Profile: BRI Ventures’ Nicko Widjaja

Nicko Widjaja arrived for the dinner meeting with Telkom Indonesia in April 2014 in poor spirits. Systec Ventures, which he had launched three years earlier, was on its last legs. A generous interpretation of events would be that the endeavor was ahead of his time and Indonesia wasn’t ready to rear a first generation of start-ups. But Widjaja admitted to passing on a few attractive opportunities, which also contributed to sub-par Fund I performance.

There would be no Fund II, a reality that gradually sunk in during months spent shuttling between Hong Kong and Singapore where LPs – typically high net worth individuals and family offices – continually knocked him back.

“I nearly gave up. Almost everyone said, ‘Your industry is too small, I don’t think there will be a Silicon Valley in or unicorns in this part of the world.’ Even if they did believe in the ecosystem, the next question was, ‘Who are you? You have nothing to show for the past three years,’” Widjaja recalls. “I used to like selling the fund, but that evening I was pessimistic, I wasn’t in the mood to talk up the ecosystem – so I shared my experiences in failing with a fund.”

His dinner companion was a Telkom board member who happened to be passionate about start-ups. What Widjaja claims to have given him is a no-holds-barred account of the other side of venture capital, the scenario where early bets don’t work out and investors lose all their money. Widjaja – then as now – didn’t shy away from admitting his own shortcomings. “Telkom wasn’t used to hearing people be so honest about themselves and about the industry,” he notes.

This reverse self-promotion strategy unexpectedly paid off. Widjaja was hired as a subject matter expect who gave lectures on venture capital to different Telkom divisions and as a consultant tasked with co-writing a thesis for the state-owned telco’s proposed corporate VC unit. He then won the mandate to run this new business, beginning a four-year stint as CEO of what became known as MDI Ventures. In 2019, Widjaja was recruited to recreate the magic at Bank Rakyat Indonesia (BRI).

In the valley

The starting point for this journey to the sharp end of Indonesia’s now vibrant corporate venture capital scene was – perhaps predictably – in Silicon Valley. Born and raised in Jakarta, Widjaja was one of host of middle-class Indonesians sent to study overseas in the early 1990s. His destination was Oregon State University, which had a strong industrial engineering program.

“This was the Suharto era and Indonesia was about to become an industrial nation, that was his promise. Many Indonesians enrolled in universities in the US and UK to study industrial engineering,” Widjaja explains. He estimates there were about 300 in Corvallis, the town of 59,000 where Oregon State University is based, and 600 more spread further afield in and around Eugene and Portland.

This was a period of relative prosperity for Indonesia. Between 1989 and 1997, annual average GDP growth was 7%, driven by deregulation and gradual currency devaluation, which spurred export competitiveness, and therefore foreign investment and manufacturing. Indonesians like Widjaja could study overseas in part because there were IDR2,500 to the dollar; today it is IDR14,500.

The Asian financial crisis in 1998 brutally exposed structural weaknesses in the economy, leading to GDP contraction, rapid inflation, widespread insolvency, and an IMF bailout and restructuring. When Widjaja graduated in 1999, participating in the industrialization of Indonesia was no longer an appetizing prospect. But by that point he had changed his major three times.

Equipped with a degree in management and anthropology and inspired by the 1999 biographical TV drama “Pirates of Silicon Valley,” which charted the rise and rivalry of Steve Jobs and Bill Gates, he moved to the Bay Area. Having studied for an MBA, he scored a first job as a content writer for a Palo Alto software company that developed business planning software distributed by CD-ROM.

“They had experimented with downloads but most of the distribution was through offline stores,” says Widjaja. “I researched many businesses and produced more than two dozen sample business plan guidelines, essentially running imaginary companies in my head. It wasn’t a sexy job, but I enjoyed the process and engaged with the Silicon Valley culture of the time.”

