Axiata Digital to cut bigger checks, narrow focus on investments in three verticals

Axiata Digital CEO Mohd Khairil Abdullah

Axiata Digital Services Sdn Bhd, a wholly-owned subsidiary of Axiata Group Bhd, is looking to make bigger investments after setting out to focus on three verticals – fintech, adtech and API platforms, said Axiata Digital CEO Mohd Khairil Abdullah.

“We’ve figured out which business models and businesses would generate the greatest value for us. What we’ve now done is that instead of deploying $200 million over 30 businesses, we have decided to deploy a much bigger number to a much smaller portfolio, so the focus will be on three major verticals – fintech, adtech and API platforms,” he told DEALSTREETASIA on the sidelines of Wild Digital 2018 last week.

Axiata Digital was started in 2012 to help the telco business undergo digital transformation via investments in new age businesses. It has since built a portfolio of 30 companies through minority investments and venture builder models.

“A lot were experimentations as $200 million was deployed over 30 companies. Yes, we are drawing capital from the parent company but these portfolio companies have also secured strategic investors. We have exited some, [including] our e-commerce business in Indonesia, a couple of others were shut down, a few were reintegrated back into the core telco business which would allow us to be very focused on our three main verticals,” said Mohd Khairil.

Axiata Digital also has a seat on the board of Axiata Digital Innovation Fund (ADIF) which is focused on investing in tech startups. ADIF has raised RM80 million ($19.8 million) to date, including investments from state-owned investment arm Johor Corporation (JCorp) and government-owned venture capital vehicle Malaysia Venture Capital Management Bhd (Mavcap).

Mohd Khairil said Axiata Digital is selective in making investments. “We find the gap largely at Series A and B rounds. Anything that’s above $2.5 million comes into our radar – we don’t want to do deals that are too small.”

Edited excerpts:

Some telcos in Malaysia are mulling to start a corporate VC arm but so far Axiata is the one that is active.

For us, we experimented with setting up a corporate VC at some stage – but we’re not a VC, ADIF is a VC and it is managed separately. We have a board seat on ADIF but we don’t have veto rights, so it’s managed like an independent fund. But within our direct investment portfolio, I won’t call ourselves a corporate VC – most of the 30 [portfolio] companies were internally built or built with a partner.

Minority investments were made in about four or five companies. We don’t want to be taking too small a stake because then it’s not meaningful for us to invest in the business and try to help it grow. So the three major ones are Boost, Apigate, and ada that don’t have external partners. Our adtech company has done acquisitions, both bolt-on and to scale. We’re the operators and we run the businesses. We used to invest out of a $200-million kitty and now we have a larger investment corpus to focus on the specific verticals.

Why does Axiata Digital choose to focus on fintech? It is a different industry from telecom.

For the longest time, telcos had this thing called call carrier billing and what it does is it charges things to your phone bill. It worked because credit card penetration was not that high in Malaysia. We realised that it is the way to go [for now] but the eventual extension of that is an e-wallet. Whilst banks have done a very good job, the middle-class folks are still largely untouched and have a lot of pain points. On the enterprise side, there are a lot of micro-enterprises that cannot afford a POS system but they all have smartphones. So we decided to go after that segment by becoming a payment service provider to them.

We launched Boost in October 2017. In Malaysia alone, we very quickly grew into a 2.5-million consumer base. And as of end-June 2018, we have about 27,000 merchants in Malaysia alone. These are the people that many financial services providers overlook. There is also a peer-to-peer transaction feature and we are not charging our merchants any fee for as long as they continue to use Boost. Two months ago, we launched micro-financing for Boost and then in Indonesia. The micro-financing loan is RM500 to RM5,000 – no banks are going to entertain these loans because the amount is too small. But with our underwriting engine, it could be done at a very low cost. We want to hit 2 million retail merchants by the end of 2019.

What about the e-commerce business? It’s a capital-intensive business.

We’re very pleased with the performance of 11street. One thing we have decided not to do is to buy into GMVs (gross merchandise value). So how do you do that? It’s by buying traffic to your platform and providing incentives to consumers to make them buy the product. But net revenue may be negative after all these incentives/discounts are taken off. In all cases, that’s not sustainable. We have restructured this and it is now generating positive net revenue, so it’s a sustainable business.

How many deals will Axiata Digital be looking to close this year?

I don’t have a number in mind. With these three verticals, we’re looking at potentially strategic investors that are coming in and actually investing in the portfolio companies; specific areas within our verticals that will help increase certain capabilities that we don’t have right now. I would say that lesser in fintech, but to a certain extent in the adtech and API platform, there are some deals that we’re looking at and we might close them before the end of the year.

Does the political change in Malaysia affect Axiata Digital’s investments?

Yes and no. We cut across so many markets. Unless there is a whole systemic political turmoil across all markets consecutively, but that hasn’t happened since 2008. If a market is down, there are other markets that we could look at. Yes, there is a change of government and there might be some jitters but we can still invest outside, like in Indonesia that is very enterprising and has very little government interference. So far no, we are not affected.

Our core telco business is under a lot of pressure. So we have to digitise the core but also discover assets that are very relevant to the digital economy. And even as a GLC (government-linked company), this is something you need to do — build the future for the industry. Like SMS, it was never changed for 15 years until someone came in with Whatsapp and disrupted the telco space. So the competition isn’t really between the telco players but the disruption that is providing the value proposition to consumers.

Also Read:

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If you are looking at consumer internet, it has to be Indonesia: Axiata Digital

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.