Having built a reputation of being one of Indonesia’s main fintech-focused investors over the last three years, Indonesia’s first bank CVC, Mandiri Capital Indonesia, says it has started to look beyond pure fintech deals as it prepares to invest through its first venture fund.
The upcoming fund, which is set to be closed in Q4 of this year, will be the VC’s first externally raised fund that will have a greater focus on investment returns. This will be different from its previous funds – which were derived from the balance sheet of its parent firm Bank Mandiri – that predominantly backed companies for strategic purposes.
“The main target for the (new) fund will be returns, because this will be investors’ money and they would want the money back in five or seven years with returns or profits,” said Mandiri Capital CEO Eddi Danusaputro.
As DealStreetAsia had first reported in February, the targeted corpus for Mandiri Capital’s new fund will be up to $100 million. This is twice as much of its existing on-balance sheet fund of $40 million that has been deployed to make investments between $500,000 and $2 million into pre-Series A to Series A stage startups. Its portfolio companies include names such as Moka, Koinworks and Investree.
With the larger fund size and the new LP structure, the new fund will be looking to inject higher amounts into bigger companies in Series A and B stages and will be able to back companies outside its core area of pure fintech.
Although the firm will start to widen its scope of target sectors, Danusaputro said Mandiri Capital will not stray too far away from financial technology and will invest in companies that have a notable overlap with the fintech sector.
“Our expertise is in fintech. We have the pipeline in this space and are able to analyze which startups are prospective and which are not, and how the exits will be,” he said.
Among the new verticals that Danusaputro categorized as “fintech plus” include agritech, healthtech and logistics.
To raise and manage the new fund, Danusaputro said Mandiri Capital has set up a separate team to ensure that there is no conflict or overlap between the current on-balance sheet fund and the new venture vehicle. The team is already in the process of raising the fund, he said, having embarked on a roadshow to meet potential investors in Japan, South Korea and China, as well as Indonesia. It is particularly looking to work with conglomerates, state-owned companies, financial investment companies and also high net-worth individuals and family offices.
Apart from having a greater focus on investor relations, the newly formed team is also expected to adopt a different fund management approach, with a keener eye on potential exits.
“Our promise to investors is that there will be a full exit within 7 years. The duration of the fund is seven years, so maybe in the fourth or fifth year we need to start thinking about partial or full exits,” said Danusaputro, whose VC firm has so far landed one full exit through accounting platform Jurnal and another undisclosed partial exit.
Despite the new focus on returns and exits, Danusaputro said the new fund will definitely not turn a blind eye on potential synergy with the VC’s parent company.
“We can’t deny the fact that by help Bank Mandiri, startups will be able to increase their traction. So that synergy factor, in our opinion, would not only help Bank Mandiri but it will also help raise the valuation of the startups,” he said.
The shift in investment goal from synergy to capital gain follows a similar move made by MDI Ventures, the CVC arm of fellow state-owned firm Telkom Indonesia. Different from Mandiri Capital, MDI, however, made the shift midway through the life cycle of its first, balance sheet fund, having successfully convinced its parent company that the value derived from capital gains is bigger than that obtained from synergy or innovation.
For Mandiri Capital, such a move has never been possible with its balance sheet fund. Like all banks in Indonesia, Bank Mandiri is bound by the country’s stringent banking regulations, one of which clearly states that bank subsidiaries cannot invest in companies unrelated to financial services.
As a result, the firm has focused its investments solely on pure fintech verticals such as payment and lending, and also fintech enablers such as digital signature and accounting platform. Its list of portfolio shows a few bets on the same vertical, which Danusaputro said was inevitable and “not a problem”.
Although Mandiri Capital has started to build up a pipeline of deals for its upcoming fund, the firm is still very much focused on deploying capital from its current fund, which has a remaining budget of Rp 50 billion to back up to four new startups and another Rp 40 billion for follow-on funding.
From this balance sheet fund, so far Mandiri Capital has invested in a total of only 10 startups in over three-and-a-half years – at a much slower rate compared to its peers. Danusaputro attributes this to the nature of the banking industry.
“I can’t generalize all the CVCs in Indonesia, but I feel that CVCs owned by banks are generally more conservative in nature, because banks are used to credit or loan products, not products that we play with which is not credit, but equity investment instruments,” he said.
However, he foresees banks and other corporates in the country playing a more significant role in the ecosystem going forward, driven by the abundance of resources to take on large deals, such as startup acquisitions.
“Startups are being bought by bigger startups, but not by corporates. But it will happen. In fact, this year if we like a startup, Mandiri group may buy a majority stake through Mandiri capital – it’s a possibility. We’ve never done it, but doesn’t mean we will never do it,” he said.