MDI Ventures, the corporate venture capital (CVC) arm of Indonesia’s state-owned telco Telkom Group, made headlines earlier this month after closing a new USD 500 million fund, making it the largest multi-fund CVC firm in the country, with more than USD 790 million in assets under its management.
The fresh funds will be used to support Indonesia-focused tech startups and accelerate the digital transformation of Indonesia’s state-owned enterprises (SOEs), according to the firm.
“These startups will furnish state-owned companies with value-added digital services that will help them adapt to a rapidly changing business landscape in Indonesia,” said MDI Ventures CEO Donald Wihardja to KrASIA.
MDI Ventures was founded in 2016 and it has invested in more than 44 startups since then, opening new digital revenue channels and synergies for Telkom Group. Some of the companies under MDI’s portfolio are fintech firm Kredivo, insurtech platform Qoala, and smart city startup Qlue. In May, Wihardja was appointed as its new CEO, replacing former head Nicko Widjaja who left in 2019 to lead BRI Ventures.
Wihardja is a familiar name in Indonesia’s tech startup community. He co-founded Convergence Ventures (now AC Ventures) in 2014. Previously, he held roles in multiple Indonesian tech startups, such as e-commerce payment provider 2C2P and gaming payment solution firm Indomog.
According to Wihardja, MDI Ventures has eight profitable portfolio exits so far, including Melbourne-based Whispir’s IPO on the Australian Securities Exchange (ASX), Naspers’ acquisition of Red Dot Payment at a valuation of USD 65 million, and the acquisition of Singapore-based cloud communications platform Wavecell by US-based 8×8 in a deal worth around USD 125 million.
The collaboration with SOEs gives startups a chance for potential exits in the future, Wihardja said in an interview with KrASIA, where he also discussed MDI Ventures’ investment strategy and future plans.
KrASIA (Kr): You joined MDI Ventures in May 2020 after more than four years at Convergence Ventures (now AC Ventures). How did you get appointed as CEO of MDI Ventures?
Donald Wihardja (DW): I’ve been in the venture capital industry for quite a while as I started Convergence Ventures in 2014, when there were only a few VC firms in Indonesia. In fact, I had been helping startups to raise funds long before then—since 2008, when I worked at a private equity firm. I’m also quite close to people in several ministries because I often introduced tech startups to them.
A few years ago, I worked with former IT minister Rudiantara for the Next Indonesian Unicorn (NextIcorn) program, which aims to boost the emergence and growth of local startups. As a corporate VC arm of a state-owned enterprise, MDI Ventures was looking for someone with a high level of seniority and deep experience, able to deliver capital gains for its parent company as well as to drive income gain and increase synergies between tech startups and Telkom.
I was contacted by Telkom earlier this year to meet the group’s board of directors. I was very keen to join because MDI has a unique mission to actively pave the way for startups, by connecting them with Telkom and SOEs.
Kr: Based on your previous experience with AC Ventures, what are the differences between leading a private VC company and an SOE’s venture capital arm?
DW: Since we manage state money, which means people’s money, we have to be very cautious and transparent in every move. All the paper trails have to be very clear and detailed. We are audited every year and must receive investment clearance from our counterparts in Telkom for every funding we make. Not only do we have to be able to multiply the USD 500 million and give it back to Telkom Group and the government, we also have to increase synergy and revenue value between Telkom, the government, and startups. Fortunately, Telkom Group has about 40 subsidiaries and its own strategic portfolio department, so they understand the concept of startup investments very well. They also have a vast network of business partners in the private and government sectors, so we’re complementing each other nicely.
Kr: How does the partnership between MDI’s startups and Telkom Group work? How big is MDI’s involvement in those collaborations?
DW: Before we make an investment, we introduce potential startups with Telkom and its subsidiaries to explore collaboration opportunities.
One thing for certain, the partnership benefits both parties. Telkom gets new revenue streams while startups have a chance to tap into Telkom’s network, boost their growth and revenue, which eventually increase their valuation. However, although we provide them with an opportunity, a successful partnership is not guaranteed. Over time, not all of those collaborations work well. Some are not successful and that’s okay.
Our vision at MDI Ventures is to build synergies between startups, Telkom, and other SOEs to encourage digital transformation in those companies. We want to leave a legacy in Indonesia. SOEs play an important role in the country’s economy, so helping them to progress with digital innovation will have a big impact on the nation and society.
Kr: How is the COVID-19 pandemic affecting MDI’s investment and exit strategy?
DW: I think the pandemic is accelerating digitization in Indonesia, up to three years. Some of our startups in the fields of e-commerce, logistics, and digital entertainment saw a triple jump in growth within three months, which is incredible. However, there are also some companies in our portfolio struggling due to this unexpected situation and changes.
The pandemic is a defining moment that tests the agility of startups. Some have managed to pivot and continue to run, while some have shut down operations.
In terms of investment, Indonesia, in general, has always been seen as a “darling” for foreign investors due to its growing digital economy. Nonetheless, I see that there is a little concern from them now due to the pandemic and possible economic slowdown. We are pretty fortunate because we are a state-owned corporate VC firm. Our parent company is well aware of the importance of digitalization in boosting the nation’s economy, so our investment remains stable and there is no significant shift in strategy.
Kr: Please tell us your plan for the new USD 500 million fund. What kind of startups will MDI invest in?
DW: With the new fund, we are given an even bigger mandate than before. While MDI previously focused on collaborations with Telkom Group, now we are expected to strengthen synergies with other SOEs as well. We’ll work with the Ministry of State Owned Enterprises to pave the way for strategic partnerships so we can accelerate digitization, especially in conventional companies.
MDI 500 is exclusively for late-stage series with a ticket size of USD 20–30 million per company. We’re looking for companies whose products have been tested and well accepted in the market, with good traction, as well as strong business and revenue models. We prefer to invest in later-stage companies as we want to make sure their products are reliable to implement in our SOE partners.
Kr: What kind of digitization do MDI Ventures and Telkom encourage for SOEs? Indonesia currently has more than 100 SOEs, are you planning to work with all of them?
DW: We prioritize companies in certain sectors related to consumers like logistics, health, and more. As the market is quickly shifting toward digital-first experience, transformation is crucial for companies in such industries. The collaboration takes various forms, ranging from digitizing payments or digitizing certain operational aspects of a company.
Major SOEs have been adopting digital innovation over the past few years. For instance, state-owned banks have released their own online banking platforms and they also integrated their e-wallets into one app—LinkAja. Telkom itself has introduced various digital initiatives and products such as the “Smart Village” program in a number of small towns in Java, as well as e-parking solutions to curb illegal parking.
MDI Ventures serves as a bridge between these startups and SOEs. We have a dedicated team to understand the pain points of SOEs and find out which startup has the most appropriate solution to address those challenges.
We are currently exploring the possibility of collaborating with different companies. Our startups have previously collaborated with a number of SOEs, such as Bank Mandiri and BRI, as well as oil and gas company Pertamina, and pawnbroker Pegadaian.
Digital transformation is one of Telkom’s main focuses today. The appointment of Fajrin [Rasyid], co-founder and former president director of Bukalapak, as digital director of Telkom Group and chairman at MDI Ventures further strengthens this commitment.