ADB BRIEFS

NO. 228
NOVEMBER
2022

KEY POINTS
City-Level Tech Startup Ecosystems
and Talent Development in Indonesia
• City-level ecosystems are
best positioned to foster
tech startups, especially
early- stage ventures.
Ecosystems should play
an active role in startup Palmira Permata Bachtiar Hening Wikan Sawiji
enablement, talent Senior Researcher Junior Researcher
development, and urban
SMERU Research Institute1 SMERU Research Institute
place-making.
• Tech startups benefit from Paul Vandenberg
local support provided by Principal Economist
startup incubators and
Asian Development Bank
accelerators, funding from
personal and professional
networks, research insights
produced by universities,
incentives from local
government agencies, INTRODUCTION: EMBRACING TECHNOLOGY
and business relationships FOR FUTURE DEVELOPMENT
with clients.
• Recruiting and retaining In early 2016, President Joko Widodo visited Silicon Valley where he expressed his
quality talent is key for goal of shifting Indonesia away from commodity dependence and creating a more
startups because of the technologically advanced and digitalized economy (Sipahutar 2016). This shift
“money-follows-talent” requires modernization of digital infrastructure, improved scientific research, and
principle. Tech startups greater innovation among large companies, but also support for startup innovation
require a diverse set of talent. and creativity. The government has implemented a range of policies and programs in
• While remote work has line with the transformation agenda.
become mainstream,
startups often recruit For technology-based startup enterprises—tech startups—to establish themselves
from within their personal and scale, they require an enabling environment that includes a broad set of actors.2
networks and rely on This is the startup ecosystem, and, as this brief suggests, the best way to develop
face- to-face interaction to startups is through ecosystems at the city or subnational level that can support local
build trust and commitment. expertise and competitive advantage. City governments and other local players can
also leverage and tailor national-level action that creates a conducive regulatory
• Startup talent is nurtured environment, provides business incentives, and fosters global connectedness.
through a variety of
channels: (i) the education Notes: The brief was peer reviewed by Asian Development Bank staff Fook Yen Chong, Arndt Husar,
system, notably universities; Vishal Aditya Potluri, and Sutarum Wiryono, along with Eric Sugandi, Asian Development Bank Institute.
(ii) incubators and The authors thank them for valuable comments and suggestions.
accelerators; (iii) within the In this publication, “$” refers to United States dollars, “China” to People’s Republic of China, and “Rp” to
Indonesian rupiah.
startups themselves; and 1
SMERU is an independent institution for research and policy studies, based in Jakarta. It has over
(iv) experience gained from 20 years of experience in research focusing on poverty, inequality, social protection, and human
working in other firms. development in Indonesia.
2
According to Startup Commons (n.d.), “A startup ecosystem is formed by
people, startups in their various stages, and various types of organizations
ISBN 978-92-9269-841-6 (print) in a location (physical and/or virtual), interacting as a system to create new
ISBN 978-92-9269-842-3 (electronic) startup companies.”
ISSN 2071-7202 (print)
ISSN 2218-2675 (electronic)
Publication Stock No. BRF220512-2
DOI: http://dx.doi.org/10.22617/BRF220512-2
ADB BRIEFS NO. 228

At the local level, startups gain access to incubators and “Good quality and professional
accelerators, seek funding from financial institutions, engage
with universities and research institutions, are regulated, and incubators are located in Java.
gain access to government support programs. The world’s most
vibrant ecosystems are not national or provincial. They are
But there are distance and
localities with a deep and dense mix of suppliers, financiers, and communication obstacles for us to
other players, underpinned by a network of supportive policies
and programs. This focus on the local may seem odd given the reach them. We, in the east, sometimes
expanded use of digital technologies that allow people and
businesses to connect easily across geographic space, but local
find a lack of attention [to our region].”
interaction is still important, especially for early-stage startups.
This is particularly true in Indonesia, where physical (in-person) Interview, agritech startup owner,
interaction is culturally valuable and cannot be fully replaced by March 2021
videoconferencing and other forms of digital communications.

