Indonesia's Tech Unicorns Struggle Amid Funding Shortage and Unclear Exit Strategies
JAKARTA – Indonesia's unicorns, once seen as the rising stars of the tech world with valuations exceeding US$1 billion, are currently navigating a challenging landscape. In recent years, these companies have faced a tightening funding environment, leading some to see a significant decline in their market capitalization after going public.
Funding rounds, both for early-stage and late-stage companies, have become increasingly rare. When they do occur, they often happen at lower valuations, reflecting a broader market correction. According to Edward Ismawan Chamdani, treasurer of the Venture Capital and Start-up Indonesia Association (Amvesindo), this trend is the aftermath of a valuation bubble that burst around mid-2022. "There was too much capital chasing too few winners," Chamdani told The Jakarta Post on August 19.
Many companies, once buoyed by inflated valuations, now face intense scrutiny to prove their worth in a post-bubble era. As a result, some have had to raise additional funds at reduced valuations (down-rounds), while others, with limited capital reserves and shorter financial runways, struggle to secure further investments. This has forced them to cut costs, merge, or, in some cases, shut down.
The funding landscape has dramatically changed, with investments dropping to just US$400 million from 100 deals in the first half of last year, compared to US$3.3 billion from 302 deals in the same period of the previous year, according to the annual e-Conomy Southeast Asia report by Google, Temasek, and Bain & Company, released on November 1, 2023.
Jonathan Davy, CEO of venture builder Ecoxyztem, highlighted on August 20 that mergers and acquisitions (M&A) have yet to prove successful in Indonesia, with few notable examples to emulate. This lack of proven exit strategies has made it even harder for start-ups to plan their future paths.
Many start-ups, facing a lack of follow-up funding and fewer large investments, are being forced to pivot rapidly toward profitability. "We’re even seeing early Indonesian unicorns that have gone public now facing steep valuation drops as the market deems them overvalued," Davy noted.
The merger of Gojek and Tokopedia in 2021 to form GoTo, Indonesia's largest corporate merger, is a case in point. Gojek, Indonesia's first unicorn, achieved decacorn status (a valuation of more than $10 billion) by 2019. However, its valuation at the time of its IPO, which was projected to exceed Rp 400 trillion (around $28 billion in 2022 exchange rates), has since fallen to around Rp 57 trillion as of August 23, effectively stripping it of its decacorn status. In 2022, GoTo sold a 75 percent stake in Tokopedia to ByteDance’s TikTok for $1.8 billion.
Similarly, Bukalapak, Indonesia’s first unicorn to go public, was valued at $6 billion in 2021. However, its market capitalization had shrunk to just over Rp 12 trillion as of August 23, below the unicorn threshold.
One exception is PT Global Digital Niaga (Blibli), which saw its market cap rise to Rp 56 trillion by August 23, up from its initial IPO valuation of $3.4 billion in 2022.
Martin Aditya, an investment analyst at Capital Asset Management, pointed out on August 21 that investor confidence in GoTo has waned due to its low stock price and the exit of original shareholders and founders, despite reported improvements in its fundamentals earlier this year. "They should focus on the financial services unit," he suggested, adding that it’s difficult to rely solely on the company's on-demand services and e-commerce sectors.
CB Insights data shows that six new Indonesian unicorns emerged between 2021 and 2022, with four in the financial services sector. Overall, Indonesia now boasts more than a dozen unicorns, including those that have since lost that status. However, only about 646 of the country's estimated 10,000 start-ups have received funding, according to Tracxn's report for the first half of this year.
Despite these challenges, Kopital Kenangan cofounder Fandy Chandrajaya remains optimistic about the prospects for publicly listed tech firms. "GoTo is still a Rp 60-70 trillion company. It's not a decacorn now, but it will get back there eventually," he stated, believing the local tech industry is still in its growth phase.
Chandrajaya views the recent market correction as ultimately beneficial, especially with renewed interest from second-time investors. Although he acknowledges that limited exit opportunities and lower valuations could discourage businesses, he remains confident that strong companies will continue to thrive. "The numbers never lie. A good company is a good company in any market," he affirmed.
