Indonesia VC: Levels of comfort

Intudo Ventures launched its debut Indonesia fund in February 2017 and announced a final close of $10 million about four months later. This was not the end of the process, though. A surge of late interest prompted the GP to re-open the vehicle and collect another $10 million. 

"We were in the right place at the right time," says Eddy Chan, who backed start-ups such as PayPal and SpaceX before founding Intudo with former Goldman Sachs Indonesia executive Patrick Yip. "The Chinese came to Indonesia; Amazon came in; private equity firms were investing in Indonesia technology; Expedia invested in Traveloka; Google invested in Go-Jek."

But Intudo stood out because of its narrow focus. The firm is deliberately small-scale, only operates in Indonesia, and wants to assemble a relatively concentrated portfolio comprising companies whose founders are returning home after completing business school in the US. There are also ambitions to bring fast-growing start-ups from Silicon Valley and China to Southeast Asia.

An unusual strategy warrants an unusual LP base by Indonesian standards. Corporates, family offices, VC firms, and entrepreneurs all made commitments, with the bulk of them coming from the US. Some investors are already taking part in follow-on rounds for portfolio companies.

A young market

In several respects, Intudo represents the disconnect in Indonesian venture capital. The firm's very existence reflects growing international interest in the country, yet it is one of few truly independent local players in a market dominated by family money. Above all, its model is unproven. Institutional capital has started filtering through to managers with wider Southeast Asia early-stage mandates, but these investors aren't yet comfortable enough to participate at the country level.

"When we made our first commitment to Southeast Asian VC funds three years ago, we wanted diversification in our portfolio, which meant no single-country funds," says Ralph Keitel, a senior investment officer with the International Finance Corporation (IFC). "While we aren't processing any such funds right now, I wouldn't be surprised if we decided to back a manager focused predominantly on Indonesia in the next 2-3 years. The biggest challenge is finding a manager with a consistent track record as well as institutional traction in terms of fundraising."

The early movers in the space were seed investors who arrived about seven years ago. They were followed by a string of Japanese players, most of them corporate venture capital units, before the influx of capital from Singapore-based firms targeting Series A and B rounds. 

Families and conglomerates were always there but it is only in the last couple of years that they have come to the fore. Even now, questions are asked about these investors' long-term commitment to the asset class, with several industry participants noting that they have become less aggressive. In many cases, this is not a statement on the market, rather a reflection of the fact that family groups have multiple interests and changing priorities.

Moreover, approaches to investment are not necessarily formalized. "There is an accumulation of experience," explains Roderick Purwana, a managing director at SMDV. "First, you want to buy the company. Second, you agree to leave something for management, but you want to be in control. These models don't work with start-ups. Depending on your resources and your goal, you might make LP commitments to funds, do direct investments, or a combination."

Sinar Mas Group considered various strategies before establishing SMDV four years ago. The VC unit has two structures: a family office with a single LP and a fund with commitments from third parties. Lippo Digital Ventures also transitioned from a family-owned to a family-sponsored GP, which is now known as Venturra Partners. Most of the rest are fully captive.

Capital incoming

The local independent contingent comprises a few accelerators and the likes of Kejora Group (targeting $80 million for Fund II), Convergence Ventures (closed Fund I at $30 million in 2016) and Alpha JWC Ventures (closed Fund I at $50 million in 2017). They are not proliferating but the market continues to evolve around them, with more corporate VCs arriving and the Southeast Asian firms seeking to raise larger funds that can bridge the Series B and C gap.

"A lot of institutional money prefers Singapore-domiciled VCs and maybe US brands. They also prefer to look at second funds rather than first funds. First funds tend to be raised from families and corporates," says Khailee Ng, a managing partner with 500 Startups in Southeast Asia. Furthermore, he observes that traditional LPs opt for later-stage funds because the risk is lower. 500 Startups has LPs that want to look at co-investments in Indonesia where they can write $5-10 million checks.

Burda Principal Investments, the investment arm of Hubert Burda Media, is part of this trend. The group started out by making three fund commitments to build local relationships and then last year established a team in Singapore that primarily makes Series B investments.

Meanwhile, many more investors from China, India, Europe and the US are taking an opportunistic approach. "They are interested in emerging markets and Indonesia is a preferred launching pad. It might be a family office that has Indonesian roots or investors looking at companies where they are familiar with the business model," says Albert Shyy, a principal at Burda. "Maybe as they do more deals they will establish a local presence or have a more structured pipeline process."

No one disputes the potential of Indonesia, even as competition intensifies. But that disconnect between the perception of the market and the size of the local GP community remains. While raising $20 million is a very different proposition to hitting a $100 million target, the Intudo model is one way of forging a connection with international capital providers. IFC's Keitel expects to see more relationships of a similar nature as the market matures. 

"Once you have proven VC players on the ground with strong track records, they can become partners for Chinese or pan-Asian VC investors, and there might be linkages to Silicon Valley as well," he says. "Right now, the market is still mostly bubbling in its own stew."   

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• Topics
• Southeast Asia
• Fundraising
• GPs
• Venture
• LPs
• Indonesia
• Intudo
• IFC
• Sinar Mas Digital Ventures
• 500 Startups