Early-stage tech startups stand or fall on their ability to develop

ideas and solutions that provide customers with what they need or
want, or address their pain points. They start with the idea of a new
technology or the idea of modifying an existing technology and using PLAN, TARGETS, AND PROGRAM:
it in a novel way or customizing it for a specific group of customers. GEARING UP FOR INNOVATION
Selling books online, for example, was a new model pioneered by
Amazon which the company later iterated into a multinational online
retailer. Typically, the creation of a commercially viable business Startups are seen as important players in Indonesia’s digital
model and a product–market fit is needed before the business can transformation. This is evident in the government’s target of
attract additional investment and scale its operations. encouraging the emergence of three new unicorns—startups
with a valuation of more than $1 billion each—as outlined in
Ideas come not only from visionaries, but also entrepreneurial types, the Medium-Term National Development Plan (MTNDP) for
technology specialists (i.e., the geeks), designers, systems integrators, 2020–2024. This goal has been surpassed. By 2022, nine new
and those who understand customers, markets, and marketing. unicorns have emerged, in addition to the five that existed in
The leadership of tech startup teams typically requires a hipster 2019 (Rayda 2022). These unicorns belong to popular sectors,
(creative, design), a hacker (technology builder), and a hustler such as e-commerce, marketplaces, ride-hailing, logistics, and
(marketing, networking) (Ellwood 2012). Collectively, they and other fintech. In general, the pandemic has stimulated the acceleration
employees are called the “talent.” Attracting, nurturing, and retaining of mobile phone and internet use and therefore the growth of
talent is critical for growing startups and the ecosystem. unicorns and other startups in these sectors in a country with
a large market. The case is different for startups with a direct
A study by the SMERU Research Institute and the Asian impact on human and sustainable development—e.g., agritech
Development Bank (ADB) suggests that building ecosystems (agriculture), edtech (education), cleantech (environment),
at the city (or local) level and developing talent for startups are and healthtech. Only a very limited number of tech startups
two critical areas to increase the number of successful startups in these segments have been able to scale up and none have
in Indonesia.3 This brief, which draws on that study, highlights reached unicorn status.4 This is because product development
concern about the unequal geographic distribution of incubator in these market segments can take longer and require deeptech
and accelerator programs, financing institutions, and other innovations, investors are less familiar with these segments
components of the ecosystem. Startups outside of Java and Bali and see them as risky, and customer demand is less developed.
have reported difficulties accessing support programs organized Nonetheless, these four market segments improve human
by the central government and other ecosystem players. Startups life (education and health), assist the rural poor (agriculture),
would be better served by city and other local-based support and aid climate change mitigation and adaptation.
mechanisms. In addition, the scarcity of talent is cited by startup
owners, financiers, and others as a major constraint facing Generally, government support for the development of the
startups. Foreign investors, notably venture capitalists, are eager startup ecosystem is in line with the MTNDP. Table 1 provides
to enter the Indonesian market because of its large size and selected targets from the plan to be achieved by 2024, along
rapid growth, but they hesitate because of the limited availability with recommendations from the authors of this brief on how
of talent to execute startups’ ideas. What is said about how best to achieve them through tech startup ecosystem and talent
“money follows talent” holds true for startup funding. development at the city level.

3
ADB country studies on startup ecosystems can be found here. The Indonesia report (forthcoming) discusses a range of startup issues, including but not limited
to city-focused support and talent.
4
Several agritech firms have been able to scale although not yet to unicorn level.

2
 City-Level Tech Startup Ecosystems and Talent Development in Indonesia

Table 1: Achieving Selected Targets of Medium-Term National Development Plan, 2020–2024

Priority Program Targets to Be Achieved

in MTNDP by 2024 in the MTNDP Recommendations to Achieve Targetsa
Digital Three new unicorns emerge and are • Channel national support for startups through city governments and
Transformation facilitated other local ecosystem players
• Encourage city governments to take seriously their responsibility to
develop the local startups ecosystem
• Incentivize local governments to buy from startups—for pandemic
recovery and beyond
• Improve access to finance to support talent development
Increased 80% of university graduates • Develop talent through the education system
Productivity and immediately find work • Apply a triple-helix approach (i.e., local government, universities, business)
Competitiveness 40% of innovation comes from national • Improve quality incubator and accelerator programs to develop talent
research priority • Deploy mentors with business experience
50% of the labor force has intermediate
or advanced skills competency
Improve digital 82% of the population uses the internet • Tackle local constraints to digital infrastructure access, affordability
Infrastructure 95% of villages are covered by of data and devices, and improved power supply
broadband internet
MTNDP = Medium-Term National Development Plan 2020–2024.
a
Recommendations are provided by the authors.
Sources: Authors; Government of Indonesia (2020).

Meanwhile, a variety of programs have been rolled out to support interaction that is not satisfied by digital communication.
startups (Appendix: Government Startup Support Programs). The disproportionate allocation of national program resources to
Although these programs are implemented nationwide, they one (or a few) cities leads to considerable disparity in the quality of
provide support at the central rather than local level. Consequently, ecosystems between cities in the same country.
they tend to be modeled after the needs of the Jakarta region as
the epicenter for startup development, and find the biggest uptake The importance of the local level is reflected in the global
there. Concern about this unequal distribution of support was ecosystem reports, which rank systems by city rather than
raised by startup founders and others interviewed for our study. country. The rankings reflect the idea that ecosystems are local
Shenoy (2021) echoes the concern that there is disproportionate environments and indeed show significant disparity in ecosystem
support provided to startups in Jakarta and a few large cities, quality, even among cities in the same country. For example,
whereas many other locations have weaker ecosystems offering Startup Genome ranks the top 140 startup ecosystems globally
less support, particularly for early-stage startups. This is one reason and includes 49 cities or areas in the United States (US). There
why Jakarta is the only city in the country that has gained global is considerable disparity between Silicon Valley, which tops the
recognition in startup ecosystem rankings. list, and San Antonio, Texas, which is among the bottom 10 cities
globally. These disparities are evident in other countries as well and
suggest that country-level rankings would mask the great variety in
CITY-LEVEL APPROACH TO ecosystems at the city level.
TECH STARTUP ECOSYSTEMS:
Startup Genome’s list includes only one Indonesian city, Jakarta,
IT TAKES A CITY TO RAISE A STARTUP which is ranked 52nd (or 12th in the list of emerging systems) in
2022. Startup Blink ranks the top 1,000 cities globally and includes
There are several reasons why ecosystems should be developed five in Indonesia. Jakarta is a respectable 32nd, but the others rank
at the city or local level. These include (i) the ability of local much lower.5 Indonesia shows considerable disparity in its five main
authorities to provide targeted support to meet the specific ecosystems, and even more relative to smaller cities. Bandung and
needs of startups; (ii) the role of universities as nodes of research, Yogyakarta, which are among the five cities, have emerged recently
ideas, and knowledge transfer; and (iii) the need for face-to- face as key startup centers as outlined in Box 1.

