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Is there a future for incubator and accelerator programs in Indonesia?

Over the past decade, the startup ecosystem in Indonesia has continued to expand, as shown by the growing number of stakeholders involved. However, while new startups are coming up and attracting more investors to Southeast Asia’s most populous country, supporting programs such as incubators and accelerators are still finding their feet.

There were seven active tech-focused incubators and accelerators in Indonesia in 2018 outside of social impact and university-backed platforms, according to a report by Jakarta-based angel investor network Angin. Now, just four among those mentioned in the report are still currently operating, though new players, either independent or corporate-backed programs, have since emerged.

Tech incubators and accelerators in Indonesia (programs in red row are inactive):

NameMandateCorporate
Affiliations
Status
Gojek XcelerateEducation
and synergy
GojekOperating since 2019
AntlerValuationOperating since 2019
(in Indonesia)
SkalaSustainabilityInnovation FactoryOperating since 2019
SurgeValuationOperating since 2019
GnB AcceleratorValuationInfocom CorporationInactive since 2019
Grab Ventures
Velocity
Education
and synergy
GrabOperating since 2018
Google Launchpad
Accelerator
Education
and synergy
GoogleStopped taking participants
from Indonesia since 2018
BNV LabsSynergyBank BukopinInactive since 2018
IDX IncubatorIPOIDXOperating since 2017
GK-Plug and PlayValuation and
corporate synergy
Gan KapitalOperating since 2017
Founder InstituteCourse feeInactive since 2017
IdeaboxValuationIndosatInactive since 2017
Mandiri Digital
Incubator
Education
and synergy
Bank MandiriOperating since 2016
Alpha StartupsValuationInactive since 2016
IndigoValuation
and synergy
Telkom IndonesiaOperating since 2013
East Ventures AlphaValuationInactive since 2011
Batavia IncubatorValuationInactive since 2011

Cash flow problem

GnB Accelerator is the latest program to stop taking in new startups. The program is “postponed until an unknown date,” Elsye Yolanda, GnB’s operation chief, tells Tech in Asia.

Established in 2016, the accelerator, which is a joint venture between Japanese IT company Infocom Corporation and Pegasus Tech Ventures (previously Fenox VC), has graduated 26 startups in four batches.

Moving forward, it plans to concentrate its efforts on other fronts. “We will focus on developing Infocom’s business, especially the healthtech solutions, in Indonesia.” Yolanda says. “We want to find partners or investment opportunities to serve that new objective.”

Infocom started GnB Accelerator as a channel to enter the Indonesian market, says Yolanda. But four years in, the company feels that it already has a team that understands the ecosystem and changed its strategy. While it continued to attract hundreds of applicants for its fifth batch, the program was postponed because the company isn’t generating sufficient cash flow to support it.

GnB Accelerator

Third batch of GnB Accelerator / Photo credit: Tech in Asia Indonesia

The general business model of incubator and accelerator programs is collecting funds from investors to organize mentoring sessions and getting them to fund participants. These programs also hope to gain profit from the value of their shares in the startups, which theoretically will increase in value along with the companies’ growth.

While one of the startups in the GnB Accelerator program has been acquired, and some have already secured follow-on funding, the cashflow this generates is still not enough to keep the program running, Yolanda says.

“We actually charge founders to [sustain the] program,” she says. “We give them a US$50,000 investment, but we charged US$25,000. Most of the time, we can’t get enough quality startups to join the program.”

Antler, a startup generator program that matches individuals together to form a startup founding team, does the same thing. For the selected group of participants, Antler may invest up US$100,000, but the participants are required to pay a program fee of up to US$50,000.

Corporate backers

Jussi Salovaara, the co-founder and managing partner of Antler, says that a lot of incubators or accelerators in Indonesia are dependent on corporate sponsors. Of the seven tech-focused incubator and accelerator programs in the archipelago that were mentioned in Angin’s research, six of them were connected to big corporations.

