Deal focus: Go-Jek targets multiple verticals

It is tempting to draw parallels between Didi Chuxing versus Uber in China and Go-Jek versus Grab in Indonesia. In each case, an app-based transportation platform with a finger in multiple markets takes on a purely local competitor; large amounts of capital is raised, much of it funneled into subsidies designed to lure drivers and consumers; and the local competitor prevails.

The comparison is by no means a perfect one - the companies concerned differ in size and scope, the markets differ in terms of dynamics and stage of development - and so it might be premature to assume the end game in Southeast Asia will be the same as in China. But any investor participating in a sizeable funding round for Grab or Go-Jek would expect satisfactory answers to questions on cash burn.

"Subsidies can be an issue, but we've seen how this has played out in China. It is very hard to compete with a local player when you are focused on multiple markets," says Jeffrey Perlman, head of Southeast Asia at Warburg Pincus. "In Southeast Asia the countries are so different - the rules, the regulations, the customers - that I think it's easier to be a single country, multi-vertical player than a multi-country single vertical player."

Go-Jek is just that. Founded as a motorcycle taxi service in 2011, the company swapped its call center for an app three years later and hasn't looked back. In transportation alone, Go-Jek has more than 200,000 drivers on bikes, and thousands more in taxis and trucks. It has entered the food delivery space, using those same drivers to courier more meals than any other company in the world outside of China. The company also offers a range of O2O local services - bringing a beautician or cleaner to the customer's door - and more recently has branched into mobile payment.

Warburg Pincus, KKR, Farallon Capital and Capital Group Private Markets, plus some existing investors, last week announced a $550 million Series D round of funding for Go-Jek at a post-money valuation said to be around $1.3 billion. It will be used to help the company consolidate its market-leading position.

Growth at such a rapid pace is not easy to manage. The company has overcome a regulatory ban, experienced technological malfunctions, and addressed drops in service quality when volumes spike. Shane Chesson, co-founder of NSI Ventures, which was the sole institutional investor in Go-Jek's Series A round in 2014, notes that ensuring technology, people and infrastructure are sufficient for the company's needs will be an ongoing challenge. The tech talent pool within Indonesia is already well tapped and he expects to see a broader technology recruitment effort and more "acqui-hires" of international teams.

Scale and frequency of use are essential to Go-Jek's long-term sustainability. First, a subsidy is more effective when amortized across multiple verticals: entice the customer with a discounted ride home, then expose them to other services, so that before long Go-Jek becomes the default convenient option (the new payment platform, which has grown faster than most investors expected, is especially powerful in this context). Second, it keeps the drivers engaged.

"It's about maximizing utilization of this crowd-sourced fleet of motorbikes," says Perlman. "In the morning rush hour they are transporting people; then they deliver packages from the opening of business; and food delivery starts kicking in at lunchtime and then again at dinner. Over the course of the day you are keeping drivers increasingly busy, and as a result, they stay loyal to your platform."

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• Topics
• Southeast Asia
• Technology
• Expansion
• Indonesia
• Warburg Pincus Asia
• KKR
• NSI Ventures
• Sequoia Capital
• TMT