5
Startup Blink. Indonesia Startup Ecosystem Overview. https://www.startupblink.com/accelerators/indonesia.

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ADB BRIEFS NO. 228

Box 1: Bandung and Yogyakarta: The Rising City-Level Ecosystems Outside Jakarta
Jakarta is globally recognized as a major startup ecosystem in This abundance of talent attracted the National University of
Southeast Asia. It is attractive due to its high internet penetration Singapore (NUS) Enterprise and Salim Group to bring BLOCK71,
and strong market for startup products and services. It is also a Singaporean startup ecosystem builder, to Bandung and
home to the largest number of investors in the country. Yogyakarta in 2018 (Kedaulatan Rakyat 2018). BLOCK71 has
helped connect local ecosystem players—incubators, shared
Bandung and Yogyakarta are becoming popular cities for startups. office space providers, talented individuals, and startups—
They have emerged near universities, where the ambience is one with potential clients and investors through its community
of collaboration rather than competition. Our study shows that membership. Member startups are also helped to connect with
some startup founders are often campus friends. These cities the NUS international network, which includes universities
combine universities, a high-tech talent pool, and a pleasant and business partners domestically and in other countries,
lifestyle. The cities are ideal for hatching tech startups and have as BLOCK71 has offices in the People’s Republic of China,
attracted well-known accelerators. Japan, the United States, and Viet Nam, as well as Singapore.
However, BLOCK71 has not really been involved in longer-term
Bandung is a 2-hour drive away and is surrounded by a variety collaborations with local governments.
of industries that provide a market for startups’ products.
Meanwhile, Yogyakarta offers a low-cost living environment that The proximity between players in Bandung and Yogyakarta
is beneficial for early-stage startups with limited initial funding, as enables a penta-helix (i.e., five actors) collaboration between
they can pay relatively low wages for their talent. Both cities also university, business, government, media, and the community.
have or are close to many higher education institutions: around Ultimately, a startup can choose to be a big fish in a small pond
164 institutions in Bandung and 136 in Yogyakarta.a These higher (Bandung and Yogyakarta) or a small fish in a big pond (Jakarta)
education institutions supply abundant talent for startups. (Miller 2010).
a
The figures include polytechnics, universities, and others.
Source: Authors and sources cited.

Some startups are spin-offs from university research departments, “geographically bounded,” whether a “campus, city or region”
while others rely on university researchers to develop, test, and (Mason and Brown 2014). Feld (2012) has proposed the
prototype new technologies. Thus, one or two nearby universities “Boulder thesis” as a recipe for developing an effective ecosystem.
often serve as the embryo of the local startup ecosystem.6 The thesis incorporates the importance of collective engagement
In the 1970s, many startups in the San Francisco Bay Area were in regular events. Frequent and inclusive gatherings are more
set up near and had interactions with Stanford University. With the feasible at the city level than at the national level and are part of
internet boom in the late 1990s, the Bay Area’s Silicon Valley Boulder, Colorado’s success as a startup hub.7
became a hub for startups and eventual corporate giants such as
Google, Facebook, and Apple. In Boulder, Colorado, the university Furthermore, many policies and programs that are important to
is a major player in fostering startups and supplying the talent the business community are introduced at the city or otherwise
sought by new enterprises (Miller 2010). subnational level. Mason and Brown (2014) argue that policy has
evolved from a top–down or framework approach to one that
Startups engage in a range of interactions with other startups, other combines top–down and bottom–up support. Top-level policies
businesses, customers, and other players. Much of this activity may include property rights protection, visas for foreign talent, and
often takes place locally, especially in the early stages of a startup’s personal and corporate tax rates. Local-level support is provided by
development. The benefits of local interaction have a long history local government and local nongovernment associations as well as
in modern economics, starting with Marshall’s (1890) notion by businesses.
of industrial districts and evolving in the postwar era to urban
agglomeration effects, industrial clusters, and the new economic Finally, startups can benefit from the local presence of a variety
geography. Empirical work was conducted on successful small of players that provide diverse types of support over time
enterprise areas in northern Italy and branched into the analysis of and depending on the development path of the individual
clusters in developing countries (Humphrey and Schmidt 2002). startup. Our study found that startups need support in product
development, finance, human resources, marketing, and other
The insights from this work have been carried forward in the aspects. In addition, their needs differ at each stage of development,
analysis of entrepreneurial ecosystems, which by definition are whether it is at startup formation, stability, or scaling. In addition,

6
A quality university is not necessarily a prerequisite for the emergence of a good ecosystem.
7
Boulder is considered a successful startup ecosystem because it has one of the highest densities of startups in the US. The combined ecosystem of Boulder and
the adjacent city of Denver is ranked 24th in Startup Genome’s global ranking.

