As the setting up of venture capital arms become an increasingly common strategy among Indonesia’s top banks, it is essential that these bank VCs find opportunities to collaborate rather than compete with one another, according to Michelle Suteja, Director of Central Capital Ventura, the VC unit of Indonesia’s largest private lender Bank Central Asia (BCA).
Indonesia witnessed the launch of the country’s first bank VC in 2015 when Bank Mandiri, the country’s largest lender by assets, set up Mandiri Capital Indonesia. The move was followed two years later by BCA. Now, state-owned lender Bank BRI is in the process of acquiring an existing VC firm, while another state lender BNI is also reportedly considering jumping on the bandwagon.
While it is still early days for bank VCs in the Indonesian market, some have said that there is already an unspoken rule which makes it difficult for more than one bank to invest together in any single startup. This, Suteja said, is a notion that should be broken.
“I think right now many people are thinking that way. If I own you, then no other bank can own you. It comes down to seeing other banks as threats. That’s the question I always raise: Am I your threat? Or are the foreign players your threat?” she said.
Co-investment and collaboration between bank VC units, Suteja adds, should be embraced.
Central Capital has already started to seize the opportunity to collaborate with other local bank VC units, when it co-invested with BRI’s venture capital arm, along with a number of other VC firms, in US-based artificial intelligence (AI) startup Element Inc. Going forward, Central Capital says it will be on the lookout for more of such opportunities.
“For example, for solutions like blockchain, it is more beneficial if there are more banks in one platform. Maybe it is true that certain banks have a bigger ecosystem and so on, but in order for that platform to be very cost-efficient, we need to have a few banks together,” said Suteja, who previously had stints at Monk’s Hill Ventures, as well as startups Qraved and FinAccel.
By setting up their own VC units, Indonesian banks are following the lead of some more established global players such as BBVA and Citigroup who pioneered the concept of venture capital arms almost two decades ago.
Closer home, Suteja said, banks like China’s Ping An and Thailand’s Kasikorn could be seen as an example for Indonesian banks, not only for their activities in the venture capital space, but also for their initiative of forming a dedicated technology group – something Suteja believes is essential for the tech development of banks but has not been adopted by any bank in Indonesia as yet.
In an exclusive interview with DEALSTREETASIA, Suteja shared insights into the venture capital opportunity in the Indonesian banking sector, Central Capital’s investment thesis and its under-the-radar investments over the last few months from its $15-million maiden fintech fund.
Tell us a bit about Central Capital Ventura and how you operate in relation to BCA?
I think CVC can mean many different things. If you look at BBVA’s corporate venture capital unit, they are a separate entity but technically a corporate venture as they are backed by a single LP. So Central Capital Ventura is run as a separate entity. I think we’re the eighth sister company of BCA group.
We have a common thesis and approved framework. That framework is pre Series A-Series A, fintech, insurtech, big data, deep tech, IoT – all in financials. So we invest in anything that has values and synergies with the parent company and our sister companies. But mainly we invest because we’re not only a venture capital that does not think about capital gain. But capital gain is an important factor as well in order for us to self-sustain and have concrete progress. So strategic is important and that’s number one, but strategic has to come with financial gain.
But the fund is purely from BCA?
Yes we are a single LP fund, that’s correct.
Would there be any case in which you would invest outside of the financial sector?
We could, but only if it’s extremely strategic to what we need. For example, a system that is required for our call center – that’s not fintech but it is a huge part of what BCA needs. Or KYC for example, that’s also not fintech, but that is the backbone to what everyone will be doing in the future. The enablers are important. So there are certain things that maybe we invest in but people don’t understand it. But it helps our bank to optimize their operation. You know we invested in Element Inc, which does biometrics. That is far off. It’s an innovation on its own, but we know biometrics is going to be the backbone of KYC. So we also look at these things.
Do you have a focus market?
We always look at companies that have use case relevant to Indonesia. Always. Because BCA is an Indonesia-dominant company, so that is important. But that doesn’t limit the countries that we’re looking at. If you look at companies in the segment of deep-technology, like blockchain, its very hard to find something like that here. And also the kinds of companies we look at are more B2B companies. Blockchain companies include payment, wallet, crypto and so on, but that’s not what we’re looking for. We are looking at infrastructure, we’re looking at what could be done on a B2B side. So I think that is one part that makes us a little bit different to any other fintech funds out there. We’re very very focused on B2B. It doesn’t mean that we doesn’t have B2C, but we are more focused on B2B.
