund size By role Foreign Foreign >$500 mn 13% $ mn 21% Investment officer/manager 21% 42% 46% 54% 58% 38% 29% 42% 38% Local US$50 mn $ mn Founder/CEO Partner/director Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

13 Investors are generally bullish on the outlook of the Indonesian market What is your investment outlook for Indonesia? (% of responses) Local investors 21% 21% 57% 20% 80% Foreign investors Decrease investment (-10% or more) No change (+/-9%) Increase investment (+10% or more) Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

14 Investors have a positive outlook even when compared with other Asian markets How does Indonesia s outlook compare to other Asian markets? (% of responses) Local investors 14% 57% 29% 30% 20% 50% Foreign investors Worse Similar Better Note: Numbers may not resolve due to rounding. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

15 Indonesia has a strong macroeconomic outlook and favorable demographics Indonesia consumer trends 2016 vs K 128mn 150mn 148mn 42mn 23mn GDP per capita (USD) Upper and middle class Banked population Smartphone penetration Online shopper base Highereducated base mn 88mn 3.6K 85mn 11mn 13mn Sources: BPS, Bappenas, EIU, Nielsen, World Bank, UN, Statista; A.T. Kearney analysis

16 With a current investment of $15 per Internet user, Indonesia has high potential for growth VC investments per Internet user ($, 2016) US 473 China 79 India 19 SEA average 1 21 Indonesia 15 1 SEA consists of Singapore, Malaysia, Indonesia, Vietnam, Philippines, Thailand, Cambodia, Laos, Myanmar, and Brunei. Sources: Crunchbase, World Bank, Internet World Stats, Statista; A.T. Kearney analysis

17 Fintech and healthcare emerge as the top investment categories Top two categories in which to invest in Indonesia (% of responses) Fintech Healthcare 67% Fintech is still in its infancy, but there is growing demand to transact online and to find alternatives to traditional banking/ financial services. 25% There is an increasing demand for techenabled consumer services, and healthcare is the largest untapped vertical. Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

18 Investors highlight four key areas of improvement Key challenges Talent development Fiscal incentives Funding and exit options Start-up facilitation Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

19 Government can play an important role in boosting the start-up industry Key asks from investors Select quotes Talent development Develop more-qualified founders and (technical) engineers Streamline work permit process for foreign talent Fiscal incentives Lower capital gains tax to attract more investment into the tech sector Introduce tax shield for returning expats (or repatriation of skilled Indonesians) Funding and exit options Create an exchange to buy and sell privately held tech shares Create an Indonesian sovereign fund to actively invest in tech sector Start-up facilitation Simplify regulatory processes relevant to start-ups, e.g. company incorporation, patent certification Build start-up parks with conducive infrastructure and synergistic ecosystem Source: Google - A.T. Kearney Indonesia VC Outlook Survey (2017)

20 Government needs to play a strong role, as evidenced in other markets Recommendations Talent development Fiscal incentives Funding and exit options Start-up facilitation 1 1. Work with educational institutions to develop engineers and entrepreneurs 2 2. Attract overseas entrepreneurs and talent 3 3. Provide tax incentives for investments in startups and for start-up operations 4. Set up government funds/government-led VCs aimed at start-ups Establish multi-tier system in the public market for high-risk, high-tech start-ups 7. Simplify legal/administration requirements to start and operate start-ups Develop start-up ecosystem to facilitate start-up growth, e.g. mentoring French Tech Visa, a 4-year visa for startup founders/employees/investors French Tech Ticket, a 1-year benefits package Establish start-up Intellectual Property Protection (SIPP) Various tax exemptions for investments by VC and incubator funds in start-ups Set up national VC fund Set up SME Board/ChiNext/New Third Board, special board/market for high-tech and fast-growing enterprises Start-Up Chile, a public start-up accelerator which helps start-ups at all stages of growth by providing funding and mentorship Source: A.T. Kearney analysis

21 Authors Alessandro Gazzini, partner A.T. Kearney Henky Prihatna, country industry head Google Shekhar Chauhan, principal A.T. Kearney Mifza Muzayan sales operations & strategy lead Google Emmanuel J. Kuesar, consultant, A.T. Kearney Astri Suhaimi, senior industry analyst Google

22 Glossary Term Amvesindo Banked population Debt/PE Foreign investors Higher-educated base Local investors Smartphone penetration SME Upper and middle class VC Definition Asosiasi Modal Ventura Untuk Start-up Indonesia Population that has an account at a financial/banking institution Deals that are driven by non-vc sources such as private equity, debt financing, IPO. VCs may be involved in the deals, but are not the lead investors Investors that are based, and/or have majority of investments, outside of Indonesia Population that has at least a university degree Investors that are based, and/or have majority of investments, in Indonesia Smartphone-using population Small and medium-size enterprise Socioeconomic group based on the number of households earning more than $10,000 per annum Venture capital