Big companies in Indonesia that fail to adapt to the digital revolution will die and be replaced by smaller innovative companies as the country’s corporate landscape is headed towards a dramatic change, said John Riady, director of Lippo Group, one of Indonesia’s largest and richest family-owned conglomerates.
“I believe that if we go to sleep today, and wake up 20 years from now, I don’t think we will recognize the corporate landscape,” said Riady, who was recently appointed as one of the Young Global Leaders in the World Economic Forum (WEF).
In Indonesia, a number of conglomerates have started preparing for this digital revolution. Djarum Group and Sinar Mas Group, for example, have entered the venture capital space through GDP Ventures and SMDV, respectively, while others like CT Corp have acquired or launched their own tech companies.
Lippo seems to have embraced digitalization through every means possible. In addition to digitising its existing businesses that cover seven different sectors, the company boasts its own venture builder which has produced companies like e-commerce startup MatarahariMall.com and payment platform OVO. It also makes investments through VC firm Venturra (previously Lippo Digital Ventures) where Riady is a Managing Partner.
Having a VC firm, he said, is essential for Lippo as it allows the company to work and interact with other businesses with new business models outside of its group.
“The challenge for traditional businesses, including Lippo, is that we get caught in our own little world, not realizing the whole world has moved beyond us. Because we are concerned about this, we created Venturra,” he said.
In its third year of operation, Venturra has invested in a total of 23 companies from its $150 million fund, Riady said and will continue to invest in its focus sectors of e-commerce, fintech, healthcare and edutech.
DEALSTREETASIA recently sat down with Riady to talk about Lippo, the VC space and business digitalization in Indonesia.
Tell us a bit about how Lippo came to enter the VC space.
Let’s start with some background. We at Lippo look at ourselves as an integrated services group in Indonesia. In 2017, we interacted with 100 million unique Indonesians. And that 100 million generated 1.5 billion transactions, so that’s about 10,000 transactions every minute, across our group. If you take a look at our group, that’s what we are. We serve the Indonesian consumers, we’re an integrated services group.
The exciting part about this is not really about the numbers, but if you take a look at the people we’re serving, for many of these people, it is the first time they’re doing a lot of things. It’s the first time they access global quality healthcare, it’s the first time they connect using a fibre optic to the world wide web, the first time they get a mortgage, the first time they buy a house and so on and so forth. So for a lot of these people, their life is a life full of firsts. Our hope is that in their whole life, as they experience those firsts and they improve their lives in the process, we can be there for them and help facilitate those special moments to make their lives better.
We do that across six or seven different sectors, so hopefully, we cover the whole end-to-end journey. We are very optimistic about these groups of people. We think that these people will do very well in their lives as the whole economy grows and in doing so, we also help them and build good businesses.
Having said that, even though we are very excited about Indonesia, about the middle class about our businesses, we are mindful of a number of changes going on. One of the biggest changes is the whole industrial revolution. Ultimately this will change the way consumers behave. People will always need healthcare, people will always buy stuff, buy houses, those needs will never go away, but the way they buy it may change, the speed at which they buy it may change, the channel through which they buy it may change. So as a business we have to change with that as well.
So the question is how do we do that. So we really do it through different ways, three different avenues, three different buckets. The first one is investments. This is Venturra. The second one is through companies we are building ourselves – like OVO and Matraharimall, and the third one is a transformation within our companies.
Why do we have investments? The challenge for traditional businesses, including Lippo, is that we get caught in our own little world, not realizing the whole world has moved beyond us. Because we are concerned about this, we created Venturra. So the last three years, we have been investing out of Venturra. And obviously, we also want to make money investing. We have invested in a total of 22-23 companies. Right now, I think we are probably eight times our portfolio, so it’s a successful fund and it’s interesting to see how the whole industry has grown over the last four years.
Three years ago, there were very few players. Now the ecosystem is much more mature. We see that as a good thing. If you’re the only one investing, there is nobody else supporting. So in the investing world, it’s good to have company, so to speak. So Venturra is the VC arm of our group. We are the largest investor, but not the only investor. So we contribute around 80 per cent of the capital.
Venturra’s investments focus on e-commerce, fintech, healthcare, edtech. Why these sectors?
Firstly, we have decided to invest in Southeast Asia. We have one or two investments outside of Southeast Asia, but it is 90 per cent Southeast Asia, because that’s our mandate. Number two, we invest in consumer internet technology, so not so much on B2B enterprise – not that we don’t believe in B2B, but because our group is an integrated consumer services group. There are just many more synergies there. We do Series A, B and a little bit of C, ticket size $2 million to $5 million.
Our VC team is independent. We go out and invest in a number of things, including e-commerce also. But we will build the ones where we think we will have a lot of synergies to make it a success. So if you take OVO, and give it our 70 malls, department stores, hypermarkets, that gives it a good use case, that’s why we built payments. To build a company is not easy, you must think why do you want to build this? Why do you think it will be successful. So we enter those that we think will have an advantage and synergies to make it a success.
You have an investment in Hong Kong. Tell us more about that.
