4 Myths About Corporate Venture Capital and Why They’re Wrong

While many tech stakeholders think the word “corporate” implies that a venture capital firm lacks independence and is the mirror image of its parent company, one player in Jakarta aims to set the record straight.

MDI Ventures is a US$140 million corporate venture capital (CVC) firm backed by Indonesia’s largest state-owned telecoms conglomerate Telkom Group. The firm, which has been around since 2015, refers to its fund as ‘evergreen,’ meaning each year Telkom Group may replenish or increase the size of the fund depending on market conditions. To date, MDI Ventures is the largest such fund for startups in the archipelago.

Today, MDI Ventures seeks to update a variety of public misconceptions about corporate venture capital that have for years permeated the global market.

Recent data shows that 2018 saw a bona fide surge in CVC activity worldwide. The second quarter alone clocked a record 757 CVC deals and US$14.1 billion in funding. For the whole year, there were 2,740 deals on record, while roughly US$53 billion was disclosed in CVC funding for tech startups. This is a staggering increase from US$36.1 billion the year before.

Asia attracted 38% of all CVC deals in 2018, up from 31% in 2017. In the third quarter, Asia overtook North American deal share for the first time. CVC accounted for 38% of all disclosed funding for tech startups in Asia.

Yet despite CVC playing an increasingly important role in tech ecosystems around the world, some stakeholders feel that there exist a slew of erroneous perceptions about the model itself. Indonesia’s MDI Ventures shares from experience.

Myth 1: CVC firms are slow, bureaucratic, and lack autonomy

“A lot of startups and investors in Asia think that MDI Ventures is controlled by Telkom Group, and therefore must do its bidding, but this is not true,” explains the firm’s CEO Nicko Widjaja. MDI Ventures is an independent entity with a fully autonomous team and decision-making processes.

Widjaja adds, “We actually offer startups the best of both worlds. Founders get capital injected promptly after raising a funding round from us. CVC firms like ours have the cash on hand to make these moves quickly after term sheets are signed. Founders also get a real bridge and network in the corporate world, a place they must go for clients and partnerships if they hope to achieve meaningful scale and success. Both of these are things that most other local VCs cannot claim truthfully.”

Myth 2: CVC funds are off-limits to new investors

MDI Ventures’ head of investor relations and capital raising Kenneth Li echoes Widjaja’s sentiment. According to him, Telkom does not dictate who the firm hires or which startups it invests in. Telkom Group is also not the only institution that can put its faith and capital into MDI Ventures.

“One key point that we want to get across is that our fund is actually open for other local and global investors to come in as limited partners,” explains Li. “These are often institutions that seek to invest and participate in Southeast Asia’s tech boom and we help them capitalize. MDI Ventures is not just set up to invest on behalf of one corporate. We’re open to co-investing with other VCs and we’re actively welcoming other strategic backers to the fund.”

Myth 3: They only hire from the corporate world

On the HR front, the firm’s VP of Investments Joshua Agusta says that MDI Ventures also recruits team members on a “pro hire” basis.

“This means that we prefer to work with folks who have real experience and culture fit with startup investing and a proven track record in the region,” says Agusta. “They are not usually people from unrelated sectors in the corporate world.”

He adds that in MDI Ventures’ case, the current core team members do not come from corporate backgrounds. The company claims to have a distinct culture and prudence in building its investment thesis and strategic direction.

Myth 4: CVC money does not perform well

While many CVC funds in Southeast Asia have tried and failed to bridge the gap between corporates and startups, MDI Ventures claims it is the only one to have succeeded so far. Through the tech companies it has invested in, the firm has been able to cut costs (in one case by as much as 80%) and create close to US$100 million in new revenue streams for Telkom Group, while also providing key market access to the startups.

The CVC firm has seen two of its portfolio investments exit via IPO and M&A in the span of three years, with multiple more exits expected in 2019. The team says one of its portfolio companies has the potential to become a ‘unicorn’ (reaching a US$1 billion valuation or higher).

Widjaja says, “This notion in the market that corporate venture capital is slow, bureaucratic, and unwise money is a stereotype that we really hope to dispel today. In MDI Ventures’ case, it couldn’t be further from the truth.”

See: Why global investors can no longer ignore tech in Indonesia

MDI Ventures is a corporate venture capital initiative backed by Telkom Indonesia, with headquarters in Indonesia and operations in Singapore and Silicon Valley. The firm is established as an independent entity with its own funding processes. MDI Ventures invests in high-growth business verticals to enhance digital experiences across the board for businesses and consumers alike.