4
 City-Level Tech Startup Ecosystems and Talent Development in Indonesia

Indonesia ranks second in Asia in terms of the number of

Box 2: What Type of Support Do Startups Want startups (2,390 in 2022), according to Startup Ranking (2022).
from Local Governments? However, as in other countries, most startups struggle to grow
and scale up. Therefore, identifying challenges and providing
Our interviews with Indonesian startups revealed that they
need some unconventional types of support from city and local targeted assistance will help them survive the “valley of death”
governments. Early-stage agritech startups for example wanted and lead to more startups achieving scale. Our study found
access to small plots of land to test the impact of their products that one of the key factors in the development of a startup is
and demonstrate them to farmers. These startups also wanted to talent—both with regard to the founder(s) and the wider team.
collaborate with agricultural extension workers as key agents to
promote their solutions to farmers. For cleantech, decentralized Talent scarcity was highlighted a few years ago by Tan and
regulation presents a challenge. Cleantech companies looking to Tang (2016), who estimated that the Indonesian economy
scale up into other regions must deal with different permits and will face a deficit of 9 million digitally talented workers in
requirements, as technical arrangement of waste management is 2015–2030. If the talent pool is not expanded, this will
the responsibility of local authorities. Cleantech startups wanted hinder the development of startups and the deepening of
help understanding and navigating the different regulations. Edtech the digital economy. There are four channels for developing
startups wanted local governments to introduce new educational talent: through the education system, through incubators and
technologies and train teachers to use them. Healthtech startups accelerators, through the development of startups themselves,
wanted city governments to promote greater openness to the use and through experience gained in other firms (see figure and
of new digital technologies in the sector. They would also like to the sections on channels below).
see a more preventive approach to health care using healthtech
solutions among health-care providers (e.g., doctors, hospitals,
Most tech startup founders in Indonesia are highly educated,
and clinics).
in part because the two main government startup programs
Source: Authors, based on interviews. (Calon Perusahaan Pemula Berbasis Teknologi [CPPBT] and
Perusahaan Pemula Berbasis Teknologi [PPBT]) have a strong
coverage at universities.9 Some founders already have work
experience before launching their startups. However, this is
we found that despite some similarities, the needs of startups are sometimes entry-level experience or experience unrelated
also different for each sector, with specialized needs, for example, to work in other sectors. Running a startup while being
for segments promoting human and sustainable development, such unfamiliar with the sector or ecosystem can be problematic.
as agritech, edtech, cleantech, and healthtech (Box 2). These needs The challenge also comes from the supply side: less than 1%
can be better understood if ecosystem players, including incubators of the workforce has advanced digital skills, such as artificial
and accelerators, funding institutions, and policy makers, are in close intelligence (SMERU, Oxford, and UNESCAP 2022).
proximity and can interact frequently with startups.

TALENT IS CRITICAL FOR STARTUP Figure: Framework of Three Channels

SUCCESS: THE WAR FOR TALENT for Talent Development

Anyone can steal your idea, but no one can steal your execution. Talent
Objectives development
This line from Nadiem Makarim, Gojek’s former chief executive,
has been quoted many times since CB Insights, a major source
of market intelligence, cited Gojek as Indonesia’s first decacorn Channels Incubators
in 2019.8 The message resonates well with a common mantra in Education Other
to nurture systems
and Startups
firms
the startup sector, “A talented team makes all the difference.” talent accelerators
A founder’s vision is important to a startup’s success, but it takes
the right team to execute it. Startups are part of the knowledge Late of Lack of
economy and are powered by highly skilled talent. Team leadership early-stage product
requires quality individuals to fill the roles of hipster, hacker, and funding demand
hustler. However, these needs of startups are often challenged
Source: Authors.
in two ways in Indonesia: (i) the tendency to rely on traditional
recruitment methods, and (ii) high staff turnover.
8
A decacorn is a startup with a valuation of $10 billion or more. “Deca” is 10 and “corn” is from “unicorn,” which is a startup with a valuation of $1 billion.
9
After 4 years of program funding, it was found that the graduation rate from the pre-startup program (CPPBT) to the main startup program (PPBT) was only
11% (Kompas.com 2019). For this reason, the government changed the approach by introducing the CPPBT bootcamp to improve the graduation rate. CPPBT
and PPBT were subsumed under Startup Inovasi Indonesia, which was later replaced by Program Pendanaan Perusahaan Pemula Berbasis Riset (PPBR) in 2021.

