Jan 30, 2019

MDI Ventures eyeing three more exits this year, says CEO Nicko Widjaja

With two exits already under its belt, Indonesia’s MDI Ventures, the venture capital arm of state-owned telco firm Telkom Indonesia, is looking at possibly sealing three more exits this year, according to its President Director and CEO, Nicko Widjaja.

MDI’s first exit came in late 2017 when Japanese adtech startup Geniee listed on the Tokyo Stock Exchange. This was followed by a trade exit of another international portfolio firm last year. Widjaja said, MDI was looking at a potential IPO in the Australian Security Exchange in April, while two other startups are on the verge of exits this year.

This would make five exits in less than five years for MDI Ventures, which started its investments with a $100-million debut fund in 2015. According to Widjaja, the feat has been made possible because of MDI’s stage-agnostic investment mandate. “We mix between our seed strategic investment and pre-IPO, later stage, Series C and D.

We mix that and work to get the best return for our parent LP, in this case Telkom,” Widjaja said during a fireside chat at DEALSTREETASIA’s Indonesia PE-VC Summit on January 24, 2019  in Jakarta.

These exits come as a source of gain and liquidity for MDI, which counts as the first corporate venture capital firm of an Indonesian state-owned firm. However, for the wider corporate scene, it can serve as “small validation” for other companies, especially state-owned enterprises, looking to enter the VC space, Widjaja said.

“I guess, especially with corporate, you have to keep them excited enough to see where the money goes. If we talk about corporate ventures, of course, the first angle will be strategic investment rather than gain, but I guess in any investment entity, capital gain is a default,” he said.

Going forward, Widjaja said MDI could be raising and managing multiple funds, potentially with contributions from external LPs.

 

Edited Excerpts:

How would you describe the CVC landscape in Indonesia at the moment?

I think one of the reasons why a lot of corporate are now jumping into the technology scene is because first of all disruption is real and its happening in different sectors. To build your own innovation is expensive, and it sometimes fails. Most corporates tend to buy innovation from outside. Telkom was one of the first that realised that the OTT disruption is real. We started off not as a corporate venture capital in the beginning, but through Indigo incubator back in the day and Telkom Group Open Innovation. So Telkom has been experimenting a lot with embracing the startup culture, at least since 2012. MDI Ventures was established in 2015. This was later followed by Mandiri Capital Indonesia and soon we will see a lot corporate ventures from the SOE settings. But before that of course you had Djarum Group’s GDP, Sinarmas’ SMDV and Emtek Group who were doing strategic investments to be relevant to the day. We now see a lot of SOEs ramping up their corporate venture, especially the banks, to anticipate the fintech revolution. MDI was the first CVC by a state-owned company.

 

As an outsider from the VC scene coming into this type of corporate environment, what has been the main challenge and how do you overcome it?

We are not only corporate, but we are also state-owned, that means we are more audited than any corporate ventures or VCs in Indonesia right now. This means also that we have to be prudent. Of course the challenge is when you meet high-value target startups, for example, the questions they ask me and my team is: “how long is the process going to be?” Because corporate alone will take time, let alone SOE companies, which has more layers of compliance. We are competing with VC money, which is known for its five or ten minutes deal, or maybe couple of days. But we are trying to compensate that with the parallel work that we do. Initially, in our first year, it was quite challenging, especially if we are talking with startups from the US and Japan because they don’t know what Telkom Indonesia was. MDI Ventures has around 70% of its portfolio outside of Indonesia, 30% in Indonesia. So especially in the US, because people in the US didn’t know where Indonesia was, let alone what Telkom Indonesia was. But our second year of pipeline was better, because more investors started to know us and we started getting a lot of referrals. So I guess to overcome this challenge we had to talk not only to startups but also to top-tier investors from all around the world. That’s the only way you get good deals. But initially I think you need to take the bad deals as well. When I talked to top investors in the US, they gave me pipeline of their deals, and some of those deals were not bad, but not great either. So it’s like a bitter pill that we had to swallow in the beginning.

 

Do you think this VC opportunity is something that is still being overlooked by SOEs?

Since MDI came to the surface, more and more state-owned hear about us and we kind of gave them a small validation. We are entering our fourth year of our investment period, but we already have two exits. One IPO in the Tokyo Stock Exchange in Japan and the other one was some small trade sale. I guess especially with corporate, you have to keep them excited enough to see where the money goes. If we talk about corporate ventures, of course, the first angle will be strategic investment rather than gain, but I guess in any investment entity, capital gain is a default. You cannot just invest in something that can work for your group but yielding no value whatsoever.

 

How do you think founders perceive CVC money? Do you find that there are some misconceptions about corporate money?

