Chinese in talks to acquire major stake in Tokopedia

Photo by Tokopedia

JAKARTA (TheInsiderStories) – One of Chinese largest online retailer Inc.(NASDAQ: JD) is in talks to acquire a major stake in one of Indonesian marketplace operator Tokopedia. Sources indicate JD will invest of hundreds of millions of dollars and the move marks the company’s accelerated expansion into Southeast Asia followed its competitor Alibaba purchased a majority stake in Lazada Group SA in 2016.

Founded in 2009, Tokopedia has grown to become Indonesia’s leading online marketplace. While, itself has online-shop business called in the country.

The online-retailer founded by William Tanuwijaya has recently raised $147.7 million funding, bringing the total funding of $247.7 million which sets the company as the best-funded startup in Indonesia. In 2014, Global VC firm Sequoia Capital has marked its debut investment in Indonesia by participating in a $100 million funding round in Tokopedia, which was led by Japanese telecom and internet major SoftBank.

SoftBank is the investor behind the success of Alibaba, while Sequoia Capital is the investor behind the success of Apple, Google, Instagram, WhatsApp and many other successful technology companies.

According to Adrian Li from Convergence Ventures, most investors would jump at the chance to go back in time and invest in a sure thing. In 2015, venture capitals (VC) invested invested a record $37 billion in startups, more than double 2014 levels, according to Preqin Ltd.

With a population of more than 250 million, Indonesia is the world’s fourth most populous nation and the largest economy is Southeast Asia. The economy grows about five percent annually, e-commerce is expanding rapidly and smartphone use is forecast to swell to 100 million by 2020.

Indonesia is also a leading mobile-first nation, with more than 70 percent of its Internet traffic on mobile devices. All that, coupled with weak infrastructure and poor logistics systems, makes it an especially big opportunity for e-commerce growth.

It’s a set of circumstances that has helped Indonesia to develop three unicorns (private companies worth more than $1 billion). The companies, sustained by local demand, highlight the nature of the opportunity. Tokopedia, founded in 2009 and now reportedly worth about $1 billion, that allows people to open their own online store to sell everything from shoes to screwdrivers.

Think of it like an online night market. Online travel reservation firm Traveloka, founded in 2012 and also acknowledged to be valued at more than $1 billion, ride-sharing company Go-Jek valued at $1.3 billion.

These three companies together demonstrate that Indonesia is a market where venture capitalists can back entrepreneurs that are building businesses based on proven models. That’s possible because consumers have essentially the same needs all over the world. With small tweaks, these ideas can become near-sure solutions for their local market.

However, the three companies also underscore a lesson learned from China: You cannot just drop a Western company into a unique Asian culture and expect it to thrive without alteration. Like China, many local Indonesian startups are service companies that require intense local activity and execution, giving an opportunity for them to build market leadership that could eventually lead to a local stock market listing.

As China’s technology market matures, domestic Chinese VCs are increasingly looking abroad for the next big thing. In June last year, seven members of the so-called China Angels, a small group of influential entrepreneurs and investors, including Xu Xiao Ping, founder of the Zhen Fund, China’s largest seed-stage investor, and Kai Fu Li, founder of the Sinovation Fund, a $1.3 billion venture fund, came to Indonesia. The group met with the founders of Go-Jek and Tokopedia at their offices and with more than a dozen early-stage ventures.

Minister of Information and Communication Rudiantara has said that Indonesia wants to create lot of unicorn in e-commerce business with total assets more than Rp10 trillion. To support the goal, President Joko Widodo government allowed foreign company to have 49 percent of stake in local e-commerce player through a negative list rules has been launched in 2016.

Indonesia eyeing e-commerce become a market worth an estimated $130 billion by 2020 from now around $8 billion.