Lack of country-specific expertise a gap in SE Asia’s VC ecosystem, says Intudo’s Chan

Despite the proliferation of early-stage venture capital firms in Southeast Asia, very few have truly established themselves as in-country experts. This is a gap Intudo Ventures sees in the market and is eager to fill, according to founding partner Eddy Chan.

By focusing solely on Indonesia, despite its strong international network and connections, Intudo is moving away from a multiple geography approach that many of its peers are still adopting, as they try to capture opportunities across the region.

“This worked at the inception of the venture ecosystem given the scarcity of startups and lack of access to capital. However, with today’s ever-increasing volume of startups and better access to capital, it is becoming more challenging to operate such a strategy as covering early-stage companies in Indonesia or other countries from Singapore or Hong Kong is comparable to covering early-stage companies in Silicon Valley from Chicago,” he said.

“As each market in Southeast Asia matures, we are hopeful that other firms will consider taking country-specific approaches that can offer the most value to entrepreneurs,” added Chan, who has been investing in and advising startups since the late 1990s and had also been a founder and operator of venture-backed technology companies with operations in Silicon Valley and Asia.

Intudo, which recently closed its second fund at $50 million and counts Artotel, Co-Hive and Oriente among its portfolio companies, started out with an “Indonesia-focused” thesis before further streamlining its thesis to “Indonesia-only”.

The decision to focus only on Indonesia stems from the firm’s belief that the Indonesian market is quintessential for any companies looking to grow to become a dominant regional player.

“We believe that any successful venture-backed business in Southeast Asia must eventually go through Indonesia to be relevant,” Chan said. “For startups, we believe it is easier to claim the region’s largest market (Indonesia) first than to try to break in from smaller markets. As such, we work closely with companies to ensure that they capture a dominant position in Indonesia, and then help them expand outwards through our strategic network.”

As part of Intudo’s strategy to become the top-of-mind Indonesia-only investor, Chan spends a lot of time overseas to work with alumni networks of leading universities and companies globally to identify Indonesian talent abroad as part of Intudo’s Southeast Asian overseas returnees strategy.

In an in-depth interaction with DEALSTREETASIA, Chan talks more about Intudo’s strategy, while also sharing his views on some of the trends and developments in the local and regional VC space.

Edited Excerpts:

There is now no dearth of VCs in Indonesia. What made Intudo jump into the fray initially and what differentiates it from the rest?

After founding and investing in dozens of startups in Indonesia/Southeast Asia, Silicon Valley and North Asia since the 1990s, including PayPal, SpaceX, Palantir Technologies, an Indonesian/Southeast Asian tech unicorn and more, and conducting exhaustive start-up founder and LP interviews to understand the opportunities and challenges in the local venture ecosystem, the Intudo Ventures founding team made a calculated decision to enter the Southeast Asian market with a differentiated strategy to launch what we felt at the time was one of—if not the only—“Indonesia-focused” and since further streamlined to “Indonesia-only” independent venture capital firms with a concentrated portfolio approach.

You say Intudo is Indonesia only. Why the sole focus on Indonesia? Don’t you feel you may be missing out on opportunities elsewhere in the region?

We believe that any successful venture-backed business in Southeast Asia must eventually go through Indonesia to be relevant. We only invest in companies that are focused on Indonesia at an early stage. We started out with an “Indonesia-focused” thesis and believe that the market has validated this approach and we have since further streamlined our firm’s thesis to “Indonesia-only”.

The facts demonstrate that for regional funds, Indonesia is quintessential for long-term success. In fact, with growth trajectories in each country highlighting greater go-to-market feasibility, we hope to see more country-specific funds in operation both in Indonesia and in other countries over the next few years.

Once a portfolio company has established a dominant position in Indonesia, we encourage it to expand to neighbouring countries to build dominant market positions. For startups, we believe it is easier to claim the region’s largest market (Indonesia) first than to try to break in from smaller markets. As such, we work closely with companies to ensure that they capture a dominant position in Indonesia, and then help them expand outwards through our strategic network.

Can you tell us a little bit about Intudo’s LPs? Are your investments strategic to the LPs or do you operate more independently?

