AVCJ Awards 2016: Deal of the Year - Late Stage Tech: Go-Jek

For KKR, looking at how online-to-offline (O2O) business models have evolved in more developed markets served to make the firm more comfortable about the prospects for Indonesia and more convinced that, in Go-Jek, it was backing a company that is in some respects unique.

Whereas Uber has carved out a dominant position in the ride-hailing market across North America and Europe, food delivery - the other mainstay of O2O services, distinguished by a similar tendency towards high-volume usage - has been the preserve of other providers. The recently launched UberEats faces entrenched competition in the likes of GrubHub, Seamless and Deliveroo. Even in China and India, there are, at least for now, established independent players in each segment. Go-Jek, by contrast, leads the way in ride-hailing and food, and has its sights set on over a dozen other service offerings.

"In many markets you see interesting internet companies, but they tend to be more vertically focused. Because the Indonesian market is still developing, you haven't got to the point where there are a lot of local competitors, so one company can go into adjacent spaces," says Terence Lee, a director for private equity at KKR. "Technology is one of the many sectors we look at, but if it's too early or too small we might rule a company out. Go-Jek is further along, it has scale. And the company stood out because it has achieved a lot over a short period of time."

Growth on growth

Indeed, in the space of five years, Go-Jek apps had been downloaded more than 20 million times as of June, while the company recorded 20 million bookings across its platform in that month alone. The company has a fleet of more than 200,000 drivers who transport people, packages and food. Go-Jek now couriers more meals than any other company in the world outside of China, with over 15 million delivers since launch.

These numbers gave KKR, Warburg Pincus, Farallon Capital and Capital Group Private Markets - plus some existing investors - the confidence to commit in excess of $550 million in Series D funding to Go-Jek in August. The capital, said to equate to a post-money valuation of around $1.3 billion, will be used to help the company consolidate its market-leading position.

Go-Jek, which takes its name from the ojek motorcycle taxis that are part of urban life in Indonesia, was founded by Nadiem Makarim, a Jakarta native educated at Brown University and Harvard Business School. He bootstrapped the business, switching from a call center-based service to a mobile app as smart phones took hold of the country. Around this time the company received Series A funding from NSI Ventures. It was followed by Series B and C rounds that also featured Northstar Group, to which NSI is affiliated, and Sequoia Capital.

The product offering now spans 14 different O2O services at various stages of development, from hair and beauty to drug delivery to a mobile wallet. Go-Jek considers two factors when expanding into new verticals: whether it classifies as a big spend for Indonesia's middle class; and whether it offers synergies with existing transportation-based services. Makarim sees the possibilities as limitless.

"We have already amassed a huge number of loyal customers and the cost of not trying is sometimes greater than the cost of trying. We see the Go-Jek app as a big playground to test digital ideas. Not all of them are going to be successful and we are fully cognizant of that, but we think we could easily get more than 20 distinct products," he says. Makarim adds that Go-Jek makes a point of not having long-term plans because external forces such as competition and new technologies could transform the industry. The key is to be nimble enough to move in tandem with the market.

Growing pains

Expanding at this speed inevitably brings growing pains, whether it is scaling the technology, hiring competent staff, managing driver and customer expectations, preserving a healthy company culture, or ensuring a consistent quality of service when expanding into multiple cities. On the technology side, Go-Jek has made four acqui-hires of India-based engineering teams, targeting companies that it previously worked with on an arm's length basis.

On top of all that, the company is engaged in a fierce competitive battle, chiefly with Southeast Asia-focused Grab and global player Uber. All three groups have yet to turn profitable in Indonesia due to the subsidies they pay out in order to preserve market share.

"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," Jeffrey Perlman, head of Southeast Asia at Warburg Pincus, told AVCJ shortly after the Series D closed. "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."

The implication is that Indonesia - or Southeast Asia more broadly - will follow the trend seen in China over the last year whereby cutthroat competition has been ended through mergers. "Given the fact all the players are highly capitalized and the prospect of one or several parties dying is almost an impossibility at this stage, at some point, if we are going to make money, it is likely there will be change in the market," Makarim observes. "Whether it happens sooner or later I have no idea. It is definitely not something we would consider while executing our current strategy."

Pictured: Steve Okun (right) of KKR receives the award from Baker & McKenzie's Dorothea Koo

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• Topics
• Southeast Asia
• Technology
• Expansion
• Indonesia
• TMT
• Transportation
• KKR
• Warburg Pincus Asia
• Capital International