Lessons from Bukalapak’s journey to a blockbuster IPO and beyond

DealStreetAsia's ASEAN research head Andi Haswidi (left) with Bukalapak CEO Rachmat Kaimuddin at Asia PE-VC Summit 2021

With its record $1.5 billion initial public offering (IPO) earlier this year, online to offline marketplace Bukalapak has become a bellwether for technology startups seeking to list in the country.

At the recently concluded Asia PE-VC Summit 2021 [Sept 28-Oct 1], Bukalapak CEO Rachmat Kaimuddin answered wide-ranging questions about the company’s run-up to the IPO, including the challenges it faced, and its performance as a public company so far.

“The task for us is to continue working very hard to grow the company, improve the numbers and the performance, and communicate the progress periodically. I think if we do a good job, the market at some point will reward that progress with the share price,” he said, in response to a question on Bukalapak’s tepid stock performance. [Note: Bukalapak made a stellar debut on the IDX on August 6, 2021, with its shares opening 24.11% higher than the IPO price of Rp850 apiece. Its shares closed at Rp1,060 after touching the bourse’s 25% limit on debut day. However, since opening day, Bukalapak’s share price has dropped 31.13%. The stock closed on Oct 15 at Rp730].

Kaimuddin also spoke about the way ahead for the company, including its planned expansion into tier three and four markets in Indonesia, plans to capitalise on alliances with Emtek and Grab, and growing its financial services business.

Edited excerpts of a fireside chat with Kaimuddin:

The Bukalapak IPO was a significant milestone for Indonesia’s tech ecosystem. Many argued that your IPO would set the tone for upcoming tech IPOs. Can you tell us your journey leading up to the IPO? What kept you awake at night, and what were some of the lessons learnt?

The goal – the north star, if you will – for us was that we wanted the IPO to be successful. It was important for the company, but we also realised that this IPO would be a benchmark for the tech industry, especially in Indonesia. There was a little bit of burden for us to make sure that it was successful because the impact would not only be for us but also others.

People might think the IPO is just a regular process. However, this IPO was the first in so many ways – for us, the regulator and the appraiser. We’re glad that we managed to complete the IPO within the timeline that we set and within the existing regulatory framework. Externally, given the nature of the business, the scale of the deal, the stage of the company, we kept learning along the process.

What is interesting about this IPO is despite our efforts to keep it relatively low profile, there was a lot of excitement and noise. Our focus was to make sure that we do the process properly.

So, what kept me awake at night? [It was questions like] Do we have the necessary approvals and infrastructure, the GCG [good corporate governance] and documentation? Have we made the necessary correspondence and communication? And most importantly, have we explained our story properly to stakeholders?

A few things that we learnt from this experience. The first one is that is it important for us to be true to ourselves. We are an Indonesian company, and we have a mission to empower SMEs in Indonesia. So, what we do is we told the story about what we have been doing and what changes we have made. Given the shift in the industry, we decided that we want to list in Indonesia, even though some people say that may not be suitable for a unicorn. But at the end of the day, we said to the team, “We cannot be other people – we can learn from them, but we can only be a better version of ourselves.”

Another thing is that we had extensive communication with the stakeholder within the regulatory framework. That was challenging as well because if you do the IPO process, you theoretically should not announce it until effective. So there was the [matter of] timing and the data that we could give, so we had to wait. We could not directly address this noise. So, we did informal communication keeping all the critical info confidential but explaining our story to the public.

Once we had the prospectus, then we went out, and we explained that. Managing that was also quite a bit [challenging]. I wish I had more than 24 hours a day to speak to more people.

You must have considered SPAC in the beginning. What made you not take that route?
We needed to think about what is the most suitable for us given our situation. It’s our job to consider all possible avenues to raise capital. At the time, we thought that doing IPO for Bukalapak is doable in Indonesia, and we proved that it could be done.

Is a second listing a possibility for Bukalapak?
We are listed in Indonesia. I would not say it is impossible for the other listing. If there is something that we need to announce to the public, we will in due course.

When we go back to the first day of trading, Bukalapak stock price jumped, and many of us in the media suspected that this would happen because traders may push the price up. As a result, many retail investors ended up being disappointed in the next few days because the price dropped. How do you go about instilling confidence among retail investors? 

I would share a bit of what happened during the IPO process. When we prepared this IPO, there were a couple of things that we tried to do to make sure that this was a good IPO.

First, to get high-quality long-term investors in our order book. We managed to negotiate a voluntary lock-up agreement with our pre-IPO shareholders. About 95.5% of the pre-IPO shares are locked up for eight months. We had to negotiate this with the existing shareholders because, legally, some are allowed to sell [their shares].

We have to remember that Bukalapak is the largest IPO in the history of Indonesia, with about $1.5 billion raised from 25% new shares of the company. From a numbers point of view, it is difficult for us to imagine someone who can corner the market. This is a very liquid company. There is always volatility as well as trends. At that time of the IPO, there were almost 100,000 investors pooling about 1.1 trillion rupiah. This is probably a learning mechanism for the market.

That said, we have been listed for less than two months. We also have seen examples from a few big innovative tech companies where the stock price takes a little bit of time, maybe even a couple of years, to stabilise and then grow. The task for us is to continue working very hard to grow the company, improve the numbers and the performance, and communicate the progress periodically. I think if we do a good job, the market at some point will reward that progress with the share price.

Can you tell us about the utilisation of the IPO proceeds so far?

