JAKARTA -- Tokopedia, Indonesia's largest e-commerce company, has received $1.1 billion in a funding round led by the Japanese-Saudi SoftBank Vision Fund and China's Alibaba Group, showing that the country's startups continue to enamor big international investors.
Tokopedia made the announcement on Wednesday but declined to comment on the company's valuation, though the latest round is believed to take the valuation to around $7 billion.
The injection will help the company cement its place as the leading player in Indonesia's increasingly competitive e-commerce market as it battles with fellow Indonesian e-commerce unicorn Bukalapak as well as Shopee, an e-commerce business owned by the Singapore-based Sea Group.
International investors' appetite for investing in Indonesian startups reflects the country's market potential. It is the world's fourth-most-populous nation, with over 260 million people, 60% of whom are under 40. They are also digital-savvy, with smartphone penetration set to reach 78% in 2020, and the internet economy market is expected to be worth $100 billion in 2025.
Indonesia's e-commerce market was valued at $12.2 billion in 2018, according to a report by Google and Singapore sovereign wealth fund Temasek. It accounts for more than $1 in every $2 spent in Southeast Asia and is set to grow exponentially over the coming years, to an estimated $53 billion in 2025, nearly four times the size of the next largest market, Vietnam.
Tokopedia is not the only Indonesian unicorn -- a private company valued at over $1 billion -- that is raising cash. Ride-hailing operator Go-Jek is said to be concluding its latest round of funding, with commitments of close to $2 billion, according to several reports. That would value the company at over $9 billion, making it the most valuable of Indonesia's four unicorns and putting it closer to par with regional rival Grab, the Singapore-based ride-hailing operator that is believed to be valued at over $10 billion.
The funding is expected to help the ride-hailer as it expands to countries outside of Indonesia. Go-Jek has already entered Vietnam and Singapore, and has announced moves into the Philippines and Thailand. Its president, Andre Soelistyo, recently told the Nikkei Asian Review it is looking to expand into other Southeast Asian countries as well.
Tokopedia's latest funding boosts Alibaba's grip on Indonesia's e-commerce market. The Chinese conglomerate is a majority owner of Singapore-based Lazada, which competes with Tokopedia in the country.
In a statement, Tokopedia said it will "continue to focus on the Indonesian market" and expects to use the additional funds to "build technology and infrastructure" to enable local businesses to grow.
Founded in 2009, Tokopedia started off by offering a marketplace connecting small and medium-size enterprises to consumers. It has since expanded into other services involving payments, allowing users to pay for things like utility bills as well as phone bills via its website. It currently boasts 80 million monthly users. Presentation material from SoftBank shows Tokopedia's gross merchandise volume grew seventysevenfold in four years, reaching close to $6.5 billion in the year ended in September.
The company tried to enter the e-payment business with TokoCash in March 2017 but six months later was told to suspend the service pending a review by Bank Indonesia. This was possibly due to regulations by the central bank capping foreign ownership of e-money providers at 49%. A majority of Tokopedia shares are believed to be owned by foreign entities, namely SoftBank, as well as Alibaba and its affiliated groups.
Tokopedia announced in October it was teaming up with OVO, an e-payment platform backed by the Chinese-Indonesian conglomerate Lippo Group. In November, it moved into the online-to-offline space with the launch of a new app called Mitra Tokopedia. The app allows offline customers to buy Tokopedia's digital products like internet data and online game vouchers at mom and pop shops.
"In our first nine years, Tokopedia focused on building Indonesia's largest marketplace for physical and digital goods," William Tanuwijaya, CEO and co-founder of Tokopedia said in a statement. "Leading into our tenth year, Tokopedia is evolving our ecosystem to infrastructure-as-a-service where our logistics, fulfillment, payments and financial services technologies will empower commerce, both online and offline... and further our mission to democratize commerce through technology in Indonesia."
While Indonesia is attracting money from abroad, investors seem to be focusing on established startups rather than on early-stage outfits. A report by AT Kearney and Google released last year showed that funding for earlier-stage startups declined in 2017, showing "a shortage of early-stage targets and a venture capital shift of focus to investing in companies with a clear path to profitability."
Lack of talent is one of the biggest drawbacks of Indonesia's startup market, with the country producing only 278 engineers per 1 million people, according to the report. This is significantly lower than Malaysia, Thailand and Vietnam. Furthermore, top-notch talent is lured away by other unicorns offering higher salaries, making it difficult for early-stage upstarts to attract engineers and international investors.