3 myths about foreign investments and acquisitions in Indonesia’s startup world

Although it’s a given in most nations that foreign investments are crucial to support startup growth, it may not be as obvious to the entrepreneurs residing in emerging market nations like Indonesia. Tokopedia CEO William Tanuwijaya claims it’s common for him to hear netizens mock his company because it has accepted foreign investment time and time again. Is it wrong to grow your Indonesian tech company using cash from foreign companies? It’s all a matter of perspective. But those who say ‘yes’ should read this article closely, as we’ll discuss three huge myths pertaining to foreign investment in Indonesia’s startup scene.

1. Indonesian startups can live off local investments

Startups always argue that they are looking for “smart money,” as opposed to “dumb money.” The latter is what happens when the company receives cold hard cash and nothing else from an investor. Essentially, startups can get such cash injections from any rich person in the world. What’s valuable though, is if startups can also get the investor’s experience, knowledge, mentorship, network, and even infrastructure to help get things going. This is not something you can get from just anyone with deep pockets.

The right kind of local investors in Indonesia have the advantage of providing valuable local network and infrastructure. Take for example, Lippo Digital Ventures and Kompas Gramedia, conglomerates which have vast resources and networks in the retail and media industries alike. Getting on board with those two companies means that startups get the opportunity to work with a variety of products and sub-businesses, which makes growth much easier.

However, getting a local investor on board may not be easy. Because the nature of internet business is so unique (low barrier entry and sacrificing profit for growth), local investors who are more used to making money through traditional businesses like mining may have a hard time understanding this business model. And even if they do, there’s a good chance they won’t want to put high enough valuations on tech startups – at least not as high as what their foreign counterparts would offer.

But even then, there’s only so much startups can get from working with local investors. If startups want to get a wider range of know-how on building global internet businesses, then they should look elsewhere for money.

To build the very best internet companies, startups need mentorship and guidance from the very best people who understand the internet industry. Sadly, Indonesia has yet to have such global successes like Facebook and Twitter, and so the possibility of building world-class internet companies using only local expertise remains limited.

This is what foreign investment brings to the fold. Unlike the nascent market in Indonesia, internet businesses have grown at a very fast pace in other countries. Foreign investors such as Softbank and Naspers have seen and experienced first hand what it takes to build world-class companies like Alibaba and Tencent. They do not only have theories, but also practical know-how to help startups grow faster.

When Tokopedia broke the record for the biggest announced funding round in Indonesia, one of the biggest takeaways from Tanuwijaya was that he can now leverage on SoftBank’s and Sequoia Capital’s expertise in assembling a world-class company.

See: 10 things you need to consider before investing in Indonesia

2. Taking foreign investments is not patriotic