Prenetics is a personalized medicine company. They work together with a lot of insurance companies. Even though right now they are very successful in Hong Kong and China, I think the application in Southeast Asia is huge, so they can one day bring that to Indonesia and Southeast Asia.
Will there be any more investments outside of Southeast Asia this year?
No, I don’t think so. Generally, we think Southeast Asia is one of the most exciting tech spaces, so we really want to focus here. There are exciting things everywhere but you need focus, and these companies require due diligence, require you to put in the work and make sure you can also add value to those companies.
What are Venturra’s main goals this year? Will you be doing anything differently?
We will continue to invest. We are looking for great companies but at the right valuations, and that’s not easy. Because I think on the one hand it’s good that the whole ecosystem is growing, but that also creates a lot of valuations that are very pricey valuations.
What do you think of the quality of founders in Indonesia?
It’s improving. Indonesia has excellent entrepreneurs. Obviously, entrepreneurship is very difficult. For every 100 companies that start, only maybe one or two really make it – that’s the nature of the business. But that doesn’t mean we have bad entrepreneurs, that just means entrepreneurship is inherently very challenging.
How do you see the e-commerce market?
The market over three-four years has grown so much. I continue to be very optimistic about e-commerce. Right now e-commerce is only 2 per cent of the market. But it will go to 10, 12, 13 per cent. My second thought is that when we talk about e-commerce, we need to think omnichannel because if you take a look at even a market like China that’s already so advanced in e-commerce, their online penetration is only 20 per cent, which means 80 per cent of the market is still, quote-unquote, offline. And that’s why right now, Alibaba and these online players are buying offline companies. Alibaba is creating their own offline stores, JD as well, Tencent as well. So they’re seeing that sure, online is big, but even in China, it is 20 per cent of the market. The other 80 per cent is offline.
What are you doing to keep up and maintain an edge over competitors?
I think we have to continue to grow and maintain market share because the industry is growing, but number two I think we need to continue to leverage our offline stores even more. And how do you bring those two closer and closer together? So from the customer perspective, it will be seamless, whether it’s online or offline.
Can you tell us a bit about OVO’s partnership with Grab?
Since we created OVO one and a half years ago it had been quite successful. We have been able to leverage off of the Lippo ecosystem to acquire a lot of users and a very good use case. So with fairly little subisidy, the use case is high. People are using it in our malls, hypermarket, department stores, all the F&B within our malls, parking, everything. However, our vision has always been to create an open and inclusive payment option. Because in payments, you have to be open. And the more use case you have for your customers, the more successful you are.
Lippo has payments that are less frequent but higher value. We need to combine that and integrate that with the kind of payments that are high volume but low value such as transportation. That’s why we have partnered with Grab. So if you look at the Grab application, the wallet is OVO wallet. So consumers can use the same OVO wallet to pay for everything in the Lippo ecosystem but also Grab’s rides and food. And we’re not going to stop there, we will continue to find partnerships to make it easier for customers to transact.
When you started Venturra, you were already involved in BeritaSatu (Lippo’s media company), the WEF, not mentioning your role at Lippo. Why did you think it was important to be involved in the VC space?
If you believe that digital will change Indonesia 10-15 years down the road – and I do believe that: digital will be the single biggest factor transforming the entire consumer landscape – we need to make sure that we learn about what’s going on and how to do things. We build so-called digital muscle, digital know-how, digital human capital. So it’s a lot of hard work but I think its important. So we must have that humility to learn and to try new things, and to experiment and to innovate, otherwise, you die. And to be honest, it’s very exciting.
How do you think startups and business digitalization affect Indonesia’s economy as a whole?
I believe that if we go to sleep today, and we wake up 20 years from now, I don’t think we will recognize the corporate landscape. And you will not recognize it for two reasons. Number one, today we have these boxes; we have banking that’s one box, media one box, telco one box. We look at the world today in boxes. In vertical boxes. Every industry has its own players. I think in the digital world, people are not so sure what the difference is between a bank and a social messaging company, and an internet provider, and an e-commerce company, the lines are very much blurred.
So if you take a look at something like Alibaba, what is that company? Is that an e-commerce company? Are they a payment company? Are they a data centre company? Are they a data company? It’s unclear. So I think that’s one huge change going forward.
Secondly, if you take a look at the Fortune 500 list in the US. The rate at which companies now are pushed off the list is faster and faster – the rate of that regeneration.
I think we will see the same trend in Indonesia, companies that do not respond to change, I think will die. If you wake up 20 years from now, I think you will see many, many new companies who have innovated. So as I look at the startup space today, I’m very excited. I think I see a lot of the ingredients of that future success companies. It could be the future of Astra, BCA, who knows.
If you went to China 20 years ago, Alibaba was a small company. The big companies were the banks, traditional telco companies. Today it is all the technology companies, Alibaba, Tencent, Xiaomi, OPPO. So that’s what I see. In Indonesia when we look at the startups today, sure they’re very small, but I don’t look at them as small, I look at them as highly innovative companies, passionate founders, and I think some of them will go on to do really great things.