“The moment the corporations pull out, [the programs] will face financial issues and won’t be able to cover the operational costs,” Salovaara says.

Wesley Harjono, the managing director of GK-Plug and Play, has a similar opinion. He adds that the situation can be even worse if the company only uses its corporate social responsibility budget to fund the incubator or accelerator.

“There will be no sense of commitment, and [the platform] tends to focus on company branding,” Harjono says. “If the board of directors are replaced, and the new directors don’t want to focus on innovation, it can disturb the sustainability of the program.”

GK Plug and Play

Fifth batch of GK-Plug and Play / Photo credit: Tech in Asia Indonesia

One example of an active corporate-backed incubator or accelerator is Indigo. Created by telco giant Telkom Indonesia in 2013, it has since incubated 154 startups and can invest up to 2 billion rupiah (US$145,000) in the companies it backs, depending on their maturity. To date, only 15% of Indigo’s cohort have received follow-on funding, and 20% of them have built a “synergy” with Telkom’s business units.

Dinoor Susatijo, senior manager of Telkom Indonesia’s Open Innovation Management business unit, says that the budget – which is usually set every year and deployed when a startup passes a certain phase of development – hasn’t been an issue for Indigo. “Most of the time, the budget was not fully used,” he says.

While independent programs, which can get funding from multiple investors, may not have the same dependency on corporations, most of them may be unsustainable because they can’t get the profit they need from participants to satisfy investors.

“Accelerators or incubators are obviously expecting to get the return of investment from the startups they invest in,” Antler’s Salovaara says. “The exits usually will take about five to seven years, so it’s a long wait to make money. Then, there is the survival rate factor.”

Alternative revenue sources

Incubator and accelerator programs may avoid these financial problems if they can find high-quality startups that can scale, raise follow-on funding, and provide a quick exit opportunity for investors. However, the reality is far from ideal.

A 2016 report from Gust, a global software-as-a-service platform for startups, shows that only 42% of accelerators worldwide rely on returns from equity investments. That’s down from a 2015 number of 63%. The reason for the drop is that exits are too few and take too long to fund operations. In Asia Pacific, only 7% of startup accelerators reported income from exits as their main source of revenue.

To generate additional income, GK-Plug and Play offers big corporations an open innovation platform, which helps companies find solutions from startups in Indonesia and overseas. It charges firms a service fee for using the platform, which is currently the accelerator’s bread and butter.

“To collaborate with startups, a company has to open its door to hundreds of startups,” Harjono says. “It has to build a specific team, learn the business model, and listen to the pitch one by one. Rather than that, why don’t they just outsource it to us.”

GK-Plug and Play has collaborated with Indonesian conglomerates Astra International and Sinar Mas Group, along with Bank Negara Indonesia, Bank BTN, and local life insurance firm Sequis Life, among others. It recently announced a collaboration with Bank Central Asia to run its accelerator program, Synrgy as well.

While GK-Plug and Play still runs its regular accelerator program, it has only ever invested in 35% of the participants in all of its five previous batches.

Agustiadi Lee, the program director of Skala, says that the platform – backed by Salim Group’s Innovation Factory – is also exploring a new business model.

“Innovation Factory is committed to continuing our mission to develop the tech startup ecosystem in Indonesia and have new efforts like i360, where we can provide white paper for industries,” Lee says. “We are also seeking sponsorship with the same vision and alignment.”

Antler

Antler program / Photo credit: Antler

Still, other players such as Antler remain focused on getting revenue from startup equity. To date, Antler has organized three batches of its accelerator program in Southeast Asia, supporting a total of 47 startups. It claims that 95% of these companies are active. The program already has an exit under its belt, and 30% of its participants have gone on to collectively raise over US$10 million in seed and series A funding.

While Skala is more selective with the startups it supports, Lee says the success stories of these few companies help promote its brand.

“In order to survive, a program must have the capability to draw good founders.” Lee says. “The success of the first few batches will become the loudspeaker that ensures the continuity of the success.”