Good founders are wary. Bad founders just say give me the money. People see VCs as someone that you pitch to like American Idol judges, but in reality, it is investors that pitch to startups. I pitch a lot to good young startups and some of them leave five minutes into the conversation. So when it comes to corporations, people think if you get strategic investments from us, you come work for us. But in reality all the infrastructure and resources that we have, it is actually a bargaining value when we offer our money, because money is such a commoditized value these days. There’s abundance of money everywhere. So when I ask startups to take our money, I say we will give you infrastructure, access to analytical data, support and everything else. People think it’s the startups serving the corporate, but it’s the other way around. In terms of general trend in the VC world, we’ve seen more VCs raising large funds here.

 

Do you think that’s a reflection of the region’s potential, or is it just fundraising frenzy?

When we first came out, we had a $100 million in our pocket, it was 2015. That was before Go-Jek became a unicorn, before Grab became a super app, before Traveloka and Tokopedia became as important as they are today. Our second fund was $40 million, which is smaller, but we combined it with the first fund. Fast forward to 2018 and now we see Grab Ventures with $250 million to spend. Us SOEs suddenly become irrelevant with these companies and the likes of Alibaba and Tencent coming. But we see the growth. In 2018, Series A rounds is around $8 million-$10 million, compared to 2016 when Series A was around $2 million-$4 million. So I see hyper growth in the region and because of that, I think many corporations will jump right in.

 

Let’s talk about Telkom. Apart from MDI, Telkom has an incubator called Indigo and an acquisition arm called Metra. How involved are you with these two units? How does having this kind of structure help with Telkom’s digitalization strategy?

My first engagement in Telkom is to supervise Indigo. It was quite a big challenge back in the day because the metrics for incubation is never about how much a startup fits with Telkom, but it’s really about how valuable the companies become under our programmes, meaning it has to be follow up fundings, it has to be some external validations to see whether our programs work well. I think the trick is not to invite investors but to invite good startups to join. So since the beginning, MDI has really been involved in the selection of startups under Indigo incubator. Out of 40 Indigo startups that we had, only three or four has been followed up by MDI Ventures so we are very selective. Just because they are from Indigo doesn’t mean we have to take them. The culture here is “fail fast”. Its kind of dogmatic, especially in Asian culture that when you fail, you become suicidal and what not. But its really about the nature of the game: 95% of startups fail. This is something that we have to educate not only startups but also the Telkom Group. It’s very natural to fail. The program is currently one of the best in Indonesia and even in the region. We have 70% follow on. We invite the best of the local talent to join. From our perspective, MDI is in the middle of the value chain of startup founding in Telkom Group. With the M&A unit we provide advisory. Some of our deals, we give to Telkom as well. We feed Telkom M&A some of our portfolio. But this is tricky, because it’s a free market out there. If a startup wants to be bought out by another corporation, MDI can’t stop the company selling to anyone outside Telkom. In the end, it’s the highest bidder. So Telkom has to learn how to participate in an M&A more aggressively, rather than thinking: this company [is] part of us. Why don’t you go through the value chain and end up as one of Telkom’s companies. Another thing I’ve been telling Metra and the Group is that for MDI to be selling a company to Telkom, it would be losing money. MDI, by default, has to be profitable. We have to make significant amount of profit, by two to three x of our fund. Let’s say our fund is $140 million, by year 8, we have to return some $300 million or so.

 

You say you have two exits so far. Any more on the way? If so when?

We are looking at one IPO in the Australian Security Exchange in April, but I can’t say which company. We have another two on the way. So maybe three exits this year. But we have exits because we invest in later stage. We mix between our seed strategic investment and pre-IPO, later stage, Series C and D, so we mix that and work to get the best return for our parent LP, in this case Telkom.

 

But in terms of exits in Indonesia, how difficult is it to get meaningful exits in this market?

Actually, one of our exits is quite meaningful in this market. For Southeast Asia, especially Indonesia, if the sector is right, the metric is right, people will be jumping in.

 

What about the IDX as an exit option?

I don’t know. The ecosystem is still early right now for companies to be listed on the IDX. We haven’t seen Go-Jek listed on the IDX or any other public market. We have seen startup IPOs recently like M Cash, Kioson and others and they are making decent raise through the IDX. We are working with the IDX and security companies on how to bring value to our Indonesian deals and we are seeing the prospects of that too.

 

What are the big plans for MDI going forward? Do you have new funds you’re working on?

We continue raising money. To be relevant in this ecosystem, you need to match all the foreign money that’s coming into Indonesia. And maybe in our segment it will be corporate still. But I see there will be different set of funds this year from MDI, with maybe different LPs coming in.

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(Deal Street Asia)