Fundnel Spotlight 28 September 2020

The Indonesian Investment Playbook — Lessons Learned Navigating COVID-19


We welcomed a star-studded panel to our first virtual event focusing on Indonesia’s investment playbook during a pandemic, featuring speakers from BRI Ventures, Intudo Ventures, and PrivyID.

Despite COVID-19 upending global markets and fueling uncertain investor sentiment, investments in Southeast Asian startups spiked in Q2 2020, with Indonesia accounting for 45.8% of total deal value in Southeast Asia, according to the Nikkei Asian Review.

Based on data from DealStreetAsia, the biggest capital raisers came from diverse sectors in Indonesia, with Tokopedia, Gojek, Kopi Kenangan, and Traveloka securing over USD1bn in funding during the quarter.

Fundnel Indonesia's Country Director, Radith Soeriadinata recently moderated a panel discussion with leading investors and founders in Indonesia, as they explored the Indonesian Playbook for navigating opportunities in a COVID-19 environment.

The panellists

Irzan Raditya · Co-founder and COO,

Marshall Pribadi · Founder and CEO, PrivyID

Nicko Widjaja · CEO, BRI Ventures

Patrick Yip · Founding Partner, Intudo Ventures

Missed the webinar? Check out the replay or read a summary below.

The content below has been summarised and edited for brevity.

What is the one major change that has impacted your business the most because of the pandemic? What measures have you taken and do you plan to take to adjust to that impact?

Irzan: It really goes back to the people. Starting in March we've been putting our people to work from home, becoming pretty much like a remote-first company. It was challenging at the beginning but thankfully, from the day Kata launched, we've applied a policy of work-from-home for two days every week so it was just about turning it into a company-wide policy. That's also changed how we interact with our customers.
Because we are a B2B company mostly dealing with enterprises, during the first two months I would say that it was a big hassle, because none of these big conglomerate groups are accustomed to working remotely. So I think we have to be agile and adaptive with the current situation.

In terms of the business, thankfully as a platform for enterprise software, we can pick and choose the industry we want to focus on. Indeed, some customers in the retail and transportation sector have had to renegotiate payment or for example try to find a mutual agreement. However there are sectors that are thriving. For example, telecommunications, e-commerce and financial services. So we just doubled down our efforts when it comes to commercial and business development related to the sectors that are still growing and thriving.

Patrick: From the investor side, it’s been prohibitive not being able to meet founders for the first time — its one of the things that's important to us, especially in early stage companies. In our line of work, I think it's very important to establish some connection or some chemistry with the founders that you meet for the first time. So obviously with COVID-19, that's made that challenging.

But we run a very concentrated book — we don't invest in that many companies and we are Indonesia-only. Our cadence of investing in companies is only usually just a deal or sometimes two deals a quarter. I think we’ve kept pace at that — during COVID-19 we closed a deal in Q2 another deal in Q3. And with meeting founders for the first time I think now we're slowly starting to get back into it.

Nicko: We did a monthly review on the macro side of the business because I think that there’s a lot to be considered right now. For example, we were about to take on tourism in the beginning of the year and were in talks with a major startup. But with COVID-19, the idea of investing at that kind of valuation was almost impossible. That doesn't mean that we canceled the deal, we just postponed it. That was when we thought COVID-19 would last only three to four months, but now it seems like it would last until probably like mid-next year, so we are considering a lot of different strategies right now for BRI Ventures.

From the data that I have — since 2009 Indonesia has received about USD14 billion worth of investment, spread over 900 deals. On average since 2009, the investment in each startup was around USD40 million. But as we look into 2020, the number of deals is significantly reduced. In 2019, we had about USD2.5 to 3 billion of investments coming into Indonesia. Now it's about less than a billion, from my data.

As a growth stage, Series B and plus investor, it's been quite a challenge for us. We were about to go into funds as one of our strategies, but with the pandemic situation, we shifted our strategy entirely to focus on our Sembrani Nusantara fund.

Instead of us doing a fund of funds to other GPs, we became the GP for the many investors that haven’t been able to invest in quite a good number of deals.

We initially thought that investors would stay away from high-risk profile portfolios, but when we reached out to a few folks, there is a sense of nationalism with focusing on Indonesia, and like Patrick mentioned, it is one of the best strategies that I've ever done, focusing on Indonesia again.

When we launched our first fund back at MDI with Irzan and Marshall as part of my first batch back then, and when we looked into companies in 2015 or 2016, companies like Gojek weren’t even unicorns yet. So we scouted the earth for new technologies to bring into Indonesia, investing in eleven countries. But right now with BRI ventures, Sembrani Nusantara fund, and especially with this situation, it's opened up a new opportunity for investors such as ourselves to kind of look deeper into a recovery.

