Indonesia’s technology sector is seeing explosive growth in both the number of companies and the amount of inbound investment. The country already has more than 1,700 start-ups, and four “unicorns,” or billion-dollar companies, and industry watchers are predicting there will be more. Unsurprisingly, this is also reshaping the work that corporate law firms are doing.


Until barely a few years ago, Indonesia was primarily attracting investment into more traditional industry sectors such as energy, mining and agriculture. But all that is changing rapidly, as consumer goods, and more importantly, technology, take centre stage. According to data from Dealogic, cross-border investment in technology in Indonesia hit $3 billion in 2017, up from just $128 million the year before. It was also the first time the technology sector became the top source of inbound investment into the country, which doubled last year to $6.8 billion. 

Indonesia currently has a youthful population of more than 250 million people who own at least 100 million smartphones, says Reuters, and as a result, the country has seen a rapid growth in the number of start-ups trying to capitalize on this potential in a growing economy. Indonesia currently has four unicorns - companies that have reached $1 billion in valuation without tapping the stock markets - including ride-hailing company Go-Jek, travel site Traveloka, and marketplaces Bukalapak and Tokopedia.

The investment is coming from a variety of sources. There are Indonesian domestic conglomerates looking to get a piece of the action. Chinese technology companies are becoming serious investors – an Alibaba-led invested in Tokopedia, while Tencent injected capital into Go-Jek, Indonesia’s largest ride-hailing and e-commerce group. Additionally, there is increasing interest from large venture capital firms like KKR, which recently also snapped up a stake in Go-Jek. 

Ahmed Jamal Assegaf, a partner at Indonesian law firm Lubis Ganie Surowidjojo, says that most investors today see Indonesia as an investment opportunity based on the explosive growth of e-commerce in the country. “As most people know, Indonesia has the world’s fourth largest population and is also the largest economy in Southeast Asia,” he says. “With internet users and smartphone use expanding rapidly, Indonesia will eventually become a leading mobile-first nation in the future. With that in mind Indonesia is becoming a very interesting target for investors and venture capitalists, especially in the e-commerce sector.”

Vik Tang, a partner with Herbert Smith Freehills, agrees. “Firstly, Indonesia has a large population, with a growing middle class, which serves as a good target market,” he says. “Second, the e-commerce and fintech sectors here developed rapidly in the last 18 to 24 months. This is due to the opportunities created by a large proportion of "unbanked" or "under-banked" citizens and high internet and mobile phone penetration. We are also increasingly seeing convergence between the fintech and e-commerce sectors, where innovative ways of providing credit are being introduced onto e-commerce platforms. The government is also broadly supportive as the fintech sector is seen as a means of promoting financial inclusion.”


With this rapid growth in the technology sector, it is no surprise that law firms have been an increasing number of technology sector clients. Says Fahrul Yusuf, a partner with Indonesian law firm SSEK: “The trend started at the beginning of 2014, but most of the clients we see are the technology companies themselves rather than VCs. We do a broad range of work for them, including mergers and acquisitions and the establishment of new companies. A lot of the advice they are after is often quite standard, mostly revolving around how to get the licenses they need, especially those related to payment solutions.”

His experience is not unique. “Parallel to the current growth of venture capital and tech-sector in Indonesia, our firm is definitely aware of the need for legal expertise and services from companies within this sector,” says Assegaf. “Therefore, we are seeing more and more clients in that segment, especially from financial technology, e-commerce, and application-based companies. In general, these companies tend to seek advice regarding the procedure to invest in Indonesia and the most possible and efficient scheme to conduct business in Indonesia.”

Meanwhile, Tang says his firm has been seeing more fintech-related work recently. “Clients are using technology in many creative ways,” he notes. “These clients are not just start-ups but also the established players in the financial services and telecommunications sectors. A number of them have come to us for advice on company incorporation and licensing. Data protection is another issue that keeps on coming up. We are also doing more transactional M&A work involving fintech players. The transactions are beginning to become larger and more complex as parties seek to consolidate their positions via inorganic growth.”

This shift in work doesn’t mean a huge shift in the skills required from lawyers, but they still see some subtle differences. “It is more or less the same with other regular corporate/commercial work, however when it comes to startups, the main issue is normally related around funding, which will surely impact on their budget for legal fees as well,” says Assegaf. “For this we have asked our lawyers to understand deeply not only the business but also to the technicalities of the business well in advance, and to work smarter, rather than harder, in order to provide the most efficient and cost-effective legal services.

Keeping on top of developments in the market and technology, plus an evolving regulatory framework, is increasingly important, says Tang. “We need lawyers who have sound analytical skills and excellent grasp of the various regulations at play. But they also have to be able to think out of the box to find creative solutions for our clients,” he says. Adds Yusuf: In general, the work that SSEK does for clients in the tech sector is not too different from the regular corporate and commercial work we do, but certain queries require that we really understand how the technology works. For example, we need to understand the logic behind what constitutes e-money or an e-wallet and what are the parameters, not because we want to avoid licensing, but because getting a license is so difficult right now and clients would still like to go ahead with their business without violating the licensing rules.”


Of course, in this brave new world of Indonesian tech, where rules are still evolving, sometimes clients can find it difficult to execute on their plans, and this is where law firms come in to help. For Yusuf at SSEK, the main challenge involves getting licenses. “Many of the startups are focused on the innovative payments sector and the licenses in this particular sector are not the easiest to get, with no clear reason as to why,” he says. “Some people are speculating that the regulators are favouring local players over foreign investors, but we’ve never seen anything official in this regard. Given this, SSEK and our lawyers working with clients in the tech sector need to be more creative, such as whether we would recommend tapping an existing license held by a third party and whether that would be acceptable to the regulators.”