5
ADB BRIEFS NO. 228

First Channel: Innovative Talent Cultivation through “Incubators usually deploy their own
the Education System
The education system is an important source of talent. A good university lecturers to coach the
system can—and should—not only equip young people not only
with knowledge and skills, but also cultivate the ability to think
startups. Our ministry has given them
and act innovatively. The ability to innovate is necessary both for guidance to include mentors from
developing technologies for new products (tech talent) and for
designing and implementing new business models (entrepreneurial industry, so that startups know what
talent). Furthermore, innovation is required both to address
domestic challenges for the startup and to adapt to global market
the real needs facing the industry are.
opportunities (Zhang 2015). Collaborating with industry allows them
Innovative talent, both technical knowledge and entrepreneurial to employ a triple-helix approach.”
skills, can be developed through carefully designed learning
activities and pedagogy at university. However, interviews Interview, government official,
conducted for our study found that higher education in Indonesia
does not yet provide the required entrepreneurial aspect for talent
January 2021
cultivation. In Indonesia, undergraduate degree education can be
theoretical and “academic” and is not infused with entrepreneurial
thinking, while technical (non-degree) education is focused on can cultivate talent both before a startup is formed (pre-startup
producing technically skilled graduates.10 There is then a skills creative programs) and during and after the startup’s formation.
mismatch when tech startups hire undergraduate degree holders.
In other countries, local governments have been known to provide
Many universities have created incubator programs and provided or support startup incubators at the city level. For example, in
considerable support for them. However, a strong entrepreneurial Brazil, the People’s Republic of China, and the US, most local
perspective is often lacking in university-run incubators, according governments are involved in (i) channeling federal grants to local
to our interviews with ecosystem stakeholders.11 incubators, and (ii) providing incentives such as low-interest loans
and tax credits to businesses that invest in incubators (Chandra
In general, universities’ research incubators (and by extension, their and Fealey 2013). Some local governments in these three countries
spin-offs) tend to focus on the research and technology aspect, also facilitate the entry of nongovernment incubators into the local
without paying sufficient attention to the commercialization of the enterprise ecosystem. In good ecosystems, incubators provide
innovation and research discovery.12 startups with access to mentors with industry experience as part of
a “demand-oriented incubation” strategy.
However, the coronavirus disease (COVID-19) pandemic has
shown how dynamic the skills and training landscape is, and Compared with other countries, talent development and
has, for example, accelerated initiatives to cultivate innovative networking through incubators and accelerators in Indonesia are
talent through curriculum reform. In 2020, the Kampus Merdeka weaker and in need of reform. There are two specific weaknesses.
program was created to give students access to nontraditional
learning programs, such as certified internships at tech startups The first weakness is the lack of adequate staffing and use of
or participation in business incubation programs for one or two mentors by incubators and accelerators. In 2020, there were
semesters. The program is designed to promote experiential about 120 programs in operation, most of which were managed
learning to develop students’ ability to understand and gain by universities and local government in Indonesia’s big cities.
experience in technology, business, and entrepreneurial activities. However, the role of mentor is mostly performed by employees
of the supporting institutions (universities or local governments).
Second Channel: Quality Incubators and Accelerators These staff members have other responsibilities in addition to
Can Cultivate Talent being a mentor, and thus often cannot devote sufficient time to
Incubators and accelerators can provide significant support in their mentoring role. They are also academics or civil servants who
developing the talent of founders and key principals in startups. lack experience in managing or working in a startup (or indeed, in
Such programs offer various types of support, especially mentoring, any type of business). The lack of business and tech professionals
which provides critical know-how for developing the necessary in these programs undermines the intent of mentoring startup
skills. Our study has shown that incubators and accelerators talent based on prior experience.
10
The expected student learning outcome based on education level is regulated under Law No. 12/2012 on Higher Education.
11
There is likely to be great variance in the entrepreneurial nature of university-based incubators, with some taking a stronger business approach. Indonesia has a
large number and variety of higher education institutions (about 2,200), including about 390 universities.
12
However, there are efforts to improve the business aspects of university incubators. For example, ADB’s PRIMESTEP project will support the commercialization
of research and development and improve startup incubation in science and technology parks at Bandung Institute of Technology, Gadjah Mada University,
IPB University, and the University of Indonesia.

6
 City-Level Tech Startup Ecosystems and Talent Development in Indonesia

Another weakness is the inadequate incubator support in “The most accessible mentorship in
developing talent through networking. Most Indonesian incubators
or accelerators only provide links to investors through business Indonesia is to work in a corporation,
pitch activities. Initiatives that provide access to other ecosystem
stakeholders—such as a potential manufacturing partner—are
unicorn, or enterprise. We can see
usually not part of the incubator’s support or exit strategy. founders of many successful startups
A study in Brazil shows a similar situation in which incubators and
accelerators typically have limited interactions with non-funding who are those with experience working
players (Ponomariov and Toivanen 2014). Moreover, instead of
networking, partnership, and linkage programs, most incubation
for these entities, rather than fresh
programs offered by the Indonesian government focus on graduates from the university.”
promotional events, which are necessary but not sufficient.

