How we help foreign investors enter Indonesia’s tech space
Foreign players who truly want to dig into the Indonesian market need to explore various types of investment models apart from traditional venture capital.
In recent years, smart money from around the world has fixed its gaze on Indonesia’s tech space as the next big and homogenized frontier. The soaring valuations of Tokopedia, Go-Jek, Traveloka, and Bukalapak have seen to it that the market cannot be ignored by anyone who calls themselves a tech investor.
This has led overseas corporates and institutions to start figuring out how to effectively funnel their money into the market via early-to-mid-stage venture funds. Inevitably, these folks end up bumping shoulders with independent fund managers whose primary pitch is almost always based on returns. They say things like:
“Join our fund and you’ll get at least a 20 percent internal rate of return. It’s that simple.”
For some backers, this kind of hands-off approach may be just what the doctor ordered. But for foreign players who truly want to dig into the Indonesian market — and forge their own strategic paths — other types of investment models, funds, and avenues need to be explored.
Venture capital is inherently a risky play to begin with, but nonetheless, we’ve had dozens of meetings with big family offices and large conglomerates hailing from China, the US, and Europe. All of them want to know how they can safely and strategically inject capital into the local digital economy.
While ‘safe’ is a relative word in the startup game anywhere, our firm’s unique value proposition compared to traditional VC is pretty clear. Corporate venture capital (CVC) firms like ours offer limited partners (LPs) peace of mind where other investment vehicles cannot. Our fund shows a stellar track record of returns already, but there are also other ways we help foreign investors get their feet wet here. In no particular order, here are a few ways we help foreign investors enter Indonesia’s tech investment game.
Red tape dissolved
Our CVC firm is backed by the nation’s largest state-owned telecoms conglomerate. Because of this, we are able to provide the most authoritative know-how and recommended actionables to help foreign investors cope with Indonesia’s regulatory environment in an expeditious way.
Whether it’s through our fund directly, or via our consultation on investment vehicles, our partners rest easy knowing that they will never be in the grey area in terms of compliance. In a market where the rules can shift on a dime, this is a priceless asset for foreign players seeking to mitigate risk.
Built-in path for success
Our LPs get to benefit from the fact that startups backed by our fund have a potential path to exit via Telkom Group. The difference between CVC and traditional VC in this respect is that firms like ours often come with a built-in success scenario. In many cases, this makes CVC a safer bet for the fund’s backers to actually realize capital gains.
Couple this with the fact that founders in our portfolio gain an invaluable network in the local corporate world, and you’ve got a cohort of companies that are ideally positioned to become local champions.
See: 4 Myths About Corporate Venture Capital and Why They’re Wrong
Long-term foothold
By holding hands with a CVC firm like ours, capital providers from overseas also get to enjoy the fact that over fund is ‘evergreen.’ This means that on a perpetual basis, Telkom Group may replenish or increase the size of our fund. Market trends and portfolio performance help guide this decision year-to-year. As a result, I as CEO don’t have the same urgency or imperative that other fund managers have to always be seeking fresh capital and new LPs.
For us, strategic value from our LPs truly is the more important factor. Because of the way we are calibrated, there is also far less of a chance that our shop will close its doors any time soon. Our fundamental structure gives partners a ‘gold standard’ in terms of assurance for longevity that no other local player has.
Access to follow-on investments
Some venture firms do not allow LPs to invest independently in any of the fund’s portfolio companies. The logic behind this is that fund managers want to be the sole conduit for their LPs to back companies in Indonesia. Such protectionist clauses can appears in many LP agreements and it is actually harmful to the ecosystem.
Not only does it limit future funding avenues for the entrepreneurs, but it also does the LPs a disservice by not letting them really participate in the local market. This also means that an LP’s company may have a harder time plugging said startup into its core business in hopes of opening up new revenue streams.
With us, all LPs have the opportunity to invest in the portfolio companies directly. In all likelihood, we will co-invest alongside them in the round while also courting other local players to participate.
Network of state-owned enterprises
Deciding to invest in a tech ecosystem is also the choice to make a bet on the future of a nation’s economy at large.
Not only do the startups in our portfolio get seamless access to the largest corporates in Indonesia, but so do our partners. If you’re looking to form strategic alliances with state-owned enterprises and have your voice potentially heard by policymakers in today’s hottest tech market, there’s likely no better way to do it. If you’re serious about this market, I hope to hear from you.
MDI Ventures is a corporate venture capital initiative backed by Telkom Indonesia, with headquarters in Jakarta and operations in Singapore and Silicon Valley. It is an independent entity aiming to bridge the gap between large corporates, smart global investors, and innovative startups in Asia Pacific.
