Indonesian property tycoon John Riady appears caught in two minds when discussing the country’s latest tech unicorn – digital payments firm OVO. “I am always open (to exit OVO).
I’m an investor – so at the right valuation,” Riady said when asked about plans for the start-up. Yet almost in the breath he continued: “I don’t want to exit because I love what the company is doing and it’s so exciting to be part of that journey.
” Of course, it ultimately depends on how compelling an offer that Lippo, as an investor, gets for OVO, he said. “If on a risk-adjusted basis, I think it’s a good time to get out, then I will get out.
I never say never. You know I’m a very practical guy – we’re here to create value. Riady was speaking at a fireside chat at DealStreetAsia’s Indonesia PE-VC Summit on January 15.
He took over the reins of PT Lippo Karawaci, the troubled flagship of the Lippo empire, late last year, and has previously been involved in tech investments for the group. OVO is among its most successful bets, and Riady, the 34-year-old Wharton School graduate, was involved in the launch and rollout of the service.
OVO’s growth has been accompanied by the market buzz that Lippo Group may sell out in what could potentially be the first billion-dollar exit in SE Asia. Last November, Lippo Group founder Mochtar Riady said the conglomerate had sold about two-thirds of its stake in the payments platform due to its unsustainable cash burn.
“If we keep burning cash, we are not going to be ‘strong enough’,” local media quoted him telling the audience at Indonesia Digital Conference in Jakarta. The elder Riady had further added that OVO had been getting about $50 million a month from the conglomerate.
At the DealStreetAsia summit, the younger Riady clarified that the group had not been selling its stake in OVO but its holding got diluted as the payments company “continued to raise so much capital”. “So in that sense, we are a believer in OVO. We love the story. We think it’s very difficult to build a company like that – it’s a very unique opportunity.
So this is one of those examples that I think you need to hold for a 10-year period,” he added. Replying to a specific query on a potential billion-dollar exit, John Riady said: “You achieve excellence by focusing on building a real business.
And ultimately, if you build a real sustainable business, there are many ways to exit including via dividends.” He pointed out that even as early-stage tech investors don’t talk about the concept of dividends, large tech companies that generated positive free cash flows could offer this as a form of exit, and cited the example of Alibaba.
“They (Alibaba) are trading on net income. I hope all of our portfolio companies will grow to a point where they move from trading on GMV to trading on revenues to trading and EBITDA to trading on net income, and then really become a real sustainable and viable company,” he said.
The WeWork after-effect
On the sustainability and viability front, he acknowledged the debacle surrounding WeWork’s scuttled IPO and its impact on market sentiments even as he welcomed the correction. “If you take a look at the impact Gojek, Grab, Tokopedia, OVO and other tech companies have had on Indonesia, they’ve changed the way we work, eat, play and pay in a way it will never be reversed.
However, valuations like in all industries are subject to the swings of market psychology. It would be fair to say that over the last couple of years, the market has swung a little bit too far. And I think events like WeWork are healthy as it allows things to calibrate back to where they should be.
I think that incident has rationalized markets,” he said. Riady said that despite investors’ pullback, “companies that had real business models and were creating real value would be able to raise capital”. He cited the example of Indonesian ed-tech startup Ruangguru, which recently raised $150 million, in a round led by General Atlantic.
“One example of our portfolio companies is Ruangguru – even in these difficult times, they got multiple competing term sheets and ultimately decided to go with General Atlantic.
When you look at Ruangguru as an example, you would think that WeWork has no impact on the market. But I think it is good – It allows the market to self-select,” he said.
DealStreetAsia had first reported the Ruangguru–General Atlantic deal, and the story had added that SoftBank Group Corp had been interested in leading the round of funding but may have decided against doing so owing to recent issues with its portfolio companies, notably WeWork.
Riady declined to comment on whether he was happy that Ruangguru had not gone with the term sheet the company reportedly had from SoftBank. “That’s a question you’ve got to ask the founders.But the principle on which the company’s board guided the founders, and the decision to take the General Atlantic term sheet was based on what would be best for the Ruangguru, and I’m proud to see them do that,” he said. Apart from OVO and Ruangguru, the other notable tech startups in Riady’s portfolio include B2B fashion technology platform Zilingo, online beauty products marketplace Sociolla, as well as the region’s most valuable unicorn, Grab.