Third Channel: Startups Nurture Talent Interview, edtech startup,

Startups can employ the talent developed through the first two February 2021
channels. However, startups themselves also develop talent. This
happens through learning-by-doing when employees are working
for the enterprise. In addition, startups provide (or can provide) understand the business. Furthermore, talent development is not
reskilling and upskilling training to their workers. a one-time effort but a continuous process, as different skills are
needed at each stage of the startup’s development to meet more
Fourth Channel: Experience in Other Firms complex and changing market demands (Erickson, Moulton, and
Talent can also emerge from other businesses, be they small and Cleary 2018).
medium-sized enterprises, large corporations, or in some cases,
nongovernment organizations. Staff and managers may initially Given the cost of building and retaining good talent, it is
develop their innovations as intrapreneurs, providing solutions necessary for startups to have adequate funding. At the
to improve business practices or address internal pain points. same time, access to funding requires the startup to already
They may also be product designers, engineers, or marketing demonstrate good talent—particularly the founders and key team
personnel. Such talent occasionally takes the plunge and leaves members. Our study found that the investors’ decision to provide
their organization to become a founder or join an existing startup. funding to early-stage startups is based mainly on the quality of
They bring with them their business experience, market insights,
technical expertise, and professional network which can be great
assets to their business venture. The benefits of first working in an
established business were recognized in interviews with startups. Table 2: Tech Talent, Average Month Salary

Consumer and Retail

FUNDING NEEDED FOR TALENT Startupa Corporateb
RECRUITMENT AND DEVELOPMENT ($) ($)
WITHIN STARTUPS Hipster Senior UI/UX Designer Head of Digital Marketing
(Digital 1,300 5,800
designers)
Early-stage tech startups often struggle to retain talent because Junior UI/UX Designer Junior Designer
of cash flow and funding constraints. Our study found that a 600 1,600
talented employee’s decision to leave a startup is partly due to a Hacker Senior Software Engineer Engineering Manager
lack of satisfaction with the salary and other aspects of the reward (Engineers) 2,100 2,600
package. Large established companies in Indonesia pay much
Junior Software Engineer Engineer
higher salaries than startups, as Table 2 suggests. In addition,
650 1,100
startups compete for talent from other ecosystems. The average
salary in Singapore can be four times the salary offered for the Hustler Senior Product Manager Head of Marketing
same position in Indonesia (Table 3 ).13 (Product and 2,300 7,200
marketing)
Junior Product Manager Marketing Manager
In addition, talent development in startups is necessary but costly. 850 4,200
There is a cost to train new employees through internal learning,
UI = user interface, UX = user experience.
training, and career planning programs; a cost (including time) a
Source: Glints and Monk’s Hill Ventures (2021).
to build relationships between new employees and clients; and b
Source: Michael Page (2022).
an initial loss of productivity as new employees need time to

