This Indian VC is looking toward Indonesia for early stage startups

Japanese investors like SoftBank, CyberAgent Ventures, Rebright Partners, and IMJ Investment Partners have established solid footing in Indonesia. So have big Chinese internet firms like Baidu. Even Korea’s Daum Kakao and startup gobbler Yello Mobile have made position plays in Jakarta.

More surprising, however, is the arrival of Indian players. In recent years, direct foreign investment into Indonesia from China and India has increased significantly, despite Forbes calling India the world’s best-performing emerging market last year. One Indian VC fresh off the boat in Indonesia is Mumbai-based Aavishkaar, a compay whose LPs consist entirely of European-based development finance institutions.

In India, Aavishkaar is known for backing nearly 44 startups. Although not limited to the tech sector, some of its notable portfolio companies include a low-cost Indian hospital chain called Vaatsalya and Milk Mantra, a dairy company that sources from smallholder farmers.

Aavishkaar’s Bali-based senior investment manager Adi Sudewa tells Tech in Asia his firm recently locked in US$45 million to start Aavishkaar Frontier Fund (AFF), a pool of money that will focus only on markets outside India. Sudewa is tasked with hunting for early stage startups in four separate markets: Pakistan, Sri Lanka, Bangladesh, and Indonesia.

“We project a total of US$75 million for the fund,” explains Sudewa. “There’s no fixed proportion dedicated for each country, but we expect Indonesia to contribute a significant number of portfolio companies.”

But why Indonesia?

Pakistan makes sense for Aavishkaar, as it likely has a great deal of low-hanging fruit in the form of a large population of more than 182 million, more than 10 percent of whom are already on social media like Facebook. With ecommerce taking off in the country, Rocket Internet has set up shop with its marketplace Daraz (the Pakistani equivalent to Lazada). Daraz’s relative traction has created validation for Pakistan’s ecommerce potential, which has led other company builders to begin eyeing the market.

Bangladesh is another big one, with more than 160 million people, a US$175 billion economy, and a per capita income of US$1,190.

Sri Lanka on the other hand is a smaller market, with a population just more than 20 million and an internet penetration a little over 22 percent. Perhaps AFF sees Sri Lanka as a petri dish which can potentially birth startups that will go regional.

Indonesia represents a large opportunity for any startup investor, but culturally and geographically speaking, the archipelago is not terribly similar to India. Sri Lanka, Pakistan, and Bangladesh on the other hand, all directly border the second-largest Asian nation. This arguably makes them more familiar territories for an Indian VC like Aavishkaar. In that respect, a move into Indonesia doesn’t seem to make a whole lot of sense for the foreign firm, despite its inherent market potential.

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

Hunting for immaturity

Regardless, Sudewa says AFF has a keen eye on tech innovation, but is specifically looking for seed and series A startups in agriculture, healthcare, education, water and sanitation, renewable energy, and more. “Technology for development is an area that is very interesting,” he adds. “If there are fintech, edtech, or healthtech companies […] that aim to solve social and economic issues of people in the lower-income segment, those could be good fits for our fund.”

Sizing up the archipelago