Why ‘Indonesia-only’ Intudo Ventures believes SEA as one cohesive market is a fallacy

When Eddy Chan and Patrick discussed starting an Indonesia-only venture capital firm in 2017, many frowned upon and laughed at them. But nothing could prevent them from launching their dream company, Intudo Ventures, which boasts of being the first VC firm focussing only on the archipelago’s home-grown startups.

Today, Intudo manages three VC funds and has over two dozen investments to its credit, of which one is a unicorn.

e27 spoke with Intudo’s Founding Partner Eddy Chan about the VC firm’s investments, philosophy, opportunities and deals.

Edited excerpts:

What is Intudo Ventures? What was the motivation to start Intudo Ventures in 2017?

Intudo Ventures is the first “Indonesia-only” independent VC firm with an involved/concentrated portfolio approach. 

Back in 2017, if you were to get on Google to search for phrases like ‘Indonesian venture capital firm’, ‘Jakarta-based venture capital firm’, or “venture capital firm in Indonesia’, you would come up with a smattering of results. There were maybe a few pages representing minor snippets of activity in an otherwise unoccupied terrain. 

While there was a handful of VC firms headquartered in Indonesia, none of them took the stance of being ‘Indonesia-focused’ or ‘Indonesia-only’. Instead, they opted for the more geographically diverse mandate of ‘Southeast Asia regional’, jet-setting between Indonesia, Singapore, Thailand, Vietnam, Malaysia, the Philippines and beyond to hunt down founders.

So it is no surprise that many people saw it as more novelty when we decided to create the Indonesia-dedicated VC firm in 2017 that would become Intudo Ventures. 

Looking back to those days, Indonesia was still a nascent market—booming with potential but lacking in concrete results. The country had just crowned its first unicorn with local ride-hailing startup Gojek’s US$1.4 billion valuation. There was a shortage of exits — no one had the money to prove that Indonesia worked. Instead, investors opted to take Southeast Asia piecemeal, believing that cross-border synergies would create a bigger pie for both entrepreneurs and investors.

For us, we believe that regional mandates often compel funds to invest in Southeast Asia as one collective market, underestimating the difficulty presented by fragmentation that such a strategy faces hopping from market to market. 

Instead, we held a contrarian belief in the market that Southeast Asia as one cohesive market was a fallacy and that focusing on one market –Indonesia — would lead to better investment and entrepreneurial outcomes. It was a simple matter of common sense for us.

Also Read: Of COVID-19 and funding winter: Why these 2 VC firms are bullish about SEA amid back-to-back crises

Based on the characteristics of the market, at the outset of creating Intudo Ventures, we believed that a successful Indonesian VC firm would need to demonstrate the following characteristics:

Dedication to the Indonesian market: As the biggest and most consequential market in Southeast Asia, success in Indonesia is paramount for success in Southeast Asia. By focusing on Indonesia, we can concentrate our resources to maximise value for our founders and investors, more effectively source and secure deals through reputation and network effects, and become a go-to partner for global capital wanting exposure to Indonesia. Very few companies can be successful in Southeast Asia without going through Indonesia.

Owned and operated independently of any external group: Indonesia’s VC market has traditionally been dominated by local conglomerates and their associated families and state-owned enterprises, in each case, which exerts sway over major portions of the economy. 

As an independent firm, Intudo can work with a diverse group of conglomerates to help them navigate the Indonesian digital economy and create diversified value for founders to connect them with corporate partners. This is why Indonesia’s more than 30 most prolific families and their associated conglomerates have come onboard as Intudo LPs, building synergies between our investors and our founders, allowing everyone involved to become more significant than the sum of our parts.

Globally connected with access to smart capital and elite talent: Indonesia has always been off-the-radar of global capital; even today, it is still considered exotic for many institutional investors. It is still to this day a non-consensus market. 

However, in 2017, we believed Indonesia could be the next emerging market success story based on historical trends and on-the-ground dynamics. By building up awareness of Indonesia among international investors and acting as a beachhead for global capital, Intudo could provide global capital for our founders and create unfair advantages within our portfolio for future financing. 

Based on this strategy, 30-plus leading global funds and managing partners, including ten global Forbes Midas List VC investors, have joined us as LPs to gain exposure to Indonesia. 

Moreover, nearly a third of our founders were sourced from overseas through our Pulkam S.E.A. Turtle founder recruitment strategy. To this date, we are the sole Indonesian homegrown VC firm with a global presence in 1) Silicon Valley and Indonesia.

Able to make concentrated bets on a small stable of companies at an early stage: To have a seat at the table and provide meaningful value to founders, we knew that we would have to focus our efforts on a select group of companies. Indexing deals is great for accumulating logos, but it means that efforts are stretched out among many companies, and returns are diluted after several financing rounds. We wanted to be a trusted partner for Indonesian entrepreneurs from the first check all the way through IPO.

These four characteristics would make for a powerful mandate and is a fantastic technical way to build a firm. 

