As funding drops, will Indonesian startups turn to IPOs instead?

As Indonesian startups grapple with an environment of lower volume and value of investments, going public on the Indonesia Stock Exchange (IDX) has emerged as a viable avenue to raise much-needed capital.

The number of startup funding deals in Indonesia dropped to 78 in the first half of 2023 from 181 in the same period last year, according to Tech in Asia’s data. Meanwhile, the funding value plummeted to US$592 million from US$2.3 billion.

Investors are becoming more selective as they focus on startups that are burning relatively less cash in the early stage while having a path to profitability in the growth stage, Eddi Danusaputro, chairman of the Indonesian Startup Venture Capital Association (Amvesindo), tells Tech in Asia.

This is also the position of Mandiri Capital Indonesia (MCI), Bank Mandiri’s VC arm, which is committed to “actively investing” this year but more cautiously compared to before.

“MCI will focus on finding startups that have strong potential to benefit the Mandiri Group ecosystem or other state-owned enterprise ecosystems,” says Dennis Pratistha, the VC firm’s chief investment officer.

Photo credit: AsiaTravel / Shutterstock

With the funding drought, startups may turn to other avenues to raise funding, such as conducting an initial public offering.

In 2022, three local tech companies – GoTo Group, Blibli, and Moratelindo – successfully raised trillions of rupiah through public listings. By the end of last year, there were at least two dozen tech companies listed on the IDX.

Additionally, public interest in stock market investing has grown in the country, with the number of investors increasing by 38% in 2022 compared to the previous year, reaching 10.3 million.

‘Robust and active’ IPO market this year

The prospects for IPOs in Indonesia are still good, says Edward Ismawan Chamdani, treasurer of Amvesindo.

“During the tech winter, an IPO is an important choice for a startup as long as it has a business plan for profitability and meets the market’s needs,” he adds.

A recent report by Ernst & Young shows that stock exchange prospects in Indonesia still appear promising amid Asia Pacific’s slightly declining performance in H1 2023.

See also: Why Malaysian tech firms are shunning Bursa for Nasdaq

At least 45 companies were listed on the country’s capital market during that period, cumulatively raising US$2.2 billion. This is an increase from the 22 IPOs in H1 2022 that raised US$1.3 billion in total.

Incubator for IPO candidates

IDX may be more volatile, less liquid