We historically have capped our LPs at no more than 10% of the total fund size to ensure that Intudo Ventures acts as an independent firm dedicated to creating value for each of our portfolio companies hence investing in the most return-driven manner for our LPs, and further ensuring that all LPs are treated fairly.

Locally in Indonesia, we are backed more than 20 of the most influential Indonesian conglomerate families that own and operate some of the most prolific conglomerates across our focus sectors of consumer, finance/insurance, health/wellness and education and several global and regional tech unicorn founders/execs and tech unicorns in Indonesian market, thus avoiding being overleveraged by any one group.

Globally, we continue to source a majority of our LPs from the US, as part of our Indonesia “beach-head” strategy to connect our portfolio companies with world-class international capital, with global insights and curate access to the market.

We are backed by more than 25 of the top global VC/PE/hedge funds, including multi-billion dollar San Francisco-based Founders Fund (partners include PayPal co-founder/CEO Peter Thiel, Ken Howery and Brian Singerman) and founding partners (including several key members of Forbes Midas List of the top 100 venture capital investors in the world) of such funds that help solve for follow-on capital risks in the market. The investment by Founders Fund represents a relationship spanning over two decades, which began with Intudo Founding Partner Eddy Chan’s initial investments in PayPal and subsequent investments in Palantir Technologies and other business partnerships.

In addition, we are backed by more than a dozen unicorn/decacorn founders from the United States and North Asia that provide invaluable insights to our portfolio companies.

What investment stage do you generally target?

We strive to take lead/co-lead positions in almost all companies which we back. We anticipate building a concentrated portfolio of 12-16 companies for each fund, with an initial investment amount of $500K to $5 million into each company. We look for industry winners and overlooked deals/sectors, instead of trying to index the market. We aim to be Indonesia’s leading Series A fund, and anticipate Series A investments will make up the dominant composition of our funds, while leaving room for opportunistic seed and Series B investments in founders and companies with breakout potential. While we primarily invest in Indonesian homegrown early-stage companies, we selectively invest in and bring overseas breakout companies that have a thoroughly fleshed-out Indonesia roadmap into the market.

We do not intend to index the market and instead aim to take concentrated positions in the deals that we make so as to provide the most value-add to our portfolio companies. Ideally, we would like to complete one deal per quarter, though we will deploy capital as the right opportunities emerge regardless of time frame.

Every VC tries to offer additional value to its companies. What does Intudo offer its portfolio beyond capital?

We believe our team’s background in founding and operating companies, venture investing, business development/ strategy, capital raising, recruiting and deal structuring and our diverse LP based allows us to provide an value-add approach that is quite unique to the market, where we can deliver key business development/strategy (with a focus on Indonesian in-market distribution through our conglomerate and unicorn relationships), human resources & recruiting, capital raising and public relations, effectively acting as an interim Chief Strategy Officer, Head of Human Resources, Chief Financial Officer and Head of Public Relations, until the company can hit scale at Series B and later.

By taking significant stakes in companies we back, Intudo aims to create additional value through our resources and network. For our portfolio companies, we are able to provide assistance on business development/strategy (with a focus on local Indonesian distribution through our conglomerate and unicorn relationships), human resources and recruiting, capital raising and public relations. We generally provide business development/strategy (with a focus on local Indonesian distribution through our conglomerate and unicorn relationships) and human resources and recruiting assistance prior to investing in a company so as to put our best foot forward in the relationship with an entrepreneur and find that such interaction with the entrepreneurs ends up being critical for as an opportunity for both us and the entrepreneur to complete our due diligence process on each other.

You spend a lot of time sourcing and working with Indonesian talent overseas. Can you tell us more about this?

Intudo Ventures is a people-driven firm. As such, we strive to develop both new and long-standing relationships with a wide range of stakeholders in and outside of Indonesia. We are not afraid to play the long-game to build trust and reputation with industry stakeholders and do not take a “transactional” approach to relationship building.

By way of example, I spend eight months a year in the United States meeting with existing LPs and strategic partners, international corporations and top undergraduate/graduate talent and talented recent graduates on various campuses and speaking at various major conferences to build a bridge between Indonesia and the US. In addition, I spend a significant amount of time in Indonesia and the rest of Asia to bring partners into the Indonesian market and support portfolio company growth.

