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Indonesia’s micro SMEs fertile ground to grow new generation of unicorns

Published on March 17, 2022

Original post by BusinessTimes Singapore

SECOND-HAND car dealerships may seem like a 20th-century business, but Indonesian fintech startup Broom is banking on using technology to give the sector a new lease of life.

The fintech startup links second-hand car dealers with financing partners by connecting them to banks on its platform.

Most of these dealers are considered small and medium-sized enterprises (SMEs) and often face high financing costs.

“Through our various services, Broom intends to support secondhand car dealers in expanding their businesses,” said Pandu Adi Laras, the founder and chief executive officer of Broom. “Endorsements from various stakeholders have also given us that extra confidence to embark on our mission of empowering secondhand car businesses in Indonesia.”

The company currently has more than 2,000 second-hand car dealers on its platform and recently secured US$3 million pre-seed funding from AC Ventures.

Adrian Li, founder and managing partner, AC Ventures told The Business Times that Indonesia’s 63 million micro SMEs (MSMEs) provide fertile ground for new startups to target.

He added that a number of potential unicorns in 2022 will emerge from sectors such as fintech, consumption and e-logistics that specifically target the MSMEs.

“What we are seeing is more unicorns being minted by virtue of their fundamentals as valuations are determined by the availability of capital,” he said. “The MSME sector is gigantic but is often overlooked and they have big problems that need to be solved.”

Given the enormous potential of Indonesia’s digital economy, Li is forecasting that 2022 will be a very promising year for new startups.

“We have already committed 5 deals since the start of the year and the more mature startups are benefitting from the pandemic-induced online consumption.”

Indonesia saw 5 new unicorn companies in 2021, the most the country has ever seen in a single year and 2022 may see another record-breaking number of unicorns.

According to Tracxn, capital investments in Indonesian tech companies in 2020 and 2021 stood at a historic high of US$3.4 billion over the 2 years.

Apart from Broom, other potential unicorns pointed out by market watchers include KoinWorks, the first fintech company to offer a 24-hour online service; and Payfazz, which provides an agent-based payment and banking solution for unbanked Indonesians.

With a recent Series B fundraising of US$74.1 million, Payfazz is on track to scale beyond its current portfolio of 50 million consumers and 5 million agents.

Another potential unicorn is e-commerce enabler Shipper which was on the list of the World’s Most Innovative Companies by the US-based business magazine Fast Company.

Shipper provides integrated logistic services using technology to MSMEs across the vast archipelago.

Many of these startups are still far away from hitting the unicorn valuation of US$1 billion, but what they have in their favour is the massive population size of Indonesia and the potential to scale speedily.

Take for instance, the country’s logistics sector that is currently worth some US$81.3 billion. The market is expected to grow multifold over the next decade as e-commerce continues to expand. For Shipper, this could mean hitting the coveted billion-dollar status in 3 to 5 years.

“Investors are now focused on startups that can penetrate Indonesia’s second and third tier cities and the rural hinterland,” said Li. “They are looking at new models of commerce that can deliver 10 times the growth.”

Despite being a country of superlatives, Indonesia remains relatively unknown on the world stage, said Joel Shen, head of Withers Tech Asia. But that is now changing.

“I believe that Indonesia’s days of obscurity are numbered,” he noted. “As the first generation of Indonesian startups and scaleups head for their exits, we can expect more global investors to come seeking opportunities.

He added: “Being home to a stable of unicorns such as GoTo, Traveloka, Bukalapak, OVO and J&T Express, Indonesia is receiving greater interest from global funds and investors.”

Indonesia’s digital economy, only US$8 billion in 2015, has quintupled over the last 5 years to reach US$44 billion today, and is expected to further treble to US$146 billion by 2025, said Shen.

As such, a higher number of unicorns can be expected to rise not just this year but for the foreseeable future.

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