JAKARTA • Big-name investors, including Expedia and Alibaba, are pumping billions of dollars into tech start-ups in Indonesia to capitalise on its burgeoning digital economy and potential as South-east Asia's largest online market.

With a population of more than 250 million, a swelling middle class and availability of cheap mobile devices, the attraction is huge.

"We believe that Indonesia is poised for a huge leap forward in its digital economy, following China's growth and becoming the leading tech destination in South-east Asia," said Mr Adrian Li of Jakarta-based Convergence Ventures.

Last year, US$631 million (S$867 million) in disclosed venture capital was ploughed into the country, said research firm CB Insights, up from US$31 million in 2015. But that figure has already been shattered this year, with US$3 billion in deals clinched as of September.

Tokopedia - a marketplace that lets users set up online shops and handles transactions - won US$1.1 billion in capital from China's Alibaba in August. Motorbike on-demand service Go-Jek secured US$1.2 billion from Chinese tech giants JD.com and Tencent Holdings in May, according to data from Crunchbase. And in another sign of confidence, Koison recently became Indonesia's first e-commerce service to go public.

Internet use is growing faster in South-east Asia than any other region in the world, with 124,000 users coming online every day over the next five years, according to a 2016 report from Google and Singapore's Temasek Holdings.

By 2020, an estimated 480 million people are expected to be connected to the Internet, up from 260 million in the region last year.

US$631m Value of disclosed venture capital that was ploughed into the country last year, according to research firm CB Insights. 124k Number of people expected to be connected to the Internet by 2020, up from 260 million in the region last year. 480m Number of Internet users coming online every day over the next five years, according to a 2016 report from Google and Singapore's Temasek Holdings on how Internet use is growing faster in South-east Asia than other regions.

Indonesia's mobile-first market will comprise more than half of South-east Asia's e-commerce market by 2025, with an estimated value of US$46 billion, the Google report said.

"When you do start-up business in Malaysia, Singapore, Thailand and Indonesia, the cost, effort and time that you spend is almost even. But when you go to Indonesia (growth) is unlimited - the market is so big," said Mr Willson Cuaca, whose firm East Ventures specialises in early-stage investments.

As a result, big names such as US venture capitalist Sequoia Capital, Japan's Rakuten Ventures and travel company Expedia - as well as Chinese tech giants - have all invested in the country.

Indonesian President Joko Widodo, a vocal supporter of digital innovation, plans to create 1,000 local tech start-ups worth US$10 billion by 2020. But the sector still faces a number of challenges.

A limited pool of engineering talent to draw from, low rates of Internet penetration outside densely populated Java, bureaucratic delays and poor quality infrastructure are all obstacles to growth.

For e-commerce firms, the large number of "unbanked" Indonesians limits the scope of online transactions, and logistics problems make it hard to move goods. While young entrepreneurs and small businesses are flocking to co-working spaces springing up in big centres, it is a decidedly different scene in most parts of the country.

Twenty-three-year-old Farid Naufal Aslam, CEO of Aruna, an e-commerce firm that links fishermen to buyers, said: "One of the biggest challenges faced is on social approach. Indonesia is a unique country with diverse communities and different customs in each region."

Yet many venture capitalists and entrepreneurs stay optimistic. "The window of opportunity is there," Mr Cuaca said. "As long as you can innovate and solve real problems using technology, you can be successful."

AGENCE FRANCE-PRESSE