However, we are running a business driven by people and character. We wanted to build something that would be both unapologetically Indonesian. More importantly, we represent the spirit of our core values not only as investors but also as people. We decided upon the amalgamated word ‘Intudo’. It is a stitched-together combination of the Bahasa Indonesian words representing the firm’s core values of integrity (integritas), sincerity (tulus), and serendipity (jodoh). 

These three ideals embody the spirit we aspire to achieve in everything we do — from the managing partners, team members, advisors, and advocates. We also look for these characteristics in the founders that we back.

Why is there an emphasis on ‘Indonesia-only’? Why don’t you expand to other SEA markets?

“Indonesia-only” is a common-sense proposition; we exclusively back Indonesian homegrown companies. When we talk about Southeast Asia’s economic growth and market potential, what we’re talking about is Indonesia is pure and simple. It is the elephant in the room for many corporations and investment managers operating in the region due to its sheer market size, vibrant consumer base, and opportunity for generating outsized investment returns.

Also Read: Indonesia-only Intudo Ventures hits final close of Fund III at US$115M, to back 12-14 firms

From a macro perspective, the numbers say it all. No matter how you slice it, Indonesia makes up more than 35 per cent of the region’s GDP, 35 per cent of economic growth, and 35 per cent of the region’s population. 

With no other market in Southeast Asia even coming close in terms of market share, businesses and investors cannot claim to be covering Southeast Asia as a region without a significant commitment to Indonesia.

It is a market with both scale and momentum. With its young population of 270 million and growing, Indonesia has a domestic consumer market dwarfed only by China, India, and the US. Over the past few decades, Indonesia has experienced a massive poverty reduction, dramatic urbanisation, strong income growth, and an increasingly affluent middle class. Alongside significant regulatory reforms, this has created comfortable conditions for cultivating startups and the digital economy.

Non-Indonesian homegrown deals in the region are not in our mandate. Generally speaking, we have the flexibility to cover companies that become regional over time. However, our baseline is derived from the company’s headquarters in Indonesia. As we take relatively concentrated positions among our portfolio companies, we want to be sure that we are creating the greatest possible value for our founders and investors by focusing on what we do best, Indonesia.

Who are your LPs?

Black Kite Capital: Singapore-based family office of Koh Boon Hwee;

Wasson Enterprise: US-based family office of former Walgreens Boots Alliance CEO Greg Wasson;

PIDC, the investment arm of Taiwan-based international food/beverage and retail conglomerate Uni-President Enterprises Corp;

30+ of Indonesia’s most prolific families and their associated conglomerates;

30+ leading global funds and managing partners—including ten global Midas List investors; and

20+ tech unicorn founders.

What is your average ticket size? Has it increased over the years?

Seed/pre-Series A: US$1-3 million; 

Series A: US$3-8 million; 

Series B and beyond: US$8-25 million.

Our ticket size has gradually increased over the years with the maturation of Indonesia’s venture landscape. Larger tickets have allowed us to put more skin in the game for our founders and enhance concentration among breakout deals.

What are your key focus verticals? How many investments have Intudo made so far? Has any of your portfolio companies become unicorns?

Intudo Ventures is investing in industries poised to define the future of Indonesia, driven by the dual economic engines of private consumption and digitisation. We actively seek opportunities in agriculture, B2B & enterprise, education, finance & insurance, healthcare, logistics, and new retail & entertainment.

Also Read: Funding winter: VCs ask startups to focus on corporate funds from developed countries

In six years, we’ve invested in a total of 25 companies, as we generally try to adopt an even keel approach and invest in 4-6 new companies a year in bull (greed) and bear (fear) market cycles.

Xendit is an Intudo portfolio company that has become a unicorn.

How many funds have you launched so far? Can you share the sizes and their respective investments in Indonesia?

Intudo manages three Indonesia-dedicated venture funds.

Fund I – US$20 million (2017 vintage)

Select deals include: Xendit, Pintu, and BeliMobilgue (acquired by OLX Autos), Kargo.

Fund II – US$50 million (2019 vintage):

Select deals include: Xendit, Pintu, Kargo, PasarPolis, and Halodoc.

Fund III – US$144 million (2021 vintage):

Select deals include: Xendit, Pintu, Pinhome, Nalagenetics, Populix, and Andalin.

How does Intudo pick startups for potential investments? What are the different criteria that you look for in them?

Intudo is not a trend-driven investment firm; we believe companies make trends rather than trends make companies. This is reflected in our backing of many non-consensus overlooked companies over the years. 

We focus on sectors that we and our LP network can deliver tangible value before and following the investment process. Companies that operate in non-consensus, overlooked and underfunded sectors can develop multiple moats due to their unique business models, access to specialised resources and networks, leverage technical advantages to attract talent and customers, and have stronger operational and economic fundamentals that lead to profitability. What may be non-consensus or overlooked today will likely create new company categories and industry leaders—and we see that already in our portfolio.