On missing Gojek ride
As an early backer of Grab, Riady revealed that his first investment in the ride-hailing giant (via the Lippo group’s venture capital arm Venturra) was only $50,000. He also regretted not backing Gojek during its early stage. “Over the years we have continued to invest (in Grab), and we’ve done incredibly well with Grab.
I’m so excited about what (Grab’s group CEO and co-founder) Anthony is doing. I wish I would have done the same with Gojek,” he said. “I saw Gojek fundraising and at that point in time, they were trying to raise $4 million at (a valuation) US$50 million pre-money. And they were doing about 1000 transactions a day. And we passed. Did we miss Gojek? Absolutely!,” he added.
Late-mover in e-commerce
The chief executive of Lippo Karawaci also admitted he had mistimed the group’s entry into the Indonesian e-commerce space. In 2015, the Lippo Group had announced its e-commerce venture – MatahariMall – the online version of one of the country’s biggest department stores and had pledged $500 million to the initiative.
“At that time it (e-commerce) made sense as we have a lot of merchants. I greatly underestimated the first-mover advantage in the tech space. So very shortly after we launched our e-commerce company, I realized we were late in the game.
And so we shifted to doing digital payments and were fortunate to be the first ones in this space, and we were able to acquire all of our merchants within our ecosystem.
And it became a great success – it became OVO,” he said. OVO, which was founded as a product of Lippo Group’s venture builder, has since received investments from SoftBank-backed Grab and e-commerce unicorn Tokopedia, also a SoftBank portfolio company.
On the rationale to bring both Grab and Tokopedia into OVO’s cap table, Riady said that partnerships were vital to succeed in a large ecosystem as that of Indonesia.
On placing longer-term bets
On his investment thesis, Riady said the group, over the last couple of years, had moved away from looking at it as tech vs non-tech deals. “I look at myself today as an investor in the Indonesian or Southeast Asian consumer economy,” he said. According to him, the other major change the group had made has been to stop investing from a fund.
“With a fund structure, we are pressured to invest in 3-4-5 year period, and then get out in the next 3 years. I think we are at a point in Indonesia’s history, where the most successful companies will continue to do well, and your investments will be great even if you hold on for 7, 10, 12 or even 15 years.
So today, we invest out of a permanent fund, out of a permanent entity – that gives us a lot more flexibility to take on much longer-term investment horizons,” he said.
Core vs Non-core
Riady also highlighted that late last year Lippo Group had undertaken a significant revamp, splitting the business into the core group, which includes its real estate and healthcare operations, with the rest bunched under non-core, which the conglomerate was open to exiting. “Our core business is strategic and we want to be the best operators in Indonesia’s real estate and healthcare space.
So in those businesses, I’m an operator. Everything else I’ve put in an investment bucket, which means going forward, we will take a much more pragmatic approach on how to create value,” he said. “In the past, we looked at ourselves as control investors in almost everything that we did. Today, when it comes to non-real estate and healthcare, we are investors and will take a very practical approach.
But in the future, a lot of the non-core investment stuff we do will continue to be tech, because this is among the most exciting asset classes in Indonesia,” he added.
Outside its core business, the group runs supermarket chains (Matahari Putra Prima), departmental store chain, (Matahari Department Store), cinema operations (Cinemaxx) and Bank Nationalnobu as well as Singapore-listed OUE Limited, among others. In April 2019, DealStreetAsia had reported, quoting sources, that Cinepolis, the world’s fourth-largest cineplex network, had acquired 40 per cent stake in Cinemaxx Global Pasifik for a consideration of $110 million.
Confirming this deal, and using this illustration, Riady said the group believed Cinepolis could run the business better. “And it allows us to be just supporting investors,” he added. Similarly, in the case of First Media and its subsidiary Internux, among the largest cable and internet service providers in Indonesia, Riady said Lippo Group was not built to be natural owners of such businesses.
“Ultimately I want to be in businesses and stay invested in businesses where we are natural owners. In the other stuff we decide to do, let us get the best operators, or find the right partners who can help us do better. And so I think that’s the way we (Lippo) should be doing business.”