While experiencing the life and death of the dotcom boom was instructive, the case for returning to Indonesia soon became compelling. Opportunities were emerging as the economy returned to growth, but Widjaja was slower to act than many of his expatriate peers. After a six-year stint without even a trip back to Jakarta for the holidays, the homecoming came in 2004.

Food to start-ups

His new employer was Indofood, a subsidiary of domestic conglomerate Salim Group and one of the country’s largest food and beverage producers. The company was professionalizing its processes and management, and it became a keen recruiter of locals who had been educated or worked overseas. Assigned to the CEO’s office, Widjaja focused on corporate planning and M&A. He describes it as a hands-on introduction to the who’s who of Indonesian business.

Four years later, the knowledge and networks accumulated at Indofood facilitated a move into consulting. He teamed up with Mindcode, a US-based group that advises corporates on innovation strategies and strategic repositioning. There was also a first foray into angel investment, making assorted bets on start-ups emerging in Indonesia’s nascent technology ecosystem. Success proved elusive, but Widjaja was suitably emboldened by the scale of the opportunity to launch a fund.

“It was a different world, an analog kind of world. I remember investing in a property search start-up and we found that people were still more comfortable speaking to an agent,” he says. “But I thought I was ready to manage a fund. Based on my consulting experience and my angel investing experience, I wrote a deck for Systec Ventures and raised $5 million, mostly from high-net-worth investors who had some exposure to dotcom and an idea of the digital revolution in Southeast Asia.”

Venture capital investment in Indonesia was negligible by dollar value until 2014, according to AVCJ Research. Only a handful of local GPs were in the market, and not all of them survived. Over the next five years, an annual average of approximately $200 million was spread across 60 funding rounds. It wasn’t until 2019 that investment topped $1 billion, and the number of deals swept past 100. Nevertheless, the likes of Gojek, Tokopedia, Bukalapak and Traveloka were formed in 2009-2012.

Widjaja met with start-ups that are now – or are expected to become – unicorns and didn’t close deals. Decisions were made based on information available at the time. In one instance, a start-up that was pursuing a sustainable business model and “playing for real revenue and dividends” was selected over another company that was more expensive because it was “thinking about multiplying the valuation.” The former folded within a year; the latter achieved scale and success.

But his honesty in communicating the challenges of early-stage investing in Indonesia, many of them common to all GPs, resonated with Telkom. The Systec team, which then numbered five, was chosen over three other VC firms – one local, one regional, and one US-based – to helm MDI. They were allocated $100 million from the state-owned telecom operator’s balance sheet for investment in what represented the first real push by a local corporate into captive venture capital.

Compromise solution

Telkom was largely motivated by a desire to emulate Singapore’s SingTel, which had established SingTel Innov8 in 2010. The two companies have a joint venture, Indonesia wireless network operator Telkomsel, and SingTel Innov8 backed a series of start-ups that fed into the ecosystem as vendors to Telkomsel, Widjaja explains. Telkom wanted to realize similar kinds of synergies. There were some strategic differences between the parent and captive investment unit.

“Many executives had a mindset to invest in bargain companies ‘that serve us in the process,’ investing in them to do Telkom’s homework,” he says. “We had learned that these companies wouldn’t yield much. We would end up subsidizing them, giving them capital to work for us. We had to prove to Telkom that cash-poor businesses would yield poor synergies with the parent versus cash-rich businesses, which relied not only on Telkom for revenue.”

There was compromise on both sides. MDI pursued investments that were financially viable, but it concentrated on sectors relevant to Telkom and on start-ups at the Series A stage. The thinking was that companies in bootstrap mode couldn’t deliver any synergies. It participated in funding rounds alongside credible VC backers, leveraging the dearth in growth-stage funding at the time and the prospect of helping start-ups sell into the Telkom ecosystem or at least benefit by association with it.

