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Eddy Chan on Indonesia-Only VC, SEA Turtles & Doing Less Better (Part 1 of 2)

· Indonesia,US,Podcast Episodes,VC and Angels

I mean, because we're the only game in town, we don't win based on price. We win based on operational dependency on our product. Not all revenue is created equally. - Eddy Chan

Eddy Chan is a founding partner of “Indonesia-only” independent early-stage venture capital firm Intudo Ventures, that acts as the Indonesia beachhead strategy for dozens of leading institutions, VC/PE/hedge funds and family offices from the United States, North Asia and Southeast Asia and supports the “digital transformation” strategy of dozens of Indonesian conglomerates. Intudo portfolio companies include Xendit, Halodoc, TaniHub, Kargo, PasarPolis, BeliMobilGue, Yummy Corp., and more.

He is a founder and venture investor with expertise in founding and operating companies, venture investing, business development, human resources and corporate finance.

Prior to co-founding Intudo Ventures, Eddy invested in and advised startups since the late 1990s, including PayPal, Palantir, and Affirm, founded and operated venture-backed technology companies with operations in Silicon Valley and Asia, practiced corporate/M&A/private equity/venture capital law in Silicon Valley and Asia at Morrison & Foerster LLP and represented companies as an investment banker.

Eddy holds a J.D. from Georgetown University Law Center, where he was a Global Law Scholar, and a B.S. in Business Administration from the University of California, Berkeley’s Walter A. Haas School of Business.

You can find our community discussion on the podcast episode at

Jeremy Au: [00:00:00] Hey, Eddy. Good to see you.

Eddy Chan: [00:00:33] Thanks, Jeremy. Really appreciate you having me on the podcast.

Jeremy Au: [00:00:35] It's an absolute pleasure because I first got to know you right before the pandemic in Harvard, hearing you share about why you're so excited for Indonesia. Breath of fresh air to hear you speak back then at Harvard Business School, and now I'm glad to be reconnecting with you and getting to share your personal journey and your insights with the broader audience.

Eddy Chan: [00:00:57] Sure, really appreciate it. That was my last flight in fact. My last trip was in Boston with you and a number of the Indonesians on campus and got back here March 2nd. In San Francisco the world's kind of been shut down.

Jeremy Au: [00:01:07] The end is in sight. Hopefully not the end of the world, but the end of this lockdown with the vaccines coming. I always joke, pandemic plus a rushed vaccine equals the start of every zombie apocalypse origin story. It is what it is. Yeah, so for those who don't know you yet, why don't you share a little bit about yourself.

Eddy Chan: [00:01:29] Certainly, so I'm more than happy to share a little bit about my background and kind of what brought me to today with our Indonesia-only, independent venture firm. So personally, I was born in San Francisco 40 or so years ago in the late '70s. Right around that time, after water, food, and shelter had been solved in Taiwan, Korea, and Israel, those countries sent the largest body of graduate students in the world to the United States, so that plus my parents because my parents are both 10 generations each from Taiwan.

So no, they took a lot of the learnings they had studying in the United States and in the '80s, I had the fortune to grow up in each of Silicon Valley and Taiwan, back in Hsinchu Science Park where companies like TSMC, founded by Morris Chang that grew up in Taiwan, had the chance to go to MIT, was at Texas Instruments, took some of that know-how and went back in the '80s to really build out the tech ecosystem in my hometown of Hsinchu, where TSMC as we all know, today is arguably one of the top 10 most valuable companies in the world by equity market cap.

So I certainly saw Taiwan's technology ecosystem really get transformed and really pushed by a lot of us, what we call sea turtles. In Chinese, we call them 海龟 , which you know have credited with rebranding a Southeast Asia turtle to some extent. In that case, I saw firsthand in Taiwan with my parents, in my hometown. I certainly saw that in Israel, about 80 or so researchers moving back in the '80s together with a number of Russian Jews, et cetera, really propping up that ecosystem together with the in-country talent, and of course to some extent in Korea.