As part of the monthly campus visits, I meet with top undergraduate/graduate talent and with talented recent graduates before they embark on their entrepreneurial/career journey in Indonesia and in the United States, helping them navigate the launch of their business ideas or finding professional opportunities (full-time/internships).

We hope to be the first firm that entrepreneurs think of when they decide to start their Indonesia-focused company. This is part of our “S.E.A. Turtles” strategy (Southeast Asian overseas returnees), where we work with alumni networks of the leading universities and companies globally to identify talent to found companies, fill positions in our existing or potential portfolio companies or help place such talent into tech unicorns/decacorns, corporations or top consulting firms/investment banks/VC/PE/hedge funds. 

This approach has already yielded quantifiable results as a handful of our existing and prospective portfolio companies have been sourced via this “S.E.A. Turtles” strategy, including several companies founded by recent “S.E.A. Turtle” graduates of Harvard Business School and Stanford Graduate School of Business.

What gaps in early-stage venture do you see today?

First off, we would like to recognize all the progress made by entrepreneurs and investors to put Southeast Asia—and Indonesia—on the map globally. They have filled many gaps already and made it possible for players like us to enter the market with greater ease than before. That said, there is still work to be done to address challenges in the market. The key gaps we feel exist in Southeast Asia’s early-stage venture ecosystem today are lack of venture firms with a value-add approach and in-country expertise.

Many investment firms have historically employed an index fund-based approach that featured a large number of portfolio companies across multiple geographies. This worked at the inception of the venture ecosystem given the scarcity of startups and lack of access to capital. However, with today’s ever-increasing volume of startups and better access to capital, it is becoming more challenging to operate such a strategy as covering early-stage companies in Indonesia or other countries from Singapore or Hong Kong is comparable to covering early-stage companies in Silicon Valley from Chicago. As each market in Southeast Asia matures, we are hopeful that other firms will consider taking country-specific approaches that can offer the most value to entrepreneurs.

Intudo raised its second fund less than a year after closing the first vehicle. That shows both high speed of deployment and a lot of LP confidence. How has the team achieved both these?

For Fund I, we capped it at $20 million to allow for a proof of concept, allowing us to demonstrate that an “Indonesia-focused” fund—which has since been streamlined to “Indonesia-only”—could succeed in the market. We maintained fund size discipline and brought on the right backers that bought into our thesis. With the strong performance metrics of Fund I and build out of the investing/operating team, we were able to validate our approach and raise $50 million-plus Fund II based on that momentum.

From a deployment perspective, several of the deals were warehoused and in the pipeline prior to the formation of Fund I. As such, we were able to build a strong portfolio from inception. We found that LPs appreciated our highly disciplined, narrow mandate of doing less better from a geographic standpoint with our “Indonesia-only” approach and our dedication to value-add support to founders by delivering business development/strategy, human resources and recruiting, and follow-on capital. In addition to financial returns, global LPs appreciated our efforts to act as their Indonesia “beach-head” strategy, while local Indonesian conglomerate family LPs appreciate our efforts to support their digital transformation in large part via partnerships with our portfolio companies and other synergies.

What learnings from the far more mature US venture market can Indonesia and SEA overall learn?

As the market is in a nascent stage and is maturing rapidly, we believe managers in Indonesia and Southeast Asia should strive to exhibit higher levels of investment differentiation in their mandate, in particular with respect to geography, stage or sector. This has been the case for many emerging managers in the US that face challenges in creating market differentiation. There is no PR fix to this – as it has to be done at the structural level of the fund. We have tried to take this approach from the bottom up and believe that in the long-term, managers that adopt a bold investment thesis will have more success in attracting interest from top entrepreneurs and investors.

Your LP base is huge with more than 20 families among them. Is this a conscious strategy? If so, why?

Yes, this was a conscious decision where we identified several of the most influential Indonesian conglomerates across our Intudo’s sector mandate which include: consumer, finance/insurance, health/wellness and education, and from there we pursued LP allocations accordingly. This allows Intudo to be independent and provide entrepreneurs with strong Indonesian in-market distribution by partnering with top local conglomerates and families to create business growth opportunities.

This independent structure gives us more flexibility in making deals and providing value-add support for our entrepreneurs. Our ability to operate as an independent firm without being overleveraged by any one group allows us to have a dedicated focus on creating value for each of our portfolio companies and invest in the most return-driven manner for our LPs.