Marshall: When PrivyID started four years ago, the main hindrance for our growth was the rate of digitalisation of our prospective customers. Selling our products — digital ID, electronic KYC, biometric checking to the government database, issuing digital certificates, digital signatures — to banks, insurance, and leasing companies who were not tech savvy yet was like selling Netflix or Android TV to households that didn’t even have Wi-Fi or internet connections. So it was useless when I talked to banks that did not have the infrastructure yet to process online applications for credit cards, loans or account opening because they were still built on paper-based documents.

But with COVID-19, ready or not, they have to embrace the change.

They have to change now to digital onboarding. Based on existing regulation, all unit-linked insurance transactions must be closed using wet signatures on paper, but now the OJK has given insurance companies the freedom to do it using digital signatures. However, these companies don't have the digital infrastructures set up yet, so we have paused most of our core product development and instead built a total solution for our prospective customers.

Most of the major global insurance companies operating in Indonesia are already using PrivyID. We have provided our customers with a total solution on top of the digital signature and eKYC product by building the web for their bancassurance agents, and for their customers to sign up for unit-linked insurance. For banks, we not only provide our digital signatures product, we also built the frontend of their website to facilitate customer applications, and a dashboard for their underwriters to process the applications which is connected to their loan origination system. We are even helping some major property developers with an apartment purchasing platform, to facilitate their customers in purchasing an apartment up until the signing of the loan agreement for their mortgage. So we’ve sacrificed our core product roadmap to build these solutions for our customers during this time.

Irzan and Marshall, most startups are struggling and some have closed permanently because of COVID-19 in Indonesia. However, there are some businesses like yours that have seemingly thrived during this period.

What plans did you put in place to support this growth, and were these plans already part of your roadmap or were they introduced adjustments?

Irzan: A lot of things had to be deprioritised, and we had to find things that might be helpful for our customers that would eventually be something that opens up a new market for us by using our current product and technology.
At Kata, we've been serving enterprises for the last two to three years. We still are, but right now we are looking at the potential opportunities with SMBs, because everybody's looking for a way to have more digital customer engagement since lockdown and social distancing. Cost-wise, it doesn't make any sense for small businesses to have apps, especially with existing platforms, marketplaces and on-demand e-commerce. But they are looking for a way to control customer interaction channels.

This becomes a new way to catalyse opportunity in helping these small businesses to thrive. I'd like to quote something from Andreesen Horowitz —

“it’s time to build”

By rethinking your proposition for the market, it is not always about growth at all cost but how you can maintain new growth by being profitable. That's been our mantra since day one—we never do things like steep discount pricing or burning money to acquire customers; we're more conscious when it comes to unit economics, to make sure the value we deliver to customers makes sense when it comes to pricing. It helps us to grow, and the customers grow eventually.

Marshall: One of the things that was unprecedented for us has been to spend on advertisements. Historically, we spent almost nothing on advertising since 2015, but when the pandemic hit us in March in Indonesia, we made a very difficult decision.

Digital signatures, digital ID, eKYC can help businesses keep going despite the lockdown and social distancing measures, so we think it's the right time to let people know that we have been in this business for a long time, that we have got big clients—more than five Fortune 500 companies count us as clients for their operations in Indonesia—and of course, also to let enterprises know that we don’t just provide digital signatures during this pandemic, but have a total solution for user onboarding, be they insurance companies, banks or even fintech and leasing companies.

At the beginning of the pandemic, the President issued a decree that banks and financial institutions must provide restructuring packages for their debtors whenever they apply for restructuring. One of the challenges is to process thousands of restructuring applications everyday during the lockdown using traditional hard-copy, paper-only measures. And so we have also built e-structuring platforms for all major financial institutions.

So spending this month has been unprecedented for us—it's ten times up from last year during this pandemic, and of course the pivot was almost like providing internet for a house without an internet connection.

I’m sure some of your companies in your portfolio have been highly affected by COVID-19. What has your advice been, specifically to the ones who are struggling on how to survive this crisis? And once they do, what’s next?

Nicko: If a company is in crisis and it doesn't have enough runway to continue, just shut it down, right? Why roll on the pain? So that's my advice to them. But we do have companies that are navigating through this crisis, especially in the fintech sector, because the central bank has been issuing the restructuring of debt, including banks, financial institutions and P2P. In this case, we have one strong P2P player that was affected quite significantly, but they have enough liquidity to maintain their operations, and we are quite supportive of them.

