TLDR: Indonesia is experiencing a significant “startup winter” with a sharp decline in funding, yet local AI innovations are emerging as a key growth area. The country is also seeing a surge in secondary market deals as investors seek liquidity and new opportunities amidst the challenging economic climate. The government is actively developing a national AI strategy to attract foreign investment and position Indonesia in the global AI and chip-making race.
Indonesia’s startup ecosystem is currently facing a challenging period, often referred to as a “startup winter,” marked by a substantial decline in funding. In the first half of 2025, total startup funding in Indonesia plummeted by over 43% year-on-year, reaching a mere US$161.3 million. This represents the lowest funding level in recent years, reflecting a cautious global macroeconomic climate, stricter investor due diligence, and increased pressure on startups to demonstrate clear profitability and robust governance. Despite this downturn, early-stage funding, from seed to Series A rounds, continues to show resilience, indicating a sustained appetite for high-potential early bets.
Amidst this challenging landscape, local AI innovations are emerging as a significant area of focus and growth. The Indonesian government is actively working to capitalize on this potential, with plans to finalize its first national strategy on artificial intelligence by August 2025. This comprehensive AI roadmap aims to attract foreign investment and position Indonesia as a key player in the global AI and chip-making industry, following similar initiatives by neighboring countries like Malaysia.
The “startup winter” is not unique to Indonesia, with Southeast Asia as a whole experiencing a drastic pullback in funding. As of late April 2025, startups across the region had raised only US$1 billion, an 87% drop from US$7.6 billion in 2024. However, certain sectors, particularly SaaS and AI, have defied this trend, witnessing substantial year-over-year funding surges of 262% and 217% respectively. This suggests that strategic investors are still willing to commit capital to promising ideas within these high-growth verticals.
In addition to AI innovations, the Indonesian market is observing a surge in secondary market deals. This trend reflects investors seeking liquidity and new avenues for investment in a capital-constrained environment. The focus on profitability and governance has intensified, pushing startups to adapt their strategies. The government is also implementing new policies, such as a finalized regulation requiring major e-commerce platforms to withhold 0.5% income tax from MSME sellers, aimed at boosting state revenue.
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Overall, while Indonesia navigates a period of reduced startup funding, the emphasis on local AI development and the increasing activity in secondary markets highlight the ecosystem’s adaptability and the strategic shift towards more sustainable and profitable ventures. The national AI strategy is expected to be a crucial step in attracting the necessary foreign investment to further bolster the country’s technological advancement and economic growth.
