JAKARTA -- The recent $1 billion acquisition by China's Alibaba of Lazada, Southeast Asia's biggest e-commerce group, has focused international investors' attention on Indonesia as the region's most promising market.
Although Singapore-based Lazada does not publish detailed sales figures, Indonesia is thought to account for the largest portion of its net revenues, which rose to $190.9 million for the first nine months of 2015 -- a staggering 81.1% increase from the year before.
Experts say the deal illustrates that the archipelago is ripe for big internet deals in a fast-changing environment in which early-stage bets on digital startups could lead to billion-dollar exits in a few years' time.
Few investors take this idea as seriously as Adrian Li, founder and managing partner of Convergence Ventures in Jakarta, a venture capital firm that has made a name for itself as one of the most active early-stage technology investors in Southeast Asia.
Since its inception at the start of 2015, Convergence has backed 16 companies, four of which have yet to be officially identified. This brings the firm's investment frequency to nearly one deal a month. At that rate, the nearly two-year-old VC firm finds itself racing to dole out cash in Jakarta almost as often as more established funds such as Singapore-based East Ventures and U.S-based 500 Startups.
Convergence started with a fund size of $25 million, backed by limited partners from Indonesia and Silicon Valley. Today, the fund's major backers include Bakrie Group, one of Indonesia's largest family-owned conglomerates, and Baidu Indonesia, the local subsidiary of China's largest search engine. Li said the limited partners have no say in the day-to-day operations of the fund or the deployment of capital.
In November, Li announced that Convergence had increased its fund size, but he has not revealed how much money is in the war chest. "Our core strategy is to invest in post-seed [rounds] of a business, and our ticket sizes have generally been in the range of $200,000 to $500,000," Li said in an interview with the Nikkei Asian Review. "Our plan is to invest in around 30 companies in total in the first three years of the fund, while keeping strong reserves for follow-on investments in our portfolio as they progress."
Apart from receiving investments, Li said startups in his portfolio stand to gain from Convergence's strengths as a strategic partner. "For example, our partnership with Baidu Indonesia can help our portfolio in a variety of ways. Baidu Indonesia runs the largest app store in the country after Google Play. Working with them to provide our app companies with strong distribution is one of the ways they can benefit," said Li. Without giving names, he said that Convergence recently connected one of its portfolio investments with "one of the largest adtech businesses in China." The portfolio company is thought to be Adskom, an advertising startup.
Li said that Convergence focuses on startups operating in Indonesia. "While not all of our portfolio [businesses] are based in Indonesia, 100% of the companies have operations and traction in Indonesia," he said. Adskom, for example, has a strong presence in Jakarta but is Singapore-based. It also recently expanded to India. In November, Li said that Convergence and Baidu were hatching a plan for a joint office space for startups in Jakarta.
The companies that Convergence has backed over the past 16 months include Xfers, a payments gateway focused on bank transfers for small- and medium-sized enterprises; Female Daily Network, a media portal and forum for beauty products and cosmetics; and YesBoss, an on-demand service that gets consumers whatever they want -- so long as it is legal -- via SMS.
Mostly under 30
Xfers is a startup that aims to make it easy for anyone with an online bank account to collect and make payouts automatically. Li said the company is one of the fastest growing payment startups he and his partner Donald Wihardja have seen. Wihardja is a former country manager for e-commerce payments provider 2C2P in Indonesia. Li declined to give figures, but said Xfers is targeting a promising market by helping SMEs and individuals who are selling online for the first time. Li said these users are the "backbone of Indonesian e-commerce."
With a population of 250 million, comprised mostly of people under the age of 30, Indonesia has enjoyed a relatively strong economy in recent years, and is seeing rising levels of consumption. "As a market segment, women are the most sought after in e-commerce, as they have strong spending power," said Li. For this reason, Convergence backed Female Daily Network. "FDN is now the largest site for cosmetics and beauty reviews in Indonesia, attracting over 3 million total monthly visits. With female commerce exploding in Indonesia, [FDN has] huge opportunities going forward," he said.
YesBoss is perhaps one of the riskier bets Convergence has made. The business model has yet to be proven, although it is essentially a clone of Magic, a popular Silicon Valley-based on-demand service. Some commentators have questioned the startup's ability to scale up its offering, since each transaction requires a person to liaise directly with the user via text messages. But Li defended the investment, noting that the startup plans to begin using artificial intelligence soon.
"YesBoss is particularly interesting because they build off Indonesians' affinity to chat in order to enable transactions," he said. "The technology behind this that allows them to scale up is the same type of magic sauce that most recently was also highlighted in Facebook's F8 [a developers' conference], when they demonstrated chat bots that could respond to users' requests on Messenger [a text and voice communications app]."
Other Convergence investments include Black Garlic, a meal kit delivery startup, Singapore-based matchmaking app Paktor, and Qraved, a discount finder and source of inspiration for food lovers, which Li helped to found.
Although he left Qraved to build Convergence Ventures, Li stands by the startup, saying that co-founder Steven Kim's previous experience at Rocket Internet, the German investment company that founded Lazada, makes Qraved a good bet in Jakarta. Qraved's most recent funding raised $8 million from investors including Convergence, Richmond Global Ventures of the U.S., China-based Gobi Partners, 500 Startups and Toivo Annus, a co-founder of Skype.
In July 2015, Convergence participated in a $7.35 million second round of funding for Paktor. "We saw that no single dating platform had achieved leadership and dominance in Southeast Asia, and again, having seen this as an industry that took off in China, we believed there was an opportunity here," he said, adding that Paktor currently has 7 million regional users, with 2 million in Indonesia. Convergence expects Paktor's revenue to top $10 million in 2016. In Jakarta, it will compete indirectly with other apps growing in popularity such as Setipe and Wavoo.
With big investors such as Alibaba, Sequoia of the U.S. and Japan's SoftBank taking Southeast Asia's largest economy ever more seriously, Convergence aims to build a nest from which larger investment businesses can cherry-pick startups. "Convergence Ventures will have some exciting announcements coming up in the next six months, with additional investors coming into the fund, and news related to the progress we have made with our portfolio companies," Li said.