What is your strategy when it comes to sourcing companies?
I think it’s similar to other venture capital companies. We have good relationships with other VCs because we don’t really look at seed stage companies, unless it’s a different sector that requires us to invest at seed stage. But generally we look at companies that have already been funded before. We’re very open, we put our contact email on our website, so as long the startups fits our criteria, we will always reach out to them and take their calls.
We have good relationship with many people in BCA, so when they travel abroad, they look at different things that they would recommend to us, but ultimately we make the decisions. But referral can come from anybody, and we like referrals, usually they are the best ones.
So you focus on Series A?
Well, Series A plus. As our ticket size is $500,000 to $2 million. We are more stage-agnostic than ticket size agnostic.
You were founded in early 2017 but only made your first investment late last year. Can you explain why it took fairly long for you to start deploying your first fund?
So the difference between us and other venture capital companies – we’re probably on the same boat as Mandiri – we have to be under OJK regulation. We were set up early last year, but we needed to go through the fit and proper test by OJK and all that before we could get the licence. We could only operate after obtaining the licence.
So up to this moment, how many startups have you invested in?
So far we have invested in around seven startups, but we are very under the radar. We don’t really like to announce. I think that would be aligned to all of the founders, me and the managing partner. We want to be able to focus on companies, because there are so many things to work on. We want to focus on the work and how to bring value to the companies. We don’t really like to announce it, as it doesn’t really bring much value to us, unless it’s a B2C company. But for us, a lot of our companies are B2B. If they choose to announce, they can, but we don’t announce.
Can you tell us more about these seven companies?
All of them are in fintech. We invested in a remittance company, a lending B2B company, a B2C lending company focused on personal loans and consumer financing, biometric company – which is Element. We also have one investment in GPN. There is also an insurtech company. We are in the midst of closing a few more in cross-border [payments] and marketplace. We are a small team but we do everything we can with the amount of time we can.
How many of those are from Indonesia?
All of them have operations in Indonesia. That is our number one criteria. It doesn’t matter whether you’re from the US or Singapore, you need to have operations here. That’s our main criteria.
Back to sectors, out of all the fintech sub-sectors, which do you think will see a boom in the future?
I think all will grow simultaneously. Payment is always number one because it is transactional. Everbody needs to do payment. Payment is the number one function. Lending is the next step. You know, Indonesia is a very credit-hungry country, where credit penetration is very low. There are a lot of qualified people that do not meet the banking criteria for credit. So everything will go simultaneously. Payment is about distribution. Once the distribution is good, other will advance – lending, for example.
And then you would talk about insurance which provides a certain level of service for consumers of e-commerce companies, travel companies and so on. After that as we grow and this economy grows, we will talk about asset management, because people will have to think about alternative ways to save money. So everything will come into place when the market is ready. So fintech is a long play. Very very long play. There’s no need to rush. There are certain things that you need to rush into like optimization, enabling and so on. But there are certain services that you don’t have to rush into, in my opinion.
Where are we as a market in terms of readiness to embrace fintech?
We are still in the early stages. We are still in the lending stage. Insurance is set to kick off. There are some asset management companies, but I think we need to wait a bit more – the market is not ready for it. Education is expensive, and you have to know that the market is ready enough for that. There must be a balance. We are still far away.
What do you think are the challenges and advantages of being a CVC company, in your case of a bank, as compared to independent VC?
So to be honest, CVC is not lacking deal flow. And the easiest thing about being the VC arm of BCA is that people are looking at us as part of BCA, which is sometimes an advantage, but sometimes not. There are certain companies that who might not be strategically able to cut a deal with BCA, but we could possibly help them in other ways. Because as you know, this is not just BCA, as we have a huge ecosystem as a family office.
When I was in an institutional venture capital, we were very focused on the gain – capital gain is definitely the number one thing. We are less so. Strategic partnership is number one. Capital is number two.
