Not Enough Capital Goes to Fintech in Indonesia: Alpha JWC Ventures’ Jefrey Joe

Oct 23, 2017

As e-commerce sites emerging and sprawling out across Indonesia, fintech becomes the next hottest question for investors hoping to win the industry in Southeast Asia’s most populated country. News of funding rounds raised by fintech platforms headline media outlets, and the common notion being formed now is that there is already too much concentration in capital within the sector.

But is there?

Jefrey Joe, managing partner of Indonesia-focussed venture capital firm Alpha JWC Ventures, does not agree. Fintech is definitely getting the attention, he admits, but the amount of money going into it is still disproportionate to the amount of investment e-commerce is getting. “There are very few players in the market (in fintech) compared to those of e-commerce platforms. I have to disagree that there’s too high of concentration in capital in this sector,” Joe told this portal.

Alpha JWC Ventures funds P2P lending sites UangTeman and Modalku, as well as Spacemob ($5.5 million), Jualo, Funding Societies ($10 million), Carro, FinAccel, Asmaraku, and SaleStock. The company has invested in total of 14 new firms since it started operating in 2015, and has been involved in at least 10 deals per year, including follow-on and new rounds. The $50 million VC fund is planning to raise its second fund within the next one or two years.

DEALSTREETASIA spoke to Joe about fintech, investing climate, exit landscape, fundraising, changes in the industry, and many more issues. Edited excerpts:- Indonesia is one of the most sought after countries in the region for investors. Where is the challenge(s) in this market? On the industry level, I don’t see a big challenge. I think what will drive growth is the market, which is already big enough. Internet penetration in Indonesia is already above 30 per cent, payment is getting easier, regulation is good, and logistics is not so much an issue. It is still tolerable, at least.

The question we have to ask is how slow or quick the market will grow. The market is now growing at a much faster pace than what it used to be when I started 4-5 years ago when I joined the industry. We now need more investments to grow the market because investment plays the function of educating the market to try new things, to see which product will stick – to get the right product fit – and once they do it it will change or revolutionize that sector. So investment is one of the biggest catalysts that will make the growth of the industry exponential in the next few years.

What do you think of the velocity of investments? Do you think we are investing too much and too fast?

No, I think it’s just right. I’m seeing very healthy balance between supply and demand, and a healthy relationship between the startup companies, founders, and the investors. In a healthy relationship, everyone has their own bargaining power which contributes to making the ecosystem healthier as well. You’ve been in the industry for almost five years.

How do you see the industry change, especially in terms of valuations?

In terms of valuations – one interesting thing that will be different from what we have seen in the past few years is consolidation. Back then the valuation is purely driven by investors, and every investor has their different way to do valuation. Now with all this big money coming in, you will see some of these players will want to acquire good companies, good team and the valuation can change.


Because it now depends on the synergy: if there’s a good synergy then you can pay a higher valuation, but on a distress or not so high synergy, the valuation will be lower. So this is how valuation has changed. What do you think of the exit landscape in Indonesia and how important are exits for you? We will see a lot of exits, and more and more of them will be driven by M&As. Some of these large companies are wanting to do more consolidations, so we will see significantly more exits.

For Alpha JWC Ventures itself, how is your exit timeline?

We are a ten-year fund so we can partner with entrepreneurs for quite a long time. We have a long investment horizon even though we know it’s such an early stage of the fund. It’s always good to have an exit from investors, but for us we are prepared to be long term partner for our founders because we are institutional fund. We think long term. It’s more important for us that founders can build successful and sustainable companies. Remember, successful and sustainable sometimes don’t go hand in hand. The IRR for a company can be very massive but if it’s not sustainable, it can go south in the next one or two years.

We want to look for founders that can build sustainable businesses for years to come because we really believe in the fundamentals of this country. We believe that Indonesia can be a hub for homegrown unicorns and in order to build a unicorn in Indonesia you need to build fundamentals, you need to solve big problems and execute it well. This is why our approach and strategy is going towards helping these founders to realize these opportunities and achieve them.

Since you are focusing on tech companies, do you believe that regional tech companies are facing some kind of glass ceiling when it comes to IPOs?

No, there aren’t specific glass ceilings to break, it’s just the function of the market. As simple as that. Of course there’s a lot of complexities in terms of how companies can win the market, but in terms of structural problems, there isn’t really any specific obstacle. Just last week, Kioson announced their IPO plan.

Do you think this will spur more IPOs in Indonesia in the near future? What do you think of the move itself? Do you think it’s risky?