13
Living costs are, however, higher in Singapore.

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ADB BRIEFS NO. 228

Table 3: Tech Talent in Indonesia and Singapore, “Incubators outside Java are still limited.
Average Monthly Salary, 2020
It is expected [hoped] that government
Indonesia
($)
Singapore
($)
programs also increase the number and
Hipster Senior UI/UX 1,000–1,700 3,000–7,000 quality of incubators outside Java as
Designer startups are a rising number there.”
Junior UI/UX 300–900 2,200–5,900
Designer Interview, agritech startup owner,
Hacker Senior Software 1,400–2,800 4,000–11,000 February 2021
Engineer
Junior Software 300–1,000 2,200–6,800
Engineer solutions. Currently, there are many regulations to protect
Hustler Senior Product 1,700–3,000 3,300–6,900 the environment, but few are enforced or implemented due
Manager to a lack of implementation guidelines and enforcement
Junior Product 500–1,200 1,500–3,500
mechanisms. In addition, local governments are buyers of
Manager products and services that can create demand for startups.
For example, during the pandemic, governments worked with
UI = user interface, UX = user experience. healthtech startups to rapidly develop and deploy solutions.
Source: Glints and Monk’s Hill Ventures (2021). Similarly, the Kartu Prakerja program funded online training
programs for young and unemployed people during the
pandemic, generating increased demand for edtech.
the founders and the execution team. Investors invest in people
(“money follows talent”) as much as in the product or service
they are developing. In a sense, the talent funding problem is a WEAK INTERNET CONNECTIVITY
“chicken-and-egg” problem. AND AFFORDABILITY INHIBITS
ECOSYSTEM BUILDING
LACK OF DEMAND INHIBITS TALENT
DEVELOPMENT WITHIN STARTUPS Indonesia’s territory is as large as Europe, and providing internet
connectivity across the archipelago is a major challenge. In late
2019, the government launched the Palapa Ring as a backbone
Funds for recruiting and training good talent can also come from
for high-speed internet connectivity. Nevertheless, a deep
the startups’ sales revenue. Again, this is a circular relationship:
digital divide prevails. Only 36% of villages have access to a
high-quality talent helps the startup generate revenue, while
base transceiver station (BTS) and only 64% of villages have a
positive revenue funds talent retention and training development.
strong 4G internet connection (SMERU, Oxford, and UNESCAP
However, revenue is not only based on talent, but also on the
2022). Disparity in infrastructure leads to disparity in local
overall success of having a superior product, marketing it well,
startup ecosystems in smaller cities and rural towns. In this
and meeting a demand.
context, agritech development suffers considerably from the
lack of internet connectivity. Schools outside Java and Bali are
Our study shows that many early-stage startups do not
also affected. Without internet connectivity, schools are unable
understand or develop their markets adequately, be it other
to adopt innovative learning solutions offered by edtech.
companies (B2B) or individual customers (B2C). Trust in new
brands is generally low in Indonesia, so it can be difficult for new
The lack of internet connectivity hinders the development of the
enterprises to break into new market (Greenhouse Team 2018).
startup ecosystem and talent pool at the local level. On the one
Demand is also affected by shocks: most startups were negatively
hand, the startup talents’ skills are difficult to develop without
affected by a drop in demand or disruption to their supply chains
better internet connectivity. During the pandemic, for example,
due to the COVID-19 pandemic. Some startups suspended
incubators and accelerators were forced to use online meetings
operations or canceled expansion plans; others had to pivot their
to mentor and nurture their startup participants. Unfortunately,
offering or change their business model.
substituting online mentoring for in-person mentoring is only
possible for startups with sufficient internet connectivity. On the
In the longer term, government policies (or their lax other hand, startups from outside Java and Bali also mentioned
enforcement) can inhibit demand in some sectors. Policies that the internet plays a significant role in recruiting talent, both
that set standards for sustainable agriculture, clean energy, in their local area and from other cities and provinces.
and climate change create demand for agritech and cleantech

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 City-Level Tech Startup Ecosystems and Talent Development in Indonesia

POLICY RECOMMENDATIONS

To foster more high-growth tech startups—including unicorns— Fifth, develop talent through the education system. A robust
efforts can be made to develop ecosystems at the city level education system is needed to produce qualified graduates
throughout Indonesia and expand the talent pool needed by in science and technology, management and marketing, and
startups. New tech startup hubs—with local interaction among entrepreneurship. Efforts should be made to foster innovative
ecosystem players, an ample supply of local talent, and high-quality thinking in classrooms and laboratories, in extracurricular activities,
local internet—could be adopted by other cities, following the and in university-based incubator and accelerator programs.
examples of Bandung and Yogyakarta. Creativity developed in education can spill over to generate ideas
for products, services, and business models.
The following recommendations are proposed.
Sixth, apply a triple-helix approach involving local government,
First, channel national support for startups through city higher education, and the private sector. The approach should
governments and other local ecosystem players. The national ensure effective collaboration among these three players and
government has fiscal resources and a self-defined mandate ensure that they do not operate alone in silos. Each level needs
to support startups and create a knowledge-driven society. to know what the others are doing and how their activities can be
These resources can be channeled to competent local support integrated to avoid both gaps and duplication.
institutions, including local government, to enable effective
implementation and assistance to startups and robust Seventh, improve the quality of incubator and accelerator
development of local startup ecosystems. programs. Talent can be developed by program managers and
contracted trainers. Program managers should be skilled and
Second, encourage city governments to take seriously their experienced in developing startup founders. Guidance should
responsibility to develop the local startup ecosystem. Cities be tailored to the startup’s specific sector, stage of development,
must take a leadership role and include startup development and team composition. In areas where program managers lack
in the city’s economic development strategy. They must be expertise, the program can bring in outside business and tech
knowledgeable of the elements needed for a supportive ecosystem, experts to coach and develop the startup team’s skills.
understand the current state of the system, and be able to identify
what needs to be improved. They can use their convening power Eighth, deploy mentors with business experience. Mentors with
to bring stakeholders together and foster collaboration. They can business and technology experience can provide practical, real
entice other players (incubators and accelerators, finance and business advice on how startups can break into or even create
investment institutions, and startup representative and networking new markets. Civil servants usually do not have the expertise and
bodies) to remain in their city, relocate, or provide their startup experience that would enable them to fill this role effectively.
ecosystem support offerings in their city.
Ninth, tackle local constraints to digital access. High-quality,
Third, incentivize local governments to buy from startups— low- cost digital infrastructure will improve local internet
for pandemic recovery and beyond. Government is a major connectivity. Many startup innovations are internet-based or rely
buyer of goods and services from all businesses. In public-oriented on digital platforms for marketing. Demand for startups’ products
sectors such as health (hospitals) and education (schools and and services can only increase if potential customers have fast
colleges), it can be the single most important buyer. Startups and affordable access to the internet. Local governments can help
should court government as a customer, but government by creating a clear legal status for land that can be used to build
should also be open to opting for tech solutions to improve the 4G base stations. The lack of such legal status has constrained the
effectiveness and efficiency of public services. The pandemic spread of mobile internet services across the archipelago. Along
has pushed governments to look for digital and tech solutions. with telecommunications infrastructure, improvements in the
Healthtech and edtech are good examples. power supply will also benefit the growth of startups.