It’s also different when you have to fight deals. People look at you and think are you just money and we are getting more and more founders who are very smart, that think “would I rather get money from some Chinese VC or get money from Ping An?” Because Ping An has its own ecosystem that you cannot beat. This is exactly how they look at us. Whereas when you focus on capital gain, your money and everyone else’s money is the same.
In Indonesia, other than Mandiri and BCA, a few more banks are said to be planning to set up VC firms. How do you see this trend in the future? Do you see more banks going in this direction?
I think most banks already do. In Indonesia, it has already started, at least for the big banks. Also, you look at the trend in other markets – everybody has started with these activities, whether it be in the form of incubators, accelerators or investment or other programs that they do like collaborations. So I think everybody has started to go this way. One thing that I feel has to be clear is why you are getting into venture capital. That is key. Is it because of the fear of missing out? Do you know what you’re missing out? If it’s just investing, well investing is easy. But why are you investing? What is the aim of that investment? Those are key values that I think not many people understand.
As more bank VCs emerge in Indonesia and looking at more or less the same startups, how is the investment scene shaping? Startups are generally unlikely to have two big bank VCs as their investors, right?
That’s the thing. I think right now many people are thinking that way. If I own (invest in) you, then no other bank can own you. It comes down to seeing other banks as threats. That’s the question I always raise: Am I your threat? Or are the foreign players your threat?
Who is our threat? I come from a startup environment. I’m new in the banking sector. Everybody seems to be thinking that within Indonesia we are a threat to each other. Every bank right now operates in different segments. BRI is very good in middle class, they are very strong in their microlending. We have very different abilities. Why are we a threat to each other?
We shouldn’t compete. There is a solution that makes sense and plus there is different use cases. A lending company that serves BRI’s market may not be able to serve our market, because BCA is a B2B bank in a sense. A lending company that can serve us may not be able to serve them.
Banks have everything – all the ecosystem. But what fintech does is it divides this segment and taking one part of it. Investree for example, is very focused on the working capital, while UangTeman is very much focused on middle-low segments. So fintech and lending, outside of the bank, they serve very different segments.
At the end of the day, we have our own pie and we survive. Of course, there is going to be the survival of the fittest. But still, nobody is going to be an expert in all the segments as it is very expensive and carries too much risk.
So I think, we are very collaborative. I want to collaborate. For example, solutions like blockchain are more beneficial if there is more bank on one platform. Maybe it is true that certain banks have a bigger ecosystem and so on, but for that platform to be very cost-efficient, we need to have a few banks altogether.
I think collaborations are things we need to think about more. Because even if we combine our pie, it’s not actually that big. But we have a chance. Only 47 per cent of Indonesians own a bank account. What about the other 53 per cent? So even in terms of offline, there are still so many opportunities, which is why all these other players from abroad are eyeing our country.
So I think the local banks should not fight against each other. It’s a chance for us to unite against the foreign players.
It’s still very early for you, but could you tell us a bit about your exit strategy?
So, yes I think, as a company that is regulated by the OJK, we can only hold companies 10 plus 10. So it’s 10 years, and can only extend for another 10 years maximum. This means we cannot hold forever. Either it’s going to be acquired or IPO. They can’t be bought by BCA, because banks can only acquire another financial institution company. That’s why we were set up because they can’t do it themselves.
That’s the rule and I’m not sure if it will change. But one thing that I think needs to change is that I think every bank should have a technology group. That is essential. If not, we cannot compete with everybody else. The function is to build technology. Something that is separate from the group, but is another sister company that focuses on technology, like Ping An and Ping An technology.
So what plans has Central Capital drawn up for this year?
We just started. So this year is all about investing and figuring out how we can help the parent company while we learn about all the different businesses in the group. Again, financial is not as simple as payment and lending. There are different things: B2B, B2C, infrastructure. So I think its still very much a learning curve for us, but we’re still investing.
How many companies are you looking to invest in this year?
We don’t put a cap on it. We’re always on the lookout for the best entrepreneurs. And we have certain criteria, of course. Fintech is not about just solving problems, fintech is also about risk; fintech is also about regulations. I find that many startup companies that don’t focus on what regulators are saying are dying. You can’t break through a wall that’s already built. I think that’s something that we have to be careful of.