MDI wants to replicate the success story of Japanese telecommunications giant SoftBank’s namesake investment arm in tapping into the rapidly growing capital business in the country, the company’s chief investment officer Joshua Agusta said, adding that the company’s investment returns from its venture capital business were quite encouraging.

He said the company’s total gains from one undisclosed exit last year alone reached Rp 24 billion (US$1.7 million), which is equal to 1.5 percent of Telkom’s Rp 1.55 trillion net profit growth in 2018. MDI’s internal rate of return, Joshua continued, also increased from 28 percent last year to 40 percent this year following three exits (start-ups Whispir, Wavecell and Red Dot) and one more slated for later this year.

With the undisclosed exit last year, three exits this year and the public offering of Japanese startup Geniee in late 2017, MDI has a total of five exits and expects another investment to go public on the Indonesia Stock Exchange (IDX) next year.

“Our aim is to have one portfolio that can drive Telkom’s enterprise value. Like Naspers and SoftBank’s [respective] investments in Tencent and AliBaba,” Joshua told The Jakarta Post in a recent interview.

Telkom is Indonesia’s largest telecommunications provider whose revenue last year reached Rp 130.78 trillion, which almost tripled the combined revenue of the country’s second and third largest telecom operators Indosat (Rp 23.14 trillion) and XL (Rp 22.94 trillion).

However, Telkom was also plagued with slow growth last year amid dropping usage of SMS and voice call services. The company’s revenue grew only 1.8 percent in 2018, far lower than an average of 10 percent in the previous three years.

Joshua said MDI’s new found ambition followed Telkom chief strategy officer David Bangun’s decision earlier this year to give the venture capital firm more room to invest in start-ups needed by the market rather than those needed by Telkom and thus, become a new source of revenue.

Since launching in 2016, MDI has invested in 33 start-ups ranging from fintech, logistics, health and retail to marketing with the former four sectors being MDI’s verticals of focus this year.

Telkom’s decision to make more freedom for MDI is uncommon because companies tend to use their venture capital arms for innovation vehicles more than money-making entities. Cases in point, private lender BCA’s Central Capital Ventura investment arm focuses on financial technology companies while Coca-Cola Amatil’s investment arm, Amatil X, eyes fast-moving consumer goods (FMCGs) start-ups.

Telkom spokesman Arif Prabowo clarified the parent company’s official stance as expecting MDI to invest the “majority” of its funds in “those startups that can be synergized with Telkom’s ecosystem”.

The stance meant that MDI was allowed to invest in seemingly unrelated industries such as health and logistics because Telkom expected them to digitalize over the coming years and thus, require digital telecommunication services, explained Arif.

Economist Ariyo DP Irhamna, a researcher at the Institute for Development of Economics and Finance (Indef), supports the growth of efficiency-seeking local venture capital firms to break local start-ups dependence on foreign funding.

He referred to fellow Indef economist Bhima Yudhistira, who argued most foreign VCs invested in local start-ups, especially e-commerce platforms, mainly to extend their market reach instead of building local industries. As a result, Indonesia experiences an influx of foreign goods and services that only widen the country’s trade deficit.

“Even if Indonesia has the 1,000 start-ups [program] but investments comes from foreigners then there is no point [...] Their investments actually damage the national economy,” said Ariyo in a text message.

However, he also noted that local private venture capital firms were more ideal than those owned by state-owned enterprises in tackling the foreign dependence issue because the former firms were not bound by public service obligations and thus, freer to conduct the high-risk investments associated with venture capitalism.

Tokyo-based SoftBank, a computer parts store turned diversified conglomerate, is a good example because it let its namesake venture capital arm invest $20 million for a then-obscure Chinese e-marketplace named Alibaba in 2000. When Alibaba went public in 2014, those shares were valued at a mind-boggling $60 billion.

MDI announced in 2016 a first funding round of $100 million from Telkom followed three years later by its second funding round of $40 million from Telkom subsidiary Telkomsel Mitra Inovasi (TMI) and Singaporean venture capital company Singtel Innov8.

Going forward, Joshua said MDI would raise next year its third funding round, which is targeted at between $100 million and $150 million, from Telkom and other foreign companies.

Popular

PDI-P will likely be part of opposition: Ganjar

Indonesia one step from Olympics after beating South Korea

Bahlil leads task force to boost sugar, bioethanol production in Papua