Burning Profitable Money: A Startup Way

Minister of Communication and Information Rudiantara became the sole speaker at the New Economy Talk session in the series of IMF Annual Meetings - World Bank Group (Antara)

Indonesia is the largest digital industry supplier in Southeast Asia. Four out of 10 unicorns, startups with a valuation of USD 1 million are in the country. The online transportation service, Go-Jek, the online travel agency, Traveloka, and the two e-commerce, Tokopedia and Bukalapak are the examples.



"Four unicorns that have only been established in the last eight years with digital services of less than 4 years have exceeded the value of cellular operators in the country, except for Telkomsel," said the Minister of Communication and Information Technology, Rudiantara at the Merdeka Barat Forum (FMB 9), last February at the Office of the Ministry of Communication and Information Technology (Kemkominfo).



To stimulate the development of startups as unicorns, said Minister Rudiantara, the government focused on three solutions. First, simplifying the regulation of the establishment of pilot businesses. He said that in order to be registered, startups does not need permits from Kemkominfo, they only need to register online.



Permits are only for institutions that regulate the main startup business. For example, businesses in financial technology must obtain authorization from the Financial Services Authority as a form of consumer supervision and protection.



The second step, the government facilitated the establishment of a new pilot business. Rudiantara said the government supports the "National 1000 Startup Digital Movement" program initiated by Kibar Kreasi Indonesia (Kibar), a company that builds digital startup ecosystems in the country. The goal is to build a technological ecosystem in Indonesia through capacity building initiatives, mentoring, and incubators in various cities.



The next task of the government is to accelerate the pilot business by connecting them to funding sources, both from within and outside the country. Rudiantara said that many of capital providers are confused in choosing a good pilot business to fund. Conversely, there are many good startups but it is difficult to access capital.



Rudiantara said that the community does not need to worry about capital providers from abroad. Homeland Unicorns will not be controlled by foreigners because investors in the startup sector prefer to be passive investors.



“Why burn investors' money? For whom? It must be for Indonesian consumers because they enjoy price subsidies and applications that solve problems," Rudiantara said.



Regarding foreign investment, the Head of the Indonesian Investment Coordinating Board (BKPM), Thomas Lembong said the startup business model is different from the old one. Capital providers do not interfere in startup operations because they invest in the founders’ innovation. Human resource is the number one asset in a startup company.



The money invested in the pilot business is also not easy to be withdrawn from abroad. Thomas said there are only three ways to withdraw capital in the startup sector. The three ways are to conduct an Initial Public Offering (IPO) or floor to the stock exchange, sell it to other investors, or minimize the value of its shares.



"So, investment through this pattern must be a total commitment. Once inside, they are not able to pull out. This is what distinguishes the savings pattern on deposits which can be withdrawn at any time, "said Thomas.



Quality of Startup Heavy Capital



Head of BKPM Thomas Lembong said the capital inflow into the digital economy and e-commerce-shaped startups sustained international investment in the past five years. International investment in Indonesia is supported by two sectors, e-commerce and smelter or metal refining plants, especially nickel.



"If it wasn't for the heavy flow of capital that had entered into unicorns and also the digital economy, global investment would have dropped," said Thomas.



To support the improvement of e-commerce in Indonesia, the government created a national-based electronic trade system roadmap with the legal umbrella of Presidential Regulation Number 74 of 2017. Its contents include funding programs, taxation, consumer protection, human resource education, communication infrastructure, cybersecurity and the formation of executive management.



Thomas said the international investment is not only directed at local unicorns. These unicorns are only the tip of the iceberg of the pilot business that has international capital flows. Under them, said Thomas, there are still hundreds of pilot businesses with large valuations that obtains investment funds.



"The valuation of these companies is still hundreds of billions or trillions, not up to Rp. 14 trillion like the Unicorn, but the value is significant," said Thomas.



For this reason, Thomas invites to see investments not only from the measure of the quantity of capital, but also quality. Quality investment is one that can create jobs, bring technology into the country, and connect the homeland business with the world. Startup investments have those criteria.


The Minister of Communication and Information Technology, Rudiantara, hopes that through investment, unicorns in Indonesia can expand to decacorn, pilot companies with valuations reaching USD 10 billion or Rp. 141 trillion. He is optimistic that two types of Indonesian startups can develop into decacorns and there will be an additional unicorn in 2019.



"I predict that there will be two unicorns that will turn into decacorns and there will be an additional new unicorn. But, everything depends on them, "said Rudiantara.  



At present, there are 15 pilot businesses that have status as decacorn. Such as Uber (USD 72 billion), Airbnb (USD 29.3 billion), SpaceX (USD 21.5 billion), Pinterest (USD 12.3 billion), Bitmain Technologies (USD 12 billion), Grab (USD 11 billion), and others.



In fact, startups are not only able to create a good investment climate, but also create decent employment opportunities. For this reason, the startup is one of the solutions discussed in the Indonesia Development Forum (IDF) 2019. IDF 2019 will bring together various stakeholders to discuss ways to utilize future employment opportunities to create inclusive growth. **