So in the '80s there was a lot of flavor for that. In the '90s I moved back to the United States, got my initial exposure to, I would say really venture capital in each of high school and in college. I had the privilege to work at what I think is the leading bank covering technology companies, at least on the commercial side and venture debt side in Silicon Valley Bank at a very young age. My first paid internship back then I think was $15 an hour or so.

And I also had the privilege to work at one of the leading technology investment banks called Montgomery Securities, which won the four horsemen back in the '90s along with Alex Brown, Hambrecht & Quist, as well as Robbie Stephens, so I had the privilege to do that. Also, had the fortune to work at a venture firm whilst in my days in high school and college, that was backed by a number of Asian governments and technology conglomerates out of Asia.

Now, I think that's really what really changed my life in that back then a lot of these, if you will, financial conglomerates did not have exposure to online banking. So back then, they didn't call it fintech. Today they call it fintech maybe the last decade, but 20 years ago it was called online banking or online finance. Through that and the person I had the fortune once... Going back to serendipity, which is part of our firm name, the gentleman that I had a chance to work with at Silicon Valley Bank connected me with the founders of PayPal and so I had the fortune to work with the founding team there on investment into the business.

Ultimately had the fortune to help with some of PayPal's efforts in Asia. Ultimately PayPal went public, sold to eBay in 2003. Peter and the team started a firm called Founders Fund that I had the privilege to be at, small investor in all these years, and today Founders Fund along with about 25 other of the top VC funds or the founding partner thereof in Silicon Valley have deployed capital into Intudo Ventures, really to attack the Indonesia market.

Similarly, at the time, Peter had the chance to start another called Palantir, so I've really been fortunate that a number of calls to founders and execs there have been part of our journey here at Intudo. And then Elon, of course, did companies like SolarCity, Tesla and SpaceX so got some exposure there. And then, last but not least of course, with Affirm as well, so with Max and the team there, so it's been a pretty incredible ride.

After undergrad, I had the chance to do banking, traditional route in New York and San Francisco, learned a lot there through my analyst friends. We had about 100-person analyst class, 10 of which are still best friends forever, and we are very close dialog with. Then I actually went to law school out in DC at Georgetown. I was in a global law scholar program where they took, call it one to two students a year focused on China, so once again, this comes back to the sea turtles.

I really had a kind of first-hand, front-row seat to really see China's venture ecosystem, call it from the early 2000s where in 2000 you had Sina, Sohu, and NetEase go public, which for folks in large part that went to Dartmouth and Stanford. Once again, folks that grew up in China, had very great understanding in-market, get a little bit of a global exposure, very sensitive. Call it best practice but I call it global exposure, and then in turn go back and take a lot of the learnings and pair that with a lot of the in-country talent to really launch those businesses.

2003 we of course saw Ctrip list, which was Neil Shen out of Yale, and then '04-05 of course, you had Baidu list with Robin Lee out of Buffalo. So really sea turtles once again I thought did make a pretty big impact on Chinese tech ecosystem. Once again, early days but I kid you not, you have to call '08, you end up having kind of, if you will, two parties. You got 本土派 or 海龟派 so sea turtle or local, so I feel early ecosystems take a lot of learnings from sea turtles.

But over time, as those ecosystems scale if you will, the next generation talent certainly does come out of those next-generation unicorn companies, Baidu, Alibaba, Tencent, JD et cetera, so I really had a front row seat covering '03-04. The Valley VCs start learning about a place called China. They make their maiden voyages. '04-05-06, they start their first vintages of funds. You know the names, Sequoia, China Matrix, kind of et cetera, many of which I had the fortune to represent in my capacity as lawyer when I was based in Hong Kong, Shanghai and Beijing in a firm called Morrison & Foerster.