I don’t think (it will spur more startup IPOs) in the near future. Of course the move is risky. The risk comes more from the risk of the unknown. If you raise from a VC, or corporate, or strategic investors, you know what to expect. But raising money from IPO in Indonesia…there’s no precedent yet. That’s what’s interesting to be seen. Of course (IPOs) are good for the market but it might not be the most important thing from our portfolio perspective. Exit is important, but what’s more important is that whether IPO will help the company to the next step. If you can prove or show that IPO is really helpful for the firm, that’s good. If not then we don’t need to consider IPO as an exit or fundraising.

Do you see more and more VCs moving up to the series B or later?

I don’t see it happening yet. We have always been investing from seed to series B stages because we understand that there’s a bit more gap in series B compared to other stages. In Indonesia, the firms that invest in series B come from outside (of the country) and not from the earlier guys. Usually, local early-stage VCs only focus on early-stage companies because that’s their strategy, and they want to stick to a certain niche where the larger round is being taken by the later stage funds. The number of new startups from 2015 compared to 2016 and compared to 2017 year-to-date, you will see that 2016 is significantly lower than 2015. The market is getting tougher. Investors are getting more conservative, and some of them are raising new funds, and usually when the VCs are raising new funds there’s less liquidity. But entering early 2017 I think there’s starting to be more capital available in the market.

Do you see potential founders getting discouraged from starting up new firms?

I don’t know if people are getting discouraged or not, but it’s very normal for people to get discouraged. They should be (getting discouraged), because starting up a company is not easy. Although, there will always be visionary founders that regardless of everything they’re beating the odds. If you know what’s happening inside: these people leave their high paying jobs to become a founder, in a very humble office trying to sell their dreams and trying to get the first few key employees to join them with very little ammunition. It’s one of the toughest things that you can do to yourself, so people should get discouraged.

What are the sectors that you are currently looking at?

Fintech. The sector is getting more attention compared to other industries. But don’t you think that there’s already so much capital concentration in fintech? I have to disagree with you. Now let’s count, which has more players: fintech or e-commerce? You can count every vertical of fintech using the fingers of one hand. There’s very few players in the market, so I’m not sure if there’s that much capital there. If you see (e-commerce platform affiliated with Lippo Group), the amount of capital they put there is already so much more than the capital in Modalku, UangTeman, and several other fintech firms combined.

So, how can you say that there’s already too much money in fintech? That’s not true. Yes, but how about the big unicorns like Go-Jek, Traveloka, and Grab – which are technically not fintech companies – but buy and invest in fintech in massive amounts? If we look at Tokopedia, for example, what percentage of the money they raised is going into fintech compared to their own B2B market platform, you think. It’s very small. If we look at Go-Jek, how much money are they allocating for their Go-Pay, compared to other services that they have? I don’t know for sure, but I’m guessing it’s small. I’m guessing they don’t spend more than 50 per cent to fintech because their ride-hailing is still very important to them and fintech is an expensive play.

A lot of people say that there’s already so much money going to fintech, but is it that significant?

I don’t think these big companies want to invest that aggressive without protecting their own turf, whether it is ride hailing or marketplace. They will spend a meaningful amount to fintech yes, but they will not go all out.  It’s only the perception, which may be different from the reality. How much money should ideally go to fintech depends on how ready the market is and the availability of the talent. The need is there, that’s for sure. If you ask me if it’s too late to go into fintech, I don’t think so but I believe that the early adopters or boomers will have a significant advantage. We invest in UangTeman, Modalku, and Credivo – they are the early movers and they are in very very good situation. And I think it will help them a lot.

How do we make sure that the growth of the industry is sustainable?

One important thing that every founder should consider is to balance between growth and fundamentals. If any founder grows too much without strong fundamentals, it will not end well for everyone. It will end well for consumer, but it may not be good for investors, for employees, it will lay off in the future. And people are looking at them as the role model right. We have three unicorns from Indonesia and we look up to them and I think they should set a good example. A lot of giant Chinese and US companies are coming into Indonesia to buy and invest in local startups.

How is the competition for local VCs?

VCs are very unique in the way that we can co-invest with others. So instead of competition, we see this as a good opportunity to work together with them. We believe everyone brings their own unique value. Do you have any plans to raise a second fund? We have a very successful first fund of $50 million. Of course we are thinking of raising a second fund, because we think long term. We want to grow our team as well. As of now, we have six people and we are adding more. So definitely we want to raise the second and third fund in the next one or two years. The investment thesis will still be the same: we believe in Indonesia. There’s a lot of opportunities everywhere but it’s about position. We believe we understand the Indonesian market very well, we are locals. We do travel a lot to neighboring countries to see opportunities, and we believe that our positioning is very clear. We want to build the Indonesian market, be it local founders or from abroad wanting to enter Indonesia.

What’s the status of your current fund? How much has been deployed?

We still have more than 50 per cent of capital to be deployed, so we are still in the earlier part of the fund.

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