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Technology

Funds double down on digitalizing Indonesia mom-and-pop shops

BukuWarung bags $60 million from Peter Thiel and SoftBank-affiliated investors

Indonesian digital bookkeeping services provider BukuWarung is receiving attention from global investors. (Photo by Yuki Kohara) 

JAKARTA -- Global investors are intensifying bets that the digitalization of Indonesia's mom-and-pop stores is the country's next big growth sector.

BukuWarung, an Indonesian startup that provides services such as digital bookkeeping and enabling digital payments for warung -- the local equivalent of mom and pop stores -- said on Thursday it has raised $60 million in Series A funding from global investors.

The infusion comes after direct rival BukuKas said in mid-May that it raised $50 million in a Series B funding round.

Warung sell consumer products like instant coffee, snacks and cigarettes, and are vital to daily life, especially in smaller cities yet to be penetrated by modern retail outlets.

The two deals indicate global investors see the modernization through digital technology of Indonesia's 3.5 million warung as the next frontier in the archipelagic nation's booming tech scene, which is expected to be worth $124 billion in 2025.

Part of the allure for investors is that warung are more prevalent in rural areas and smaller cities, which are often digital laggards. That means startups operating in the sector have more room to grow far away from the ultracompetitive tech scene in places like the capital Jakarta.

"Small businesses are central to Indonesia's economy and culture, yet they are forced to use products which don't cater to their needs," said James Fitzgerald, founding partner of Valar Ventures, which led BukuWarung's funding round.

BukuWarung "close[s] the digital gap for millions of merchants across Indonesia, and lead[s] the charge towards a digital infrastructure that is more comprehensive and accessible," he added.

It marks the first investment in an Indonesian company by Valar Ventures, which was co-founded by famed Silicon Valley venture capitalist Peter Thiel and suggests that the early investor in Facebook may increasingly be eyeing opportunities in Indonesia.

Bridgetown Holdings, a special purpose acquisition company, or SPAC, backed by Thiel and Hong Kong billionaire Richard Li, is said to be in talks with Indonesian travel startup Traveloka for a U.S. listing of the travel reservation company.

BukuWarung also said it received funding from other investors including partners at SoftBank's Vision Fund in what it described as "the largest Series A round raised by an MSME player globally," referring to micro, small and medium enterprises.

Yet, despite increasing investor interest, some have questioned whether such startups can ever be profitable. Subscriptions to their services could be too much of a burden on small businesses, while there is little money to be made from charging transaction fees on warung sales. Most of the shops make less than $70 in daily sales, according to research company Redseer.

And while competition is not an issue now, it may become one. Indonesia's largest and better funded tech companies including Gojek and Tokopedia -- which merged into GoTo -- and Bukalapak are all actively engaged in the warung digitalization, as is Singapore-based Grab, which counts Indonesia as its biggest market.

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