Indonesia’s regulatory and business landscape remains highly dynamic as an emerging market. It presents opportunities for companies to change how people do business and live their lives by filling significant unmet needs and creating a reliance on their products and services through compelling value-add. In this spirit, Intudo Ventures aims to invest in companies that build powerful “moats”—businesses that leverage unfair advantages to amass market position and gain category leadership.

Some types of moats we look for include:

Commercial distribution: Companies that develop offerings with immense “stickiness” or intellectual property advantages, causing customers to be operationally dependent upon their products and services.

Regulatory: Companies that operate in heavily regulated spaces and have received or are soon to receive official licensing to become critical partners for private and public sector customers.

Deeptech specialisations: Companies that adopt deep-tech as a core component for their business, allowing them to attract the unique human capital to join the team and making their offerings difficult for others to replicate.

With our focus on moat-driven businesses, Intudo Ventures aspires to invest in three categories of companies. They include non-consensus companies early in overlooked and underfunded sectors; emerging category leaders demonstrating breakout potential and establishing strong moats and profitability, and undisputed category winners on a trajectory to define entire segments of the economy.

Globally, Intudo Ventures aspires to bring Indonesia to the world—while bringing the world to Indonesia. The firm is highly active in the US through Intudo’s Pulkam S.E.A. Turtle Fellowship, closely mentoring aspiring Indonesian founders, sponsoring and hosting major university and industry events, such as the annual Harvard Asia Business Conference, MIT Asia Business Conference, Southeast Asia MBA Weekend, weekly discussions with Indonesian professional and student associations, and visits with Indonesians at top tech companies in Silicon Valley. 

As a result, Intudo has sourced one-thirds of its deals from university campuses and tech community engagement in the United States through the firm’s three funds.

What is more critical for a startup to get your attention or funding — the team, product, market or something else?

For the seed to pre-Series A investments, we are investing mainly in the talent of the founding team and the initial level of traction. Some of these investments may be considered ‘non-consensus’, meaning they are building models entirely new or unique to the Indonesian context. 

Working with Intudo, companies at this stage (even before term sheet discussions) can receive hands-on mentorship, sign business contracts with Intudo-sourced partners, and build fundamentals to help them raise future financing rounds. We have subsequently co-led the Series A rounds of several of our early plays as they have proven their business models.

As we get into Series A investments, our focus shifts to companies where we believe in their potential to become category leaders, where they have the possibility one day to dominate their respective verticals or transform entire industries. We can boost these businesses by sourcing key talent, helping them in distribution and business development opportunities with domestic and international corporate partners, and gaining access to global capital.

For Series B and beyond, we are only looking for proven consensus winners who are already achieving escape velocity and are on a trajectory to claim dominance in one or more sectors. As we do for our Series A companies, we can boost these businesses by sourcing key talent, helping them in distribution and business development opportunities with domestic and international corporate partners, or gaining access to global capital.

What opportunities do you see in Indonesia? How has the market grown over the years?

Indonesia’s startup industry is entering a maturation stage, where capital, talent, and ideas are more abundant than ever. The influx of global capital has changed the game, with more investors looking at the market. We are seeing more capital and talent being recycled into the ecosystem, creating new companies and opportunities for growth.

For Indonesia, the underlying dynamic is digitisation and transformation of traditional industries—a process that has only accelerated with the pandemic and correlating economic fallout. Whereas technology enablement was historically a nice-to-have for companies of all sizes, post-pandemic, it has become a must-have. There will be a continuation in the scaling of pick-and-shovel foundational businesses such as payments, logistics, and enterprise services to support e-commerce and key traditional economic sectors.

Digitisation is happening across the Indonesian economy, ranging from conglomerates, the government, SMEs, and small mom & pop businesses. We have witnessed this throughout our portfolio in the sectors in which they operate. Consumers have also flocked to digital offerings throughout the crisis, and many will continue to adopt technology to meet daily needs. This dominant trend will continue to be the driving force for the Indonesian venture market for the foreseeable future.

However, as optimistic as we are about the future of Indonesia, it has been a long journey to get here. Over the past decade, Indonesia has gone from a venture capital backwater to becoming one of the most compelling emerging markets for investors. 

For fundraising, founders had few options, with only a few mainstay firms to choose from at the early stage and even thinner in growth. From an investor landscape perspective, Indonesia has evolved from a market dominated by corporate venture capital firms (CVCs) and regional fly-in investors to one where local investors have begun to dominate the landscape and gatekeep access to the market. Talent, still cited as an issue today, was even more scarce.

Awareness of Indonesia among investors has grown dramatically. When we started as a firm, some investors even laughed at us for the notion of setting up a firm to invest exclusively in Indonesia. We had to spend hours educating potential investors on Indonesia, including what now feels like basic market knowledge. Those days are gone.

Founders are now blessed with an abundance of options. Capital has become a commodity through the maturation of Indonesia’s venture market. With the market flush with capital, founders now want more than just money. Unless it is a global firm with significant brand power and know-how, founders expect their investors to offer concrete value-add deliverables—in particular in-country resources, access to customers and regulators and hands-on guidance. Gone are the days of fly-in fund managers.

 

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