Fourth, improve access to finance to support talent

development—and vice versa. Better access to finance provides
startups with the funds to recruit, train, and retain quality human
resources. In turn, better talent improves access to funds,
because investors focus on the quality of the team when making
funding decisions. Local pitching competitions, networking
opportunities, and consultations between investors and startups
can be facilitated—through local government, sector associations,
incubators and accelerators, and others—to improve the flow of
finance to startups.

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ADB BRIEFS NO. 228

Appendix: Government Startup Support Programs

Program Ministry Start Year Target Type of Support Provided

Perusahaan Pemula Ministry of 2013 Startups scaled up to Funding of Rp100 million–Rp500 million provided
Berbasis Teknologi Education, Culture, Advanced Tech-Based through incubation program for a maximum of
(PPBT) Research and Startup Grant Program 2 years to commercialize the products
Technologya (Perusahaan Lanjut
Berbasis Teknologi
[PLBT])
Hub.ID Ministry of 2014 Startups to be matched Acceleration program to intensify growth; 2-day
Communication with investors and summit to link with global venture capitalists and
and Information connected with corporate business partners; and ecosystem to collaborate and
Technology and government partners search for new opportunities
Calon Perusahaan Ministry of 2016 Pre-startups scaled up to Incubation consisting of team development and
Pemula Berbasis Education, Culture, enter the PPBT program product development, 1 year
Teknologi (CPPBT) Research and
Technologya
1,000 Startups Digital Ministry of 2016 Early-stage startups Incubation for 3–6 months consisting of
Program Communication in agriculture, health, (i) discussion with stakeholders, (ii) bootcamp
and Information education, tourism, to develop minimum viable product, and
Technology logistics, maritime (iii) one- on- one mentoring
Baparekraf for Startup Ministry of Tourism 2016 Early-stage startups that Incubation program consisting of
(BEKUP) Academy and Creative already have a minimum (i) 2-day bootcamp in each large city focused on
Economy/ Tourism viable product designing products that could help solve creative
and Creative and/or social challenges at the local level;
Economy Agency (ii) one-on-one mentoring; and
(iii) facilitating startups’ pitching sessions to VCs,
corporate partners, and relevant government
stakeholders

In general, BEKUP has been held in around 17 big

cities across Indonesia. During 2020, BEKUP was
held in Jakarta, Surabaya, Bali, Medan, and Makassar.
E-Commerce Roadmap Ministry of Trade 2017 Ecommerce, SMEs, A steering committee of various relevant ministries
(Presidential startups, and logistics and technical assistance formulating government
Regulation 74/2017) regulations and ministerial regulations for
e-commerce
Startup4industry Ministry of Industry 2018 Startups that already (i) Problem-solving competition to curate startup
Program have a minimum viable participants; (ii) Techlink matching activity between
product startups and larger businesses; and (iii) Solution
discussion by matching tech startups and problem
owners and involving other stakeholders
Next Indonesian Ministry of 2018 Later-stage startups in Facilitate contacts between startups and Series B
Unicorn Communication logistics, e-commerce, investors, both locally and internationally, through
and Information fintech, media and one-on-one meetings and networking dinners
Technology advertising, healthtech,
edtech, SaaSb
Startup Studio Ministry of 2020 Startups in agriculture, Intensive acceleration program for around
Indonesia Communication health, education, 1.5 months, consisting of (i) business skills
and Information tourism, logistics, development and branding; and (ii) facilitating
Technology and maritime sectors access to seed/ pre- series A/series A investors
that have reached
product- market fit stage
continued on next page

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 City-Level Tech Startup Ecosystems and Talent Development in Indonesia

Appendix continued

Program Ministry Start Year Target Type of Support Provided

Kedaireka Ministry of 2020 Lecturers and students Matching funds for collaborative projects with
Education, Culture, in higher education, the business and upon approval of the submitted
Research and collaborate with proposal by the Kedaireka board
Technology businesses registered on
the Kedaireka platform
BEKUP Mentor Ministry of Tourism 2021 Startup enthusiasts, Upskilling individuals to act as mentors for startups
Training Program and Creative founders, and tech through various activities such as workshops,
Economy/Tourism and business experts consultations, and case simulations
and Creative with minimum 2 years
Economy Agency of experience in a
managerial position
SMEs, small- and medium-sized enterprises, VCs = venture capitals.
a
Now provided through the National Research and Innovation Agency. The program was subsumed under Startup Inovasi Indonesia in 2020, which was later
replaced by Program Pendanaan Perusahaan Pemula Berbasis Riset (PPBR) at the end of 2021.
b
SaaS = software as a service.
Source: Authors.

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