Facing Many Obstacles in 2023, Indonesian Startups Still Have Great Opportunities from the Largest Population in Southeast Asia

2023 will be quite a tough year for startup companies. There are many cases of closures and even employee reductions in years when interest rates start to climb high.

This year, the era of startup funding is running low. Not only that, startups are also required to be more efficient in their operations, so that pursuing profits becomes the startup’s main task.

According to data from a collaborative report by Google, Temasek, and Bain and Company entitled e-Conomy SEA 2023, the value of investment in startups in Indonesia fell by 87 percent on an annual basis (year-on-year/yoy) in the first semester of 2023.

The value fell from USD 3.3 billion to only USD 400 million or approximately IDR 6.3 trillion (assuming an exchange rate of IDR 15,757 per USD).

AC Ventures together with Bain & Company released a comprehensive report on the venture capital (VC) landscape in Indonesia, entitled ‘Indonesia Venture Capital Report 2023’ which explains that the level of funding until the third quarter, only reached 0.3x compared to the third quarter of 2022.

This condition means startups cannot burn money carelessly because funding is increasingly limited. Investors no longer want to let their funds be used for marketing or crazy promotional costs to simply enlarge transactions and capture the market.

Throughout 2023, several startup companies will cut staff from startups that are still operating, such as Lamudi, Goto, Bibit, Pluang, Carsome, Shopee Indonesia, Tanihub, Zenius, Linkaja, Sayurbox, Goto and Koinworks, as well as Ajaib.

Global phenomenon

This phenomenon does not only occur in Indonesia but seems to have become a global phenomenon, such as what happened with the action of cutting employees at Spotify, ByteDance, Buzzfeed, Lyft, Zoom, Alphabet, and Amazon, which reportedly cut as many as 27 thousand employees. Meta, as the parent owner of Facebook, has also cut a total of 10 thousand employees.

Chairman of the Indonesian Joint Funding Fintech Association (AFPI) Adrian Gunadi said the main factor in the startup storm was the risk of inflation and a global recession that might occur this year.

Meanwhile, General Chair of the Indonesian Technology Startup Association (Atsindo) Handito Joewono said that this efficiency had been planned years before, but was not implemented for various reasons, including the Covid-19 pandemic.

“That’s just the tip of the iceberg, they’ve been putting up with this for a long time because, to lay off thousands of workers, they can drop the company’s name, but like it or not, it has to be done,” he said.

Most startups in Indonesia have not recorded profits to shareholders. The losses of several Unicorns such as Goto reached hundreds of billions and it is estimated that they will still try to cut their losses in search of profits.

Many startups have gone bankrupt

Apart from that, in this era of high-interest rates, several startup valuations have also evaporated because they went out of business. According to Medcom’s records, 10 startups went bankrupt this year, one of the largest being Pegipegi.

I recorded several startups that were forced to close down, such as Airy Room, Fabelio, and JD.ID, Sorabel, Stoqo, Qlapa, CoHive, Beres.id, Rumah.com, and Pegipegi.

Pegipegi closed after reportedly receiving a funding injection from parent Traveloka. Pegipegi’s valuation of reaching a unicorn illustrates that investing in a startup with a jumbo valuation does not mean it is free from the risk of failure.

From the closures that occur in 2023, it appears that startups will leave as many employees as calculated from LinkedIn data, which could reach 2,625 employees. Of that amount, not all of it has been absorbed into the formal sector because existing startups are still busy streamlining themselves to be more efficient.

Stock performance

However, from the share prices, it appears that technology shares have not been able to attract investor interest. The performance of PT GoTo Gojek Tokopedia Tbk (GOTO), PT Bukalapak.com Tbk (BUKA), and PT Global Digital Niaga Tbk (BELI) is still below the initial price on the stock market.

Medcom. id notes, GOTO shares have fallen by 6.59 percent YTD, BUKA fell by 20.9 percent YTD, and BELI rose by 2.56 percent. In terms of performance, they have tried to reduce losses compared to 2022.

Even though it is losing money, this startup company reportedly still has a future in line with the increasing digital transformation in Indonesia and Indonesia’s largest population in the Southeast Asia region.

Will this still happen in 2024?

Challenges for start-up companies remain in terms of the global economic climate which is still fading. We Forum wrote that global economic growth is expected to slow down in 2024. The economy is slowing down due to various factors such as high-interest rates, rising prices, and world geopolitical conditions which worsen the global financial outlook.

Even though the era of high-interest rates is over, interest rates are still higher than in 2019. Apart from that, economic uncertainty.

Tinc (Telkomsel Accelerator) describes startups that can adapt and read market changes quickly, respond to customer needs, and change strategies according to ecosystem dynamics. Startups that survive are not startups that have high valuations or lots of investors, but startups that can adapt.

Adaptability here is not only a key element for survival but also the foundation for creating the innovation needed to win the competition. there are several interesting trends in the next year such as fintech, AI, education, health, and e-commerce,

Digital competitiveness and Indonesia’s population

Deputy Minister of Communication and Information (Wamenkominfo) Nezar Patria revealed that the Indonesian population is increasingly using the Internet. And its adoption will continue to increase, giving startups more opportunities to present solutions, especially digital, to meet the needs of Indonesia’s digital community.

Nezar said that based on data from the Indonesian Internet Service Providers Association (APJII), in 2023 there will be 215 million Indonesians who will be internet users. Another reason why startups are still an attractive business to develop is that the Indonesian Digital Competitiveness Index is relatively large and shows that there is still potential for startups to provide solutions and innovation.

“Over the last three years, Indonesia has shown a promising Digital Competitiveness Index of 38.5 percent. This is an indicator that the market climate in Indonesia is increasingly competitive and can be a good foundation for the presence of innovations,” said Nezar.