Tang at HSF says that one of the most important aspects of the firm’s work is to help our clients understand how to navigate the Indonesian market and its complex regulatory environment. “This involves explaining the legal system, how the regulations are interpreted, and the roles of the various supervisory authorities we have here. Some of the aspects may be different from what foreign investors and VC firms are used to encountering in other markets,” he says.

Meanwhile, Assegaf at LGS says that the challenges faced by most local start-ups are mainly related to funding for the company’s capital, and the obligations to comply with the relevant government regulations (such as fintech companies needing to follow the guidelines set by the country’s financial regulator, OJK), while the challenges faced by most foreign investors are the legal uncertainty on investment climate. “This is mainly because of the fact that there are several provisions on technology law that have not been regulated by the government,” he says. “For instance, there are several business activities on technology sector that have not been classified under the Negative Investment List (Presidential Regulation No. 44 of 2017) in Indonesia.  However, in practice, there is limitation for foreign ownership on such business activities.” 

Meanwhile, most venture capital firms experience similar challenges as the local start startups, which is the obligation to comply with OJK rules. “Venture capital firms need to possess a minimum financial soundness level based on the following two factors – productive-asset quality and profitability – as stipulated under OJK Circular Letter No. 7/SEOJK.05/2018,” he says, adding: “Our main goal is to protect our client to conduct their business effectively by giving advice regarding the best scheme for their investment; additionally, with our network we may also match them up with our other clients which may have interest in the business.”


Indonesia as a country now already has four out of the seven unicorns is the ASEAN region, and is likely to have more than five by 2019, the country’s communications minister Rudiantara recently told Reuters.  He added that healthcare and education are the most promising sectors to spawn new unicorns.

Under Indonesia’s constitution, the government has to spend a fifth of its annual budget on education, so even excluding private spending an app or startup only needed to get a small percentage of this “huge” potential, Rudiantara said. Indonesia’s state budget for education was 400 trillion rupiah ($29.50 billion) in 2017. Meanwhile, healthcare has a state budget of more than 100 trillion rupiah, he said. 

The minister added that he wanted to help make it easier for unicorns to apply for initial public offerings in Indonesia, as Local regulations prevent listings before companies have made a profit for a number of years. “If necessary, I will go to the OJK to solve this issue,” he said, adding the government should no longer be just a regulator. “It’s an old model. The government has to be the facilitator.”

Lawyers are also greatly optimistic about the immediate future of the technology sector in Indonesia. “Our prediction would be that there will be fantastic growth in the number of startup companies all over Indonesia and we expect to see a continued growth in the next few years,” says Assegaf. “Indonesia is a window of opportunity for most venture capitalists, considering its economic growth, increasing number of the middle class, and a more digitally savvy generation. Due to this, the government has been preparing several new regulations to support the growth of investment climates, especially in the tech sector.” 

“Besides continuing to help our client to conduct business effectively and help new prospective foreign investors to invest in our country, we will not be surprised if there will be works which may relate to blockchain and/or cryptocurrency,” Assegaf adds. 

Meanwhile, Yusuf expects to see more M&A transactions in the technology sector, mainly because of Indonesia’s unicorn-dominated market. “There will be new startups coming, but we do not expect the number will be as high as in the past,” he says.

For Tang, the unifying theme in the past 12 to 18 months has been one of convergence. “Various players from different sectors are beginning to break down sector barriers to cooperate and – often at the same time – compete with each other,” he says. “Innovation and new business models do not only come from the start-ups, as the incumbents (such as banks and telcos) are also reacting fast to these technology-driven changes. We also think that the use and protection of data will become even more important. All these factors make our work very interesting, particularly for our younger lawyers who are highly motivated to develop new knowledge in this area, and we look forward to even more interesting work in the next few years.”

Indonesia's Go-Jek poised for imminent Southeast Asia expansion

By Ed Davies of Reuters

Indonesian ride-hailing and online payment company Go-Jek is set to announce its first expansion to another country in Southeast Asia soon, according to an internal company email seen by Reuters.

Go-Jek also plans to expand to three other Southeast Asian countries by the middle of this year, the email quoting Go-Jek Chief Executive Nadiem Makarim said.

News of the plans comes after Uber Technologies Inc agreed to sell its Southeast Asian business to regional rival Grab.

The industry’s first big consolidation in Southeast Asia, home to about 640 million people, could put pressure on Go-Jek, which is backed by Alphabet Inc’s Google and China’s Tencent Holdings.

Makarim described that Uber deal as a “great opportunity” because “fewer players means a smoother path to continued and deepened market leadership” for Go-Jek in Indonesia.

Ride-hailing companies throughout Asia have relied heavily on discounts and promotions, driving down profit margins and increasing pressure for sector consolidation.

Go-Jek, a play on the local word for motorbike taxis, has grown rapidly since the startup launched eight years ago in Indonesia, a county with a population of more than 250 million people.

Customers can get drivers to deliver everything from meals and to cleaners and hairdressers, via a smartphone app - helping it become a crucial workaround in cities such as Jakarta with some of the worst traffic in the world.

Makarim did not name the countries targeted for expansion in the email, but Go-Jek’s chief technology officer has previously said it aimed to set up operations in the Philippines this year.

“Preparations are well underway and within the next few weeks our first new country launch will be announced,” the email quoted Makarim as saying.

“This will be followed by three other countries in Southeast Asia by the middle of the year.”

Citing the financial and strategic backing of its local and global partners, he added: “We are confident that we have more than enough support to take one of the most amazing growth stories in the world from being an Indonesian phenomenon to a global one.”

Google, Singapore investor Temasek and China’s Meituan-Dianping are among investors in Go-Jek as part of a major fund-raising round.

Makarim said that a “significant portion” of capital raised has been set aside for international expansion.