Did you know 38 per cent of all corporate venture deals happened in Asia?
My company, MDI Ventures, is a US$140 million corporate venture capital (CVC) firm backed by Indonesia’s largest state-owned telecoms conglomerate Telkom Group.
The firm, which has been around since 2015, refers to its fund as ‘evergreen,’ meaning each year Telkom Group may replenish or increase the size of the fund depending on market conditions. To date, we are the largest such fund for startups in the archipelago.
Today, I aim to update a variety of public misconceptions about corporate venture capital that have for years permeated the global market.
Recent data shows that 2018 saw a bona fide surge in CVC activity worldwide. The second quarter alone clocked a record 757 CVC deals and US$14.1 billion in funding. For the whole year, there were 2,740 deals on record, while roughly US$53 billion was disclosed in CVC funding for tech startups. This is a staggering increase from US$36.1 billion the year before.
Asia attracted 38 per cent of all CVC deals in 2018, up from 31 per cent in 2017. In the third quarter, Asia overtook North American deal share for the first time. CVC accounted for 38 per cent of all disclosed funding for tech startups in Asia.
Yet despite CVC playing an increasingly important role in tech ecosystems around the world, some stakeholders feel that there exist a slew of erroneous perceptions about the model itself. Here are just a few.
Myth 1: CVC firms are slow, bureaucratic, and lack autonomy
“A lot of startups and investors in Asia think that we are controlled by Telkom Group, and therefore must do its bidding, but this is not true,” explains MDI Ventures’ CEO Nicko Widjaja. He adds that our firm is an independent entity with a fully autonomous team and decision-making processes.
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Widjaja says, “We actually offer startups the best of both worlds. Founders get capital injected promptly after raising a funding round from us. CVC firms like ours have the cash on hand to make these moves quickly after term sheets are signed. Founders also get a real bridge and network in the corporate world, a place they must go for clients and partnerships if they hope to achieve meaningful scale and success. Both of these are things that most other local VCs cannot claim truthfully.”
Myth 2: CVC funds are off-limits to new investors
Our head of investor relations and capital raising Kenneth Li echoes Widjaja’s sentiment. According to him, Telkom does not dictate who the firm hires or which startups it invests in. Telkom Group is also not the only institution that can put its faith and capital in our hands.
“One key point that we want to get across is that our fund is actually open for other local and global investors to come in as limited partners,” explains Li.
“These are often institutions that seek to invest and participate in Southeast Asia’s tech boom and we help them capitalize. MDI Ventures is not just set up to invest on behalf of one corporate. We’re open to co-investing with other VCs and we’re actively welcoming other strategic backers to the fund.”
Myth 3: They only hire from the corporate world
On the HR front, the firm’s VP of Investments Joshua Agusta says that the team also recruits members on a “pro hire” basis.
“This means that we prefer to work with folks who have real experience and culture fit with startup investing and a proven track record in the region,” says Agusta. “They are not usually people from unrelated sectors in the corporate world.”
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He adds that in our case, the current core team members do not come from corporate backgrounds. The company has a distinct culture and prudence in building its investment thesis and strategic direction.
Myth 4: CVC money does not perform well
While many CVC funds in Southeast Asia have tried and failed to bridge the gap between corporates and startups, MDI Ventures can claim it is the only one to have succeeded so far. Through the tech companies it has invested in, the firm has been able to cut costs (in one case by as much as 80%) and create close to US$100 million in new revenue streams for Telkom Group, while also providing key market access to the startups.
The CVC firm has seen two of its portfolio investments exit via IPO and M&A in the span of three years, with multiple more exits expected in 2019. The team says one of its portfolio companies has the potential to become a ‘unicorn’ (reaching a US$1 billion valuation or higher).
Widjaja adds, “This notion in the market that corporate venture capital is slow, bureaucratic, and unwise money is a stereotype that we really hope to dispel today. In our case, it couldn’t be further from the truth.”
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Photo by Samson Creative. on Unsplash
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