Every crisis always provides a window of opportunity, and for a CVC under a national bank like ourselves, we are very interested in understanding more about P2P and other instruments that can be the next stage of growth for the bank. For example, we launched our venture debt initiative with Sembrani Nusantara, fully licensed by OJK.

It was probably not the right strategy to launch a venture debt fund prior to this because of high valuations and a lot of money flowing into Indonesia, but now, because valuations are cut and you don't want good founders to sacrifice equity just to raise their inventory, for example, what we have done is to provide loans under warrants, of course. On the other hand, we also have an initiative to channel some of our funds into our portfolio, especially in P2P. When you have customers especially in the fintech P2P sector, you need liquidity, and I think liquidity is becoming our opportunity right now as a new fund. We just started investing this year and I think we are—together with Intudo—the most active investors during this time.

If anything, what COVID-19 is doing to the startup world is creating a correction for the ecosystem.

Patrick: COVID-19 has had a varying effect on various portfolio companies of ours. Like Nicko said, there are some companies that have actually benefited from the change in consumer behaviour as a result of COVID-19. We oftentimes hear about founders taking a pivot, or where they they have to cut costs. A lot of companies are doing that but when we talk about pivoting, one of the advice that we're trying to give our portfolio companies is to do something that can be accretive to their long-term brand or can build equity value to the business. If you're selling coffee, don't all of a sudden sell pyjamas because we're staying at home more. Be more long-term minded in the pivot, because I know this is really the first crisis that the Indonesian tech ecosystem is going through since its inception.

I also had the fortune to witness how the ecosystem developed and see what Nicko did with MDI as one of the pioneers in the venture capital space in Indonesia. But I think nowadays the market conditions are very different. It does require VCs to invest in a very different way compared to say five or six years ago, and at Intudo, it's always been our intent to be in Indonesia only just like Sembrani and BVI.

We are also building this identity of being independent, which has its own merit — we count over maybe 20 Indonesian families as LPs in our fund, so during times like these, one of the things that we do very actively is to encourage a lot of partnerships between the startups that we invest in as well as the more traditional businesses. Because if there was any silver lining in COVID-19, I think it has exposed a lot of the vulnerabilities in more traditional businesses, but it has also become an accelerant in how third or fourth generation businesses could adopt or accept technology as part of their value chain.

BRI Ventures & Intudo Ventures are amongst the few investors who have remained active this year when most have chosen to close their checkbooks. For your current portfolio or potential investees, what additional criteria are you looking at to convince you to make an investment currently?

Patrick: We have this internal discussion all the time. I think the world behaves in a way where if there's a pendulum, it always swings between greed and fear, and right now its maybe more towards the fear side.

Ever since Intudo’s inception in 2017, we have always tried to take more of an even-keeled approach towards investing in startups with a more sustainable business model.

We've always placed emphasis on “value over valuation” — I think it's a very famous quote from Nicko.

We have been trying to do that since inception and that's why 25 percent of our portfolio 20 of companies are actually EBITDA positive. So we have always placed an importance of building a sustainable business model in the startups that we look and I wouldn't say there’s any additional criteria just because COVID-19 is hitting us hard. I would say that we just try to maintain our even-keeled approach, not be too carried away with fear nor with greed when times are good, but keep our heads down and keep at it.

Nicko: Thank you for the quote Patrick, I have to remember that for next time! We are experiencing this trend of embedded finance companies — when you look at Google, they started off as a search engine and they became a financial services company themselves with Alphabet. We are also looking into this emergence of companies like Gojek with Gopay, and Grab with Grabpay and OVO.

What we are looking at right now are the fundamentals of a business and how they can make a leap proposition from one sector to another, where they end up grabbing the whole ecosystem with their business.

We also invest beyond fintech companies because it allows us to look at different sectors, but in the end, they have to converge into financial inclusion, and there's no better time to start looking into an SME platform or financial inclusion than 2020.

Personally, what do you wish to see more of from your investors in terms of support during this time? What kind of support do you think startups need at this point, is it only financial or more?

Irzan: The first one is to maintain trust. It's a tough time for both founders and investors, and building trust requires communication, sometimes over-communication. I would also say trust requires transparency from the founders to tell investors what kind of help they need. One thing I think is very pragmatic and I think cash generating in our case was—when Nicko left MDI, we received a lot of synergistic opportunities with their sister companies and subsidiaries to go to market together. By the time when we were invested by MDI back in 2016, I think the synergistic value had gone up more than 10 times through the collaboration. So I think this is the kind of value that founders should look for from investors.

