Indonesia-based commodity player Gunung Sewu appears to have the country’s still-nascent startup industry like a fog: no one notices it at first, but it rises and rises, and suddenly, it’s everywhere.
In addition to investing from its own balance sheet, Gunung Sewu is a limited partner (LP) in Indonesia-focussed venture capital firms Alpha JWC Ventures and Convergence Ventures, as well as US-based impact fund Patamar Capital.
In total, Gunung Sewu has pumped in about $17 million into digital and tech-related businesses within the span of five years. The group invested between $1.2 million and $1.5 million from its balance sheet across eight startups mostly operating in fintech, big data, and analytics in the last 12 months.
Gunung Sewu joins the cluster of Indonesian conglomerate giants like Sinarmas, Lippo, and Djarum, that are paying increased attention to the tech space, either for returns or synergies with their existing, core businesses.
“We are quite independent in the sense of there are no restrictions when it comes to the budget, or deciding which verticals to invest. But right now, we have been looking a lot at fintech, big data, and analytics,” Head of Investments at Gunung Sewu, Irwan Liem, described the company’s style and direction.
“We invest more in founders and less in business models because we know that business models are always changing in this space. We offer them more of added value rather than synergies with core businesses,” he added.
Gunung Sewu’s latest announced investments were in June when it participated in MDI Ventures-led pre-series A funding for e-signature provider PrivyID and marketing SaaS firm Kofera.
In February, Gunung Sewu joined a $1.4 million pre-Series A round led by Golden Gate Ventures for Printerous.
DEALSTREETASIA sat down with Irwan Liem to talk about the group’s investment thesis, experience as an LP, exit strategy, and more.
Gunung Sewu as a group traditionally operates in insurance, food, real estate, consumer and resources (mining). What made the group to enter the tech/startup space, and what was the process behind this decision?
It has been a challenge for almost every company especially conglomerate groups and family-run businesses to stay relevant to market demand. Today technology has raised the bar for companies like us to remain competitive to deliver values to our stakeholders.
The decision to enter tech/startup scene is quite straightforward. Not only does it help our group to get the reading of the pulse to propel our growth strategy, most importantly, it aligns with our founders’ entrepreneurial-at-heart spirit to nurture creativity and open mindset. We are looking to invest in great jockeys not only the horses.
What are the expected outcomes from these investments? Is the group more return-oriented or are you looking for synergies with your existing, traditional businesses?
We’d like to think of ourselves as the hybrid of VCs (Venture Capital) and CVCs (Corporate Venture Capital). Of course, we should always keep our radar for good portfolio return, and at the same time, having the synergies with our existing business units would be the perfect scenario. In theory, we would aim to achieve something like 10x within 5-7 year exit for the expected returns. When we invest in a startup, we know whether it has the potential to be acquired, sold, etc.
But, I believe that this investment return is only the derivative or result of good investment thesis which is in our case, investing values in the winners. We are investing in founders and the relationship with the startups is mutual. Our main objective in investing is to add values; to the founders, companies, and/or ecosystem. And having the synergies will definitely create bigger values for the startups (to gain market entry) and our existing companies as well.
Why haven’t we seen investments in agriculture tech given your core business is commodities?
In my opinion, I think agri-tech requires a combination of engineering and software as part of the comprehensive technological solutions. For example, we see there is a company based in Singapore which can provide precision farming using drones and sensors, and combined with their analytics software, the user can command certain action based on the data provided by IoT.
We are actively looking for agri-tech solutions to help our companies. In Indonesia, we feel that agri-tech is still nascent but starting to see the uptrends from crowd-farming and plant-to-table platforms. But for end-to-end agri-tech, there is still a lot of room to grow.
What do you think of the trend of large conglomerations (Lippo Group, Kompas Group) going into tech space? Do you agree that the line between so-called ‘traditional’ and ‘new’ business such as tech and digital is blurring these days?
In my opinion, it has never been two separate (i.e. ‘traditional’ vs. ‘new’) businesses to begin with. Technology is simply a catalyst or enabler to grow businesses horizontally and/or vertically. And good entrepreneurs must have realized this that they should embrace digital technology to gain a competitive advantage over their competitors.
Gunung Sewu is now LPs to three Indonesia-focussed VC firms – Alpha JWC Ventures, Convergence Ventures, and Patamar Capital. How do you choose the VCs?
We started in 2012 when investing in US-based fund and the latest in 2017, we invested in Indonesia-based funds for the first time.
We do quite a thorough checklist which we developed together with Nippon Life team and also, based on learnings that we have throughout our journey. We emphasize on the fund manager(s) and the performance of the fund historically (if available). But most importantly, it is the fund manager or GP can determine the success of the fund which has to do with fundamentals like credentials, relevant experiences, track records, investment thesis and etc. On top of these, we also ask for other supporting information such as a list of other LP participants, the board of advisors, and existing portfolios. This is essentially a 360-degree review. We have to ensure that the GP aligns with our values.
Do you have plans to set up your own VC? What about private equity?
We do not have any short-to-medium plan to set up our own VC fund. For Private Equity, we have been actively looking at several M&A / growth capital deals together with our co-investing partners.
You have invested in several startups since the beginning of the year. How do you pick the startups to invest? Do you have an investment thesis as to which verticals, what stages, sizes, etc?
We have in total of 8 digital startups through our direct investment by the end of this year. We started investing since Q3 2016. In every investment that we made, we always focused on the founders and the team. This is because we believe, on top of great ideas and products, most important success factor is having the right execution.
It takes more than just a brilliant brain; first of all, the founder(s) and crews need to be the winning team from the start. We want to focus on the early stage companies and usually pre-series (before) B with very rare cases at Series B. About the verticals, we focus on big data, fintech (which includes the enablers and/or its derivatives: regtech, insurtech, etc.)
Any advanced talks with more startups right now? How many? Which sectors, what stage?
At this point, we have closed all of our investments in 2017 and are focusing on portfolio management and 2018 lookout
Any possibilities of investing in later stages, say series B and C and above? Why or why not?
With our philosophy of investing in (strong) founders first, ideally we would like to participate in their journey as early on as possible so that we get the opportunity to add values into the ventures and diversified our risks.
So technically speaking, the product is most likely mature in the later stage companies and has become more important, In addition, later stage startups are at the expensive valuation (which in this case, could also mean overvalued), or at its peak performance. In both cases, they are not good entry points.
Can you give me an idea about the quantum of money have been invested by Gunung Sewu in the tech/startup space?
For the last 5 years, we as a group have invested nearly $17 million in tech and tech-related startups.
Budget for 2018 investments? How much allocated to tech/startups? For food, insurance, property, manufacturing, energy, retail?
We don’t have a specific budget to be allocated for tech investments.
Apart from tech/startup, what other sectors are you investing in?
We are quite active looking at M&A deals to strengthen our portfolio companies within the group.
Do you have investments in the US and can you tell us more about it?
Previously, we invested through some US-based funds and from this, we have learned that value investment through strong founders is really important for the success of the companies.