By the time Widjaja departed, there had been nine exits from the balance sheet allocation known as Fund I. Only two were IPOs. None of the remaining seven went to Telkom. Despite expressing an interest in feeding on MDI’s successes, the parent was hamstrung by its state-owned structure – either Telkom couldn’t move fast enough, it was prevented from participating, or it couldn’t pay enough.

When a majority stake in Singapore-based Red Dot Payment was available in 2019, Telkom was invited to bid but had to pass because state-owned enterprises are unable to acquire unprofitable businesses. It went to Naspers-owned PayU. Later the same year, there was an opportunity to participate in a follow-on round for Coda Payments, a profitable Singapore payments player. Telkom was outbid, in part because the nature of its ownership warrants extreme prudence on valuations. MDI exited in 2020.

In some instances, MDI sold when it could, or perhaps should, have held on longer. “In the first two years, we showed them improvements in unrealized gains, but we realized that wasn’t enough to convince Telkom we were doing our jobs,” Widjaja says. “In the end, MDI became the most profitable venture capital firm in Indonesia based on investments made from 2015 through 2018.”

A local model

The move to BRI Ventures arose in part from a desire to raise funds onshore. Having relied on Telkom’s balance sheet for Fund I, MDI launched a second vehicle of $40 million in collaboration with SingTel Innov8 and Telkomsel. It was structured out of Singapore, like most VC funds targeting Southeast Asia. Widjaja then pushed to raise a third fund with a fintech focus and reached out to Indonesia’s major banks as potential LPs.

BRI decided the opportunity was worth pursuing solo and invited him to create BRI Ventures, offering $250 million in balance sheet capital. Moreover, there was a commitment to become the first corporate VC to launch an onshore fund and raise money from third-party investors. It would be more akin to a locally licensed mutual fund than GP-LP structure because the latter isn’t yet accepted in Indonesia.

There was a tax benefit to doing this – corporate VCs investing from their balance sheets must pay 25% in capital gains tax – but also a philosophical rationale. “All unicorns are incorporated in Singapore because the money is there. But for the second act of Indonesia venture capital, why not incorporate the unicorns here, so we can enjoy the valuation gains?” says Widjaja. “Southeast Asia’s biggest unicorns are in Indonesia, but the country only sees the revenue upside.”

Sembrani Nusantara Fund launched in July 2020 and closed at the end of last year with approximately IDR300 billion ($20.7 million) in commitments. The name translates roughly as “unicorn archipelago” although Widjaja notes that sembrani is taken from kuda sembrani, the name of a fabled horse of Hindu deity Vishnu, which appears in Javanese folklore.

BRI Ventures was deliberately selective as to the LPs, concentrating on groups that understand the risks involved in early-stage investing. Grab Ventures, AC Ventures, Celebes Capital, Mahanusa Capital, Terraia Capital, Buana Finance, Fazz Financial Group, and fintech platform Investree are among the participants. Separately, the VC unit has teamed up with Investree to create Indonesia’s first venture debt vehicle.

Unlike the balance sheet investments, Sembrani Nusantara goes earlier and targets a wider range of businesses. The mandate specifies micro, small and medium-sized enterprises (MSMEs) across education, agriculture, maritime, retail, transportation, and healthcare. The goal – which applies to the venture debt strategy as well – is to fill gaps in a market where most VC investment focuses on technology and comes in the form of equity.

Widjaja accepts that the VC model must evolve to meet the needs of entrepreneurs, and he expects the Indonesian approach to become a hybrid of different financing solutions. But the ecosystem is only viable if it can demonstrate sustained success.

“We are in year 10 and coming to the end of the first cycle of Indonesian start-up investment. Funds are nearing the end of their lives and unicorns are going public, so we will see if the valuations are what they claim,” he adds. “It marks 10 years in my VC career as well. It doesn’t get more personal than this.”

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• Topics
• Southeast Asia
• GPs
• Technology
• Venture
• Indonesia
• corporate-venture-capital
• MDI Ventures
• BRI Ventures
• TMT