BeliMobilGue recently raised a Series A round. It was a joint venture for Intudo with Frontier Car Group. Can you talk about it? What’s the model here? Have you incubated the startup? Would you look at similar JVs to launch other startups?

Yes, this is a joint venture we co-founded together with Berlin-headquartered Frontier Car Group and BeliMobileGue Founder/CEO Rolf Monteiro.

On a very selective basis we co-found JVs focused on Indonesia/Southeast Asia with breakout companies (generally series B or later) with global companies (provide brand, technology and know-how), local management and ourselves (provide business development/strategy, human resources and recruiting, follow-on capital, public relations and government relations). BeliMobilGue is an example of this strategy.

While our core strategy is leading Series A deals, we strongly believe in identifying talent at a very early stage, often “S.E.A. Turtles” still enrolled in school or recent graduates and strive to be the first phone call for entrepreneurs as they begin thinking about launching an Indonesia-focused company. This differs from the joint venture approach as seen with BeliMobilGue, and is more about incubating the deal from day one. We will be able to publicly share more details about this kind of deal in the near future.

What is your take on startup valuations in Indonesia today?

The uptick in valuations is a natural increase as the market picks up and more capital flows in from local Indonesian, regional and global investors. As new funds come online and entrepreneurs enjoy a wider selection of financing options, this competition for term sheets will further increase valuations. This is not a bad thing by any means – it just requires firms to demonstrate upfront their value proposition to founders, which is something we strive to do with each company we aim to invest in, as noted earlier we generally provide business development/strategy (with a focus on local Indonesian distribution through our conglomerate and unicorn relationships) and human resources and recruiting assistance prior to investing in a company so as to put our best foot forward in the relationship with an entrepreneur and find that such interaction with the entrepreneurs ends up being critical as an opportunity for both us and the entrepreneur to complete our due diligence process on each other.

Given the emergence of multiple $100M+ regional funds raised and the arrival of global investors, we are starting to see a substantial uptick in valuations in particular at Series B.  As Intudo is focused on being the leading Series A investor in Indonesia, we believe it bodes well for our portfolio companies as there are more capital partners to choose from.

What do you think of the expanding VC fund sizes in Indonesia?

Expanding fund sizes is a natural process as a result of the maturing ecosystem and we only expect more capital to be allocated to Indonesia from local, regional as well as global investors. More dry powder will be necessary to accelerate this growth domestically. Indonesia is the crown jewel market to date in Southeast Asia, as it is the only country in the region that can support multiple homegrown unicorns without requiring them to expand to neighbouring countries. We welcome more funds and entrepreneurs to build their operations in Indonesia and are hopeful we can continue to support them as a trusted local in-country partner. It takes the efforts of the entire community to foster entrepreneurship and we are grateful to the pioneers that made our entry into the market possible. As noted previously with our approach, we believe we can effectively exercise a lead/co-lead role in every deal as a complementary partner to local Indonesian, regional and global investors.

What lessons can Indonesian unicorns learn from Silicon Valley?

We encourage Indonesia’s tech leaders to continue creating a dialogue with the world. Silicon Valley is highly internationalized in terms of companies, talent and capital. That’s the secret sauce to Silicon Valley’s success and a more globally connected Indonesia will facilitate a wide range of positive benefits for not just local unicorns, but for the ecosystem as a whole. For potential unicorns, we recommend learning best management practices from global players. By tapping into our LP base which includes a wide range of experienced founders and investors, we can provide actionable insights to our founders and plug in resources as needed.

In addition, a focus on product and user experience will help Indonesian companies scale faster and receive better market feedback from consumers. Lastly, we encourage more local companies to adopt a meritocratic office culture, which has been indispensable for companies in Silicon Valley to not only attract but to retain and reward key employees. An engaged workforce that has skin in the game will make sure that employees continue to drive value with accumulated knowledge and expertise through loyalty and dedication to the company.

Also Read:

Indonesia-focused Intudo Ventures closes $50m second fund

Indonesian hospitality company ARTOTEL bags strategic funding from Intudo

Indonesia-focused Indies Capital set to make second close of $65m tech fund