Come 2010-11, though, I will say, a lot of my clients started looking at Southeast Asia, Indonesia in particular. Certainly in private equity funds, certainly a launch of the major banks. Frankly, at the time, I think 2011-12 is really the inception of the venture ecosystem in Indonesia. Some dear friends of ours that are pioneers in the ecosystem started deploying capital and I thought at the time, call it 40-50 million people on the Internet. But today in Indonesia, I kid you not, it's 200 million people on the Internet, fastest Internet growing country in the world they call it, 19% year over year growth.

India's clocking at 12%, China's clocking at 1%. US, Korea, Japan, developed markets almost zero, so it was really exciting. I saw that and of course, growing up, certainly in Taiwan, 1% of the population of Taiwan is Indonesian, so call it 240,000 Indonesians in Taiwan, so I had a little bit of exposure there. I didn't move on my thesis at that point, to be frank. Maybe I thought it was a little on the early side. After investing for over a decade, doing banking, doing law, really call it more 10-20,000, 30,000-feet experience, I thought it was critical to get more operating experience.

So with kind of a lifelong goal that if I wanted to be a founder or to be an investor with credibility, and sit across from that founder, and really be able to kind of sympathize with them and understand what they're going through, it was critical to get more hand-to-hand operating experience, so I moved back to Silicon Valley. I joined a company that was a client of mine in the robotics space, so identical board to Palantir, so I had the chance to kind of get the company close to profitability, put some other executives in place.

Together with some of the founders there, I really had the privilege to be a founder of my first company in Silicon Valley, a smart-home Internet of Things company focused both on safety solutions as well as, call it heating solutions, in both the United States as well as in Europe. So we had a chance to raise a substantial amount of venture financing, call it $40 million, went into a couple 1,000 retail stores in the United States, so call it Best Buy, Amazon, kind of Lowe's, et cetera, signed a number of enterprise contracts, both in Europe, Asia, Silicon Valley, with Comcast, et cetera.

Put more of our gray hair CEOs, if you will, in place in 2015, a couple of years into it, kind of somebody who had taken public company roles and really that's getting back to the word serendipity. Serendipity really brought me to Indonesia. I got a phone call from one, if not my best friend in Hong Kong saying, "Hey, Eddy, you really should talk to my college roommate from 20 years ago that is kind of transitioning out of Goldman Sachs, having set up Goldman Sachs Investment Partners private equity and venture capital practice in Indonesia. Given that he's multi-generation Indonesian, he's looking at doing deals in Indonesia and globally. You guys might hit it off."

So we had the fortune to have this phone call, if you will. Thereafter, had the chance to continue our dialog in 2015 and '16, spend some time in person, both in Silicon Valley as well as in Indonesia, run some money on our balance sheet to really get to know each other some. It's not like we just met and decided just to go start a fund. Starting any company is really a journey. The average lifetime of being a co-founder with somebody, whether it be a fund or a company or just an LP in a fund, is longer than the average marriage in those countries.

The US is clocking in at eight years, so I mean, a typical fund life early-stage is 10 plus one plus one. In our case it's eight plus one plus one. Similar with a company. I mean, you look at Palantir going out after 17 years, Airbnb after 12 years, so really got to really know what you're signing up for. So we had the fortune to really do hundreds of founder interviews over the course of, call it a year and a half, along with our other co-founder, Tim, that's a multi-generational kind of friend of ours.

I mean, in that case, he had bought an OTC platform in Indonesia and found that he had more user base in, call it one or two years than several years in Taiwan, so really telling me that A, there's a parallel in that. At least when you look at Starbucks, I mean, it made no sense to us. People are paying the same amount for a Starbucks in Jakarta in an office building, we would have seen in Silicon Valley, although call it GDP per capita it's called, 10 cents on the dollar and could be a function of kind of millennial consumption, et cetera.

