Despite signs of economic recovery across Southeast Asia, Indonesia’s startup ecosystem continues to face a sluggish funding environment. Willson Cuaca, Co-Founder and Managing Partner of East Ventures, one of the country’s most active venture capital firms, recently revealed that the core reason behind the slowdown lies deeper than macroeconomic conditions alone. His remarks shed light on the complex dynamics holding back investor confidence and capital flow into Indonesian startups.

Indonesia’s Startup Ecosystem: A Post-Boom Adjustment

The Indonesian startup ecosystem, once hailed as the rising star of Southeast Asia, has entered a period of recalibration. Following years of aggressive investment from both local and international funds between 2018 and 2021, the market is now adjusting to a new reality marked by cautious investors and fewer large-scale funding rounds.

According to data from DealStreetAsia, total startup funding in Indonesia fell by over 40% in 2024 compared to the peak years before the global economic slowdown. The number of deals also declined, with many startups struggling to close Series B or later rounds.

East Ventures’ Willson Cuaca argues that while global monetary tightening and risk aversion have played a role, the deeper issue lies in mismatched expectations between founders and investors. “Startups must now prove real business fundamentals, not just growth projections,” Cuaca said during a recent discussion at a technology investment forum. “Investors are no longer chasing valuations. They are looking for resilience, profitability, and strong governance.”

This shift reflects a global trend as venture capitalists move away from the “growth-at-all-costs” mindset that dominated the early 2020s. The result is a funding environment that rewards efficiency and operational discipline over pure expansion.

Investor Sentiment and Risk Perception in Indonesia

Investor confidence remains cautious, particularly for early- and mid-stage startups. Many investors perceive Indonesia’s regulatory and market uncertainties as barriers to rapid returns. The unpredictable pace of digital economy regulation, taxation changes, and limited exit opportunities have made venture investors more selective.

According to a report by Cento Ventures, Southeast Asia’s venture capital deployment declined 30% in the first half of 2025 compared to the same period last year, with Indonesia seeing the largest drop among major markets. Despite its position as the region’s largest economy, the local funding ecosystem is still heavily dependent on foreign capital, primarily from Singapore, Japan, and the United States.

Cuaca emphasized that local institutional investors remain hesitant to participate actively in venture funding. “In more mature markets, pension funds or insurance firms allocate a portion of their portfolio to venture capital. In Indonesia, that participation is still very limited,” he explained. Without a stronger domestic investor base, Indonesian startups rely on global investors who often demand higher returns and stricter terms, slowing deal closures further.

Startups Adapting to a New Funding Reality

In response to these challenges, many Indonesian startups have shifted strategies to focus on profitability and unit economics. Sectors such as fintech, healthtech, and agritech have seen a rise in “lean startups” that emphasize sustainable revenue models over rapid expansion.

For instance, several fintech players have started diversifying revenue streams through lending partnerships and white-label services rather than relying solely on transaction volumes. Similarly, healthtech startups are focusing on corporate wellness programs and digital health subscriptions to generate recurring income.

East Ventures, known for backing early-stage success stories like Tokopedia, Ruangguru, and Traveloka, has also adjusted its investment approach. Cuaca noted that the firm now prioritizes startups demonstrating measurable product-market fit and operational maturity. “We are not slowing down investments, but we are being more selective,” he said. “Founders who understand how to manage cash flow and adapt to changing market realities are the ones who will survive.”

Industry observers agree that this cautious yet adaptive approach will define Indonesia’s startup landscape in the near term. The ecosystem is entering a consolidation phase where weaker players may exit, and stronger ones will gain market share through efficiency.

The Role of Policy and Ecosystem Support

Government policy plays a crucial role in shaping investor sentiment and funding flows. The Indonesian government has launched initiatives such as the “1000 Startups Movement” and digital transformation programs under the Ministry of Communication and Information Technology (Kominfo). However, gaps remain in creating a conducive environment for venture funding.

Experts argue that Indonesia needs stronger regulatory frameworks for startup exits, intellectual property protection, and cross-border investment to attract long-term capital. Improved data governance and transparency are also critical for building investor trust.

Moreover, the development of secondary markets and venture debt instruments could help bridge the liquidity gap for startups that struggle to attract equity funding. Some policymakers have begun discussing tax incentives for domestic investors participating in early-stage venture funds, but concrete implementation remains slow.

Cuaca believes that fostering collaboration between the public and private sectors will be key. “If we want to see a sustainable ecosystem, we must strengthen the connection between policy, capital, and talent,” he said. “Startups cannot grow in isolation. They need supportive infrastructure and consistent regulatory signals.”

The Road Ahead: Opportunity Amid Slowdown

While funding activity remains muted, Indonesia’s digital economy fundamentals are still strong. The country’s internet penetration rate exceeds 77%, and its young population continues to drive digital adoption across sectors. According to Google and Temasek’s e-Conomy SEA 2024 report, Indonesia’s digital economy is projected to reach USD 180 billion by 2025, led by e-commerce, digital finance, and logistics.

For venture capitalists like East Ventures, this long-term potential outweighs short-term headwinds. Cuaca remains optimistic that the current funding slowdown will ultimately strengthen the ecosystem. “We are entering a healthier phase,” he noted. “The startups that survive this funding winter will become the foundation for Indonesia’s next wave of innovation.”

Analysts also believe that as global interest rates stabilize and liquidity improves, investor appetite will gradually return. When that happens, startups with strong fundamentals will be best positioned to capture new funding opportunities.

Conclusion

Indonesia’s startup funding slowdown is not merely a symptom of global economic challenges but also a reflection of structural inefficiencies within the local ecosystem. As East Ventures’ insights reveal, the path forward lies in strengthening business fundamentals, broadening the domestic investor base, and improving policy support.

Despite the short-term challenges, Indonesia remains one of the most promising startup markets in Asia. The current cooling period may, in fact, be necessary for building a more sustainable and resilient entrepreneurial landscape — one where innovation, governance, and profitability coexist.