We have published our numbers until Q2 so far, which did not include the IPO proceeds. We typically use maybe about $100 million a year. After two months, most of the money will still be in the bank, and we will report it in the Q3 results. The funds obtained from the IPO will be allocated for working capital, which will be used to grow the company.

Before the IPO, you mentioned that some of the proceeds would go towards helping Bukalapak expand beyond tier one and two cities. Where are you are in terms of expanding and what are the major obstacles in moving to tier three and four cities?

At the end of the day, what we are doing is to focus on the underserved markets. The way we are thinking about that is we need to find other methods. The interesting thing in Bukalapak is that we actually not only have our e-commerce or online marketplace, but we have Mitra Bukalapak. which is mom-and-pop kiosks that become an extension of our platform to connect people who may not be comfortable yet transacting online.

Before the IPO, about 70% of our transactions happened beyond tier one. Currently, the number has shifted to 73-75%. Mitra Bukalapak grew from 7 million [agents] at the end of last year to 8.7 million today. We continue to expand this.

Of course, to expand, technology is one thing, but we need to add more features, more products and services so that [the Mitra] can make more money, more margin, and they can operate better. So, what we are trying to do here is keep finding ways to upgrade our customers’ business.

Mitra Bukalapak contributes around 34% to your overall revenue. Can you tell us your approach to strengthening this segment and how you plan to stave off the rising competition from other players?

There are multiple ways. One way is to acquire more and more Mitra to expand the service so that more people can get connected to the commerce platform using technology. We do still see a lot of room for growth, especially beyond tier-one cities.

Besides the tech platform, there is a lot of hard work. We have to sign up more distributors so that we can deliver the goods for them.

The whole idea is that people can be sticky once they see the results. Once they use the product, they can sell more services and products. It might look quite basic, but once you have that platform, you could add more stuff.

There are also a lot of back-end things – hiring better engineers, building better security, and improving the user experience. These all little things can add up towards building a complete offering for our customers.

I have another question related to Bukalapak’s Q2 financial results. The take rate of the platform has decreased from 1.5% in the first quarter to 1% in the second quarter. Can you explain the reason and how will you achieve a higher take rate?

I think it’s from 1.5 to 1.4. Initially, we had different types of take rates for both of our platforms. The online marketplace has a higher take rate than Mitra Bukalapak. Given that Mitra Bukalapak is relatively newer and in the growth stage, and we are still building the infrastructure, that is to be expected.

As Mitra Bukalapak starts becoming more important in our portfolio, there is that temporary shift, but once it reaches a certain size, it will stabilise and improve. Because in Mitra Bukalapak itself, we see that our take rate is improving from time to time.

Was it also to do with the pandemic? The Delta variant was at its peak during the second quarter. Did it have an impact?

Having our product may have helped a little bit in keeping the economy moving in at least some of the rural areas or warung economy during the pandemic. The way I see it is there has been some shift in user behaviour during the pandemic. People not only want to stay at home but also want to keep their activities near home. Sometimes, you do want to go out and buy stuff, but you don’t want to go far. I think that is one of the reasons Mitra Bukalapak and some of the offline neighbourhood shops did well during the pandemic.

The warungs were able to see that they could replenish and improve their business while staying at home. Previously, if they ran out of goods, they would have to go to the wet markets. Now they can just order from Mitra Bukalapak and get it delivered. That was helpful.

Could you talk about your ties with Emtek Group and Grab? What can we expect from these alliances? 

Emtek Group is our largest shareholder, and we have a great relationship with them. Even before the Emtek-Grab relationship, Grab has been a good partner because we have been working very closely for logistics solutions and whatnot. Given that we are a commerce business and very open, we want to find good partners that can help our customers grow. If there is something with Emtek that we can work on, we will do that. Same with Grab, there are a lot of synergies there. There is a lot of overlap with customers. It makes sense for us to do something together instead of trying to do everything on our own.

We are currently discussing how we can go out and digitise more small and medium enterprises. Not every SME would want to open an online shop or a mom-and-pop kiosk or warung. Similarly, not all entrepreneurs want to be ride-hailing partners or open restaurants or warung makan (food stall). If we [Grab and Bukalapak] go together, we can provide offerings that they can choose from.

The Salim Group is a big supporter of Emtek and has significant expertise in some of the things that we are currently doing. I think we need to find ways to work together so that the industry wins –how can we deliver goods and services to everyone in the most efficient manner [and offer] a service that is relatively equitable for people in the cities and outside? We are open to cooperate and coordinate with everyone.

You are working with Ashmore on your wealthtech platform, bMoney. I believe Ashmore is partly owned by Emtek. bMoney is currently limited to mutual funds. Are you planning to include other investment products?

If you look at the Bukalapak ecosystem, it is a commerce platform. The moment you do commerce, financial services is adjacent to that. The moment you do transactions, there is a flow of money. And when money flows, there will be a surplus and a deficit of money. People will need to find ways to store that surplus of cash, and today, in Bukalapak, we have some options. You can do some saving products – gold and mutual funds, for example. We have a company called Buka Investasi Bersama (BIB). What we are trying to do with bMoney is to spin off that service so we can keep the light version in Bukapalak. If you want more services, we have the [bMoney] app.

Today, the licence we have with BIB is APERD [mutual fund sales agent], so we are focusing on that. The idea is how can we help people store value and save and provide financial inclusion to everyone. BIB will be one of our tools for that.

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.