But it was a similar parallel to what we saw in China in the late '90s where Starbucks went in together with one of Intudo's named LPs to set up shop in a JV where, I kid you not, in Shanghai and Beijing, I thought it was crazy when I used to spend time out there that once again, similarly, a 10 to one ratio if not more. A 15 to one ratio on GDP per capita, but that same person, I kid you not, is spending that same amount of money, spending $30-$40, call it 5% of disposable income on Starbucks.

So seeing that, we were very encouraged and Indonesia being really a domestic consumption-driven country with 60% of the country's GDP driven by domestic consumption, more akin to the United States, it was very encouraging so '15-16, ran money on our own respective balance sheets. I think really that's what gave birth to Intudo Ventures in that. I kid you not, '15-16, we started seeing our first unicorns.

2011 to 2016 was really Internet 1.0. We had companies like Go-Jek and ride-hail. You had Traveloka. Certainly we saw Tokopedia and you saw GoJek's round really that summer of 2016 with $550 million coming in with a lot of the global guys, KKR, call it Warburg, kind of et cetera, that really put kind of Indonesia on the map if you will.

So when we came into the market, call it in early 2017 to launch our first fund, I do feel that we had to go in with a very differentiated strategy, and looking back at it, really that is what formed Intudo Ventures. So Intudo really embodies kind of the core principles or values of the three founders, where integrity, sincerity, with an appreciation for serendipity. In Bahasa Indonesian language, it's integrated as integritas, tulus, jodoh and you put that together, you get Intudo.

I think the thought was really to build a platform long-lasting that would hopefully last multi generations, multiple funds if not generations and survive generational transfer. We're very hesitant to name a firm after ourselves. We may die or at some point, assuming we don't have eternal life, or also, naming it after something, it really pulls us back in. Whether it be the US and a developed country or a developing country, I would argue, there always is a tendency, particularly when you're investing very longterm, to have a desire maybe to take shortcuts.

And I'd be lying if I said I haven't from time to time, but really in those moments I think these core values bring us back and kind of keep us in check, whether it be at Intudo level or at the portfolio company level, so that's our name. And in terms of differentiation, I think that looking through, it really comes back to what we call the three ins of Intudo. A, we're Indonesia-only and I think that runs contrary to what we see a lot in the market, and I think a Southeast Asia regional mandate, I think is a brilliant idea, call it in 2011-15.

I really credit a lot of the pioneers in the ecosystem as well as the investor base really, encouraging these funds to kick off, but we did find, call it by 2017, that honestly that in order to really build at least a consumer-facing business, that Indonesia was kind of a critical part of a mandate at any company, that you kind of almost have to come in-market. Unless you're a Vietnam-only company and raise a Series B, you wouldn't be able to even raise a Series B.

I call it a $10-million equity financing, given that it represents 45% of the population of Southeast Asia. But on top of that I'd argue, you take the next three countries combined, it doesn't hit that scale from population but some may argue it's poor, but I'd actually dive deep and argue that, from the GDP per capita perspective, you add Philippines in, it's actually a little bit lower. You add in Vietnam, even lower.

You add in as well as Thailand in that Indonesia itself represented, call it more than the next three countries combined from an online commerce perspective, so we felt that the path to becoming a unicorn required that you came through Indonesia. So in light of that we decided to take an approach called Indonesia-only, that we would exclusively back Indonesian home-grown companies, and I think that was very special. Overnight we were able to wipe out, call it 70% of the companies in the market that we could just overnight not have to meet, which I thought was very, very special.

Secondly, we decided it was very critical to be an independent fund and the reason I say that, looking in-market, we had a feeling that the overwhelming majority, if not all of the funds, were heavily anchored by, call it one or two, if not three major families who, call it single conglomerate affiliation risk and we don't think that's very much of an issue at, call it late stage. But in our founder interviews, we found that many founders often were concerned at too early in a process in a country you may say are dominated by 50 to 100 families.

You work with Group A, it may be a challenging to work with B, C, D, E, F, G, so we thought it was mission critical to build this independent identity, such that Intudo, the founding team, really is the biggest investor in each of our first and second vehicles, to make it clear that we stand the most to lose financially, but more so our time. But also that ultimately, to the founder, that what they're getting is that there's no ulterior motives, if you will, so that independence really worked to our advantage.

