Indonesians are founding fewer startups now than five years ago

Curious kids. Joan Simon.

Mature Indonesian tech startups have been attracting record rounds of funding this year.

US$500 million in new funds were reported for Traveloka and another US$500 million for Tokopedia are still to be confirmed.

At the same time, the number of new local startups forming is in decline. If not addressed, this leaves Indonesia with fewer chances of growing more breakout companies like those mentioned above.

Empty funnel

In a report shared last week, East Ventures points out a 23 percent drop in the number of new startups it observed this year, compared with the first half of 2016. This went hand-in-hand with a decline in early-stage VC deals.

Tech in Asia’s database logged an even steeper decline in new startups formed in the archipelago. We found 190 new startups whose founding date fell into the first half of 2016 and a mere 12 this year so far – an almost 94 percent drop. There were less startups born this year than in 2012, the year Traveloka started.

Tech in Asia tracks dozens of channels each day for new startups, including other news sources and databases. This approach hasn’t changed over the years.

Higher barriers to entry

Indonesia has done a lot to grow its support network for entrepreneurs. The number of incubators, accelerators, co-working spaces, and government-backed initiatives is on the rise, so why is founding a tech startup now less attractive than before?

When East Ventures discussed the themes of its report together with fellow VC firms Venturra Capital, Mandiri Capital, Skystar Capital, Coffee Ventures, and CyberAgent Ventures in Jakarta last week, a number of explanations came up.

One is that with many local startups already plowing the field, and startups from elsewhere pushing into the Indonesian market, it’s becoming more challenging for local firms to find a unique selling proposition.

Another observation was that investors are being more cautious and demanding to see a clear path to profitability before deciding to make an investment, both in early and later stages.

“Investors want to see startups creating a business with the right unit economics instead of just a product,” Aldi Adrian Hartanto said in the discussion.