Talking about transparency on reporting for example, if you are raising funds, seeking an investor who can help get another investor on board or somebody participating in your around and then letting the commercial business open would be super beneficial.

Marshall: Similar with Irzan — trust, and faith. When Nicko made an investment in PrivyID five years ago, it was a very big bet. Who could have ever predicted a bright future for Indonesian SaaS? And this is truly an Indonesian SaaS—we have 200 employees here, and all of our engineering teams are here in Yogyakarta.

There was a very thick glass ceiling for Indonesian SaaS. Please name five Indonesian SaaS which has been used by six out of the six largest banks in Indonesia, be it privately-owned or government-owned banks, six out of the six biggest insurance companies in Indonesia, three out of the three biggest telco operators in Indonesia. Not to mention, Telkom Indonesia, Telkomsel and Bank Mandiri own a stake in PrivyID, and with that fact it was a burden for us to get the other five banks and the other two telco operators to become our client.

What is at stake at PrivyID right now is that we are processing very sensitive data of these clients’ customers. To give you a picture, in February this year, we had almost 200 enterprise clients. As of today that number stands at 600 clients, and we are processing more than 90,000 transactions with signature or ID checking every single day.

What we need now in this unprecedented growth is more money. More and more cyber attacks are directed towards us because we have a lot of precious data — we are processing credit applications, loan agreements, purchasing agreements, supplier agreements, etc. — and we need to upgrade the capacity and capability of our IP security which is not cheap for a firewall with AI capabilities. We also need to upgrade the capacity of our hardware security modules to sustain our transactions per second performance for cryptographic signings, and those investments would we optimal if we don't spend on our marketing too.

What we need the most from investors is faith that we were growing fast in the past year, and with confidence I can say that we are one of the best Indonesian SaaS experts today and we would need more support and more funding to grow bigger and better from this.

Once we adapt to living in a post-pandemic world, would you be more conservative & stick to the basics or would you be more willing to take the risk in ideas that might not be part of your core business / investment thesis?
Patrick and Nicko, which of the approaches would you encourage your portfolio to choose?

Patrick: To my earlier point I think we'll continue our pace and and our perspective on investing. If this thing blows over, we're not all of a sudden going to invest in five companies a month, and your point about focusing on basics—we’ve always placed an importance on that. Series A startups are really our bread and butter so we're not gonna go too crazy either way.
I think we're just gonna stay in the middle lane and keep our heads down and have an even-keeled approach.

Irzan: My favorite way of operating here is

“the best defense is offense”

There's a playbook that I took from LinkedIn which is about the seventy-twenty-ten bucket, where you put 70% of your budgeted investment into your operations on the core product or core market, and set aside 20% related to something still relative to your product or market; it's just a nice touch to grow your revenue or your lifetime value from your customer base.
But there's always the 10% set apart for something that you haven't thought about before, because a lot of innovations come from thoughts so to speak. Who would have thought that Gmail would become everyone’s de facto email client, or Google Maps everyone’s de facto map app? Those products emerged from the 10%, so I think that's a mindset we have — always focus on what we have in hand, but never forget what might be thriving in the future.

Marshall: I think there is no urgency for us to change our grand vision of our product, so we will stick to it. We believe in a vision, but we don't put too much effort on creating a plan to reach the vision because as we learned the hard way, from year to year there will be a need to adjust our plan and maybe in some cases it would be a 100% difference from what we had planned for.

So I think with any kind of event in the world, including this COVID-19 pandemic, something beyond two years is something not worth thinking about for now.

Nicko: Despite COVID-19 being really bad, this is the best time for entrepreneurs to go crazy. You can test any your of your theses and see how they react in this condition now. Without COVID-19, we probably wouldn’t have launched the first Indonesia-based fund.

This is the time to try to push forward new ideas, because everybody is going back to the drawing board right now, and if you're fast enough today, you can really launch your attacks.

Like Irzan says, the best defense is offense.

I was always a moderate investor, meaning I was never aiming at the unicorns. When I was in MDI, I exited quite quickly, and was happy with just 5x or 7x returns, because when you wait, something like COVID-19 might happen right? So to me, whether you're an entrepreneur or an investor, we are at the forefront of innovation and the new economy, and you have to execute fast. We also know that it's never about the tech alone, because technology in the end creates an ecosystem with valid use cases. For example, without Gojek, we probably won't see much empowerment of the drivers, or small business, or growth of cloud kitchens, so this is the time to try things out.

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