And lastly, I think this involved strategy and we're able to be involved because my co-founder, Patrick, and our six associates, all of which are multi-generation Indonesians, sit in Jakarta every day of the week as opposed to being spread across six or seven countries. And then B, we want a very concentrated strategy. I've argued maybe the most concentrated strategy in the market, more like a private equity fund and time will tell if this is right or wrong.

Ask me in eight to 10 years, but in light of that we do call it one deal a quarter, four to six deals at most a year, and four years in the aggregate we've done a total of 22 investments, so we could put all our resources in one market, day in, day out. And I think that's really out there and very controversial, but I think if you were to ask anyone in 2021, one would argue it's not that we had a crystal ball that maybe we did the right thing in that I'm not saying I predicted COVID, but ultimately throughout COVID we realized we almost became the only game in town, in that in-country, we all say in Chinese 远亲不如近邻.

If you have a fire, your neighbor is the one who's going to save you, not your blood relative like Eddy Chan. I'm not going to be able to fly into Jakarta and save my team. I think being the only investor in a market really benefited us during that process and really being that in-country first responder. I think the independence really worked in that most managers often heavily linked by one or two major families.

They had to go focus on that core business, whether it be palm oil, call it retail, residential. Maybe VC wasn't pre-eminent there, so we could continue just being very disciplined in good times and bad times, just investing in even keel. And the last piece of being involved really worked in that a lot of more index fund-based investors had, call it 50, 100, 200 companies across six or seven countries that they might not speak a local language.

We were able to really support, given that we have a grand total of 20 companies all of which sit in one market. So yeah, that's kind of what brings us today. I know it's quite long-winded. We've really enjoyed our time and are very grateful for you having me on the podcast.

Jeremy Au: [00:16:34] Yeah, amazing. There's a lot to unpack there, so we're going to go slice this and dive a little bit into each one of them. I think you mentioned three major parameters, right, I think the first, obviously, is your own personal journey and so forth, and then the second being Indonesia as a market, and then thirdly, of course, how your firm approach is different from other VCs in the region. Let's just go straight to, say, look at Indonesia as a market and then we'll kind of go through it and talk about your personal life as part of it.

Why is Indonesia interesting, so I mean, you mentioned GDP per capita, you mentioned digitization, but what's the essence of it? Is it the dream that it's the biggest, Southeast Asian country in Southeast Asia? Is it because it's got the scale and the domestic economy? What exactly is it that makes you choose Indonesia across all geographies? I mean, there's Africa, there's LatAm still is emerging, so what is it about Indonesia itself?

Eddy Chan: [00:17:39] Yeah, so honestly, I think that getting back into it, I had the fortune to really see, once water, food and shelter gets played out in any country, once you have your bare needs, you start buying kind of what you want. I would say I saw that first-hand growing up in Taiwan, call it in the '70s and '80s, certainly Taiwan, Korea, call it Israel, Asian tigers. We certainly saw that in the late '90s and 2000s. With respect to Indonesia once again, I think it's just kind of, if you will, pattern recognition, serendipity.

I'm not saying I had the foresight. It was really that phone call, very unbeknownst to me, that brought me to Indonesia. It's not that I was sitting around just thinking, "Hey, when am I going to return to Indonesia?" It was really a phone call. I happened to be at the right place at the right time, just the stars aligned. I mean, if you look at population, certainly I mean, I don't want to bore the viewership with the details as they're probably more familiar than even myself.

Call it 70% of people younger than 40. It's the inverse of what we're seeing in developed markets. Call it China, Taiwan, Hong Kong, United States, the inverse pyramid, so I think, yes, demographics are very exciting. People call it mobile first. I'd argue it's mobile only. You see a lot of countries where the US, you had cash, you had traveler's checks, then checks, then credit cards, then maybe digital payment.

