By Donald Wihardja
The public may not have realized this, but modernizing Indonesia’s state-owned enterprises (SOEs) via tech has always been the mission of Telkom Group, and this mandate is baked into the foundation of MDI Ventures.
Back in 2015, Telkom launched MDI Ventures with a KPI to deliver synergy between emerging tech startups and Telkom Group itself. Over the years, we’ve proven our ability to deliver revenue to our parent company, as well as valuation growth to our portfolio of startups. Now, five years on and with the full weight of the Jokowi administration’s Indonesia 4.0 vision behind us -- and with US$500 million in fresh capital -- we’re extending Telkom’s mission to now digitize other SOEs via tech startups.
But first, let’s view the current landscape. The pandemic has impacted businesses all over the world, across nearly all sectors, and Indonesia is no exception. Out of the many lessons learned during this crisis, one of the highlights has been the importance of a robust digital framework that ensures business continuity and sustainability. The government itself learned this via crash course.
According to a June 2020 report by McKinsey, there’s been a predictable online shopping spike in Indonesia and the trend is expected to prevail even after Covid-19 subsides. Close to 60% of all local consumers have tried a new digital shopping method this year so far. It should come as no surprise that amidst the pandemic, consumers have adopted new low-touch alternatives to their daily routines, such as remote learning, telemedicine, online fitness, and others which are also expected to continue.
Before the pandemic hit, the archipelago’s corporates were making strides toward digitization. In recent years, the government launched a number of initiatives, including “Making Indonesia 4.0,” an e-commerce road map, and more. But despite an ambitious vision to become the largest digital economy in ASEAN, there wasn’t ever such an urgency to transform big businesses like there is now in 2020.
Digital maturity for SOEs
2019 data shows about 62% of the Indonesian population accessed the internet from their mobile phones and this figure is expected to grow to over 87% by 2025. With ever-increasing smartphone usage, digitization is no longer a choice for some companies. In a country where tech-savvy millennials make up 24% of the nation, a robust digital economy is an absolute necessity to future-proof the economy at large.
In Indonesia’s US$1 trillion economy, SOEs account for around 13% of GDP and 25% of the stock market. When Covid-19 hit, many businesses, shops, and restaurants began to suffer, but e-commerce and food delivery services managed to double (or even triple) their performance to pick up the slack. Many of the nation’s digital startups are large, mature, and have proven that they’re more than ready for prime time. They can play a valuable role in helping our nation embrace a digital future.
However, according to an AT Kearney study, as compared to local and global digital leaders, state-owned enterprises in Indonesia have relatively low “digital maturity.” This is where startups can step in to help.
To tackle the impact of the coronavirus, the Indonesian government set up a Covid-19 Handling Task Force and the National Economic Recovery and Transformation Task Force that puts Indonesia’s SOEs at the forefront. To survive and flourish in a post-pandemic world, our SOEs can no longer view tech startups as threats to their core business, or annoying competitors that need to be stamped out. Instead, they need to embrace innovation and digitize their operations to survive, sustain, and grow.
Synergy doesn’t have to be a buzzword
State-owned corporate transformation efforts have been in the works for a few years now. BRI Ventures and Mandiri Capital are focusing on fintech and adjacent verticals. Some state-owned banks have released their own tech innovations such as app-based lending platforms for SMEs. Some of the key fintech startups in the country, including Privy, Oy, LinkAja, and ModalRakyat have collaborated with state-owned banks to bring legacy processes online and help consumers have better experiences.
In July of this year, digital payment platform LinkAja reported strong growth propelled by robust collaboration with SOEs, assisting 466 traditional food markets in around 22 Indonesian cities. The app helped them transition to a digital way of work. LinkAja connected over 234,000 merchants to their non-cash payment platform in less than two years.
The app’s ties to SOEs have proven essential in propelling it to the front of Indonesia's fintech sector, especially as Covid-19 has pushed customers and businesses nationwide toward cashless transactions. Top-up transactions from LinkAja users have increased two-fold since the outbreak and the platform has recorded a staggering 700% growth in transaction volume.
SOEs directly impact large swathes of the population and if they’re made more efficient with tech, Indonesians will feel the difference. There are six key spaces we are focusing on right now: healthcare, logistics, commerce, travel, fintech, and food. The latest online retail boom has highlighted which e-sales sectors truly work and what kind of startups can successfully ride the stay-at-home wave. Logistics (think e-commerce package delivery) and fintech (think lending, payments, and insurance) have witnessed growth as a direct result of the pandemic.
Healthcare is bringing about all sorts of new case studies, too. We recently invested in a telemedicine startup called Alodokter. When Covid-19 swelled in Indonesia, locals predictably became 2x more likely to utilize telemedicine, rather than in-person doctor visits. The price of an online consultation is a mere fraction of what it costs patients to go into a doctor’s office (approximately 12% to 15% of the usual rate). Our country’s Social Insurance Administration Organization (BPJS) system was already strained before the crisis hit, so companies like Alodokter have emerged as apex avenues for state-owned initiatives like BPJS and government-backed clinics.
During all of this, MDI Ventures has been creating symbiosis between our country’s most mature startups and companies within Telkom Group. We’ve already synced MDI’s portfolio with over 40 business units. This includes healthcare, fintech, mobile, fixed broadband, games, and more. The direct result since 2015 has been more than US$100 million in new digital revenue for Telkom. We believe that’s just the tip of the iceberg.
Returns as a byproduct
Likewise, the returns we’ve generated for Telkom through our investments also count as new revenue. We’ve booked back-to-back exits for our portfolio in recent years. These include Melbourne-based Whispir’s IPO on the ASX, Naspers’ acquisition of Red Dot Payment at a valuation of US$65 million, and the acquisition of cloud communications platform Wavecell in a deal worth approximately US$125 million.
Telkom Group not only got its money back in terms of continued revenue growth, but we also delivered profit in the form of capital gains from exiting our investments. That said, MDI’s exit from a startup doesn’t stop the revenue that Telkom Group continues to reap. So the entire maneuver results in a win for everyone.
We view state-owned alliances in Indonesia and straight-forward capital gains as two important parts of a promising whole. That's why we’re inviting limited partners from all walks of life to join our now diverse array of funds. Limited partners win via capital gains. Telkom wins via continued revenue and efficiency, without having to keep adding capital to the fund. We currently have three funds that are open to institutional backers, corporate players, and high-net-worth individuals.
The idea here is to see if we can become the powerhouse of digital transformation for all SOEs in Indonesia. For it to work, local corporate leaders need to also be open to letting MDI Ventures in the front door, so that we may listen and understand which legacy pain points can be solved with new tech. From there, we’ll do what we do best: invest, partner, rinse, repeat.
Donald Wihardja is the CEO of MDI Ventures, a US$790 million+ multi-fund venture capital arm of Indonesia's largest telecoms company Telkom Group. It is one of the best-performing tech investment funds in Asia.