I think in China you probably skipped, call it checks, or skipped maybe even credit card and went straight to digital payment. I would argue Indonesia, we probably skipped credit card, iPad, tablets and then went straight to mobile, so mobile only in that respect, and then secondly went straight to digital payments, if you will. So I do think that those macro factors are very interesting, but I do feel for us, if I were to look across Southeast Asia more broadly, I'd argue the path to becoming a unicorn or a decacorn for sure goes through Indonesia.

You can ask Grab, you can ask almost anyone. If they're not going there by Series B, I think it's almost unrealistic to raise a Series B, so I think it's possible to run a regional strategy, but I just feel that requires massive AUM, in that if you need world-class... I describe it like a buffet. It's eight different languages, family power structures, regulatory, kind of et cetera, and to call it a region I think is over-simplifying it.

EU, arguably there's a regulatory body. I would say ASEAN is more a loosely affiliated program, if you will, and so I think that's step one. And to say that Spain's the same as the UK, I think it's quite an overstatement, so ultimately the way I would describe it today, is to say that you're going to cover Indonesia from Singapore is akin to saying that you're going to cover Silicon Valley from Chicago, except there's different language, family power structure and regulatory.

And I'd argue you could do that maybe in 1971, but not after 1972, after Kleiner Perkins opened its office on Sand Hill Road, and so similarly I think that if there's that under-appreciation where, I kid you not, you'll need a world-class chef to cook Nasi Goreng. You'll need a world-class chef to cook Pad Thai, Pad Thai, a world-class chef to cook Vietnamese Pho, a world-class chef to cook Singapore Chili Crab.

Otherwise, my sense, if you don't have the right AUM and the right approach, where one size fits all approach, is you're going to end up running a very mediocre, third-tier food court and a third-tier strip mall where Eddy Chan's the one cooking the Guatemalan food and the Guatemalan's going to be cooking the Japanese food. It just doesn't work that way and so that's my ultimate feedback is that, do less better. It is the market to date, at least in Southeast Asia, we've seen the only other market to generate unicorn-facing companies are more in the consumer space. Maybe in Vietnam you've seen a handful of them, but for the most part it's an Indonesia-only strategy or a regional strategy with Indonesia being the core, whether you look at Shopee ,you look at almost every company would be my feedback.

So you ask me why Indonesia only at that's the reason. Also, that's where we're strong, like that's because my co-founder's been there for multi generations, setting up Goldman Sachs's efforts in 2012. It's my six associates, all of which grew up in market, studied abroad and came back, and so that would be my thesis. And if I were to look at early dynamics, getting back into it, if you look at the majority of Indonesian unicorns, similar telltale of signs in that.

It was often folks that grew up in-market, had the chance to go abroad and then come back. I mean, you look at where you went to school at HBS where, I think there's three Indonesian companies in the last three years and we've been privileged to be the lead investor on the board of every single one of them, focused on Indonesia. You look in 2011, certainly with a lot of locals here, whether it be Nadiem, certainly with Ferry Unardi, with Anthony over at Grab, so we really saw that firsthand.

I think a very telling statistic is that 92% of companies with a valuation over $100 million Indonesian technology, have a founding team member had exposure to the United States, so I think that's pretty interesting. If you look at Intudo, I would say 95% of our businesses have a founder that got global exposure. Well, I'm not saying that's a prerequisite. Certainly it's been some incredible companies and we really like that mix, if you will, founders that got global experience and came back and then also folks that maybe have stayed throughout their career in-country, so they didn't miss the last couple of years of development.

And we pair that, and it's really kind of magical, so in my last comment, I think that why we think this strategy, at least works for us, and I'm not saying it's perfect for everyone, is that no one realizes this, but Indonesia maybe 45% of the population is Southeast Asia, if you will by population. In terms of students from the United States, Indonesia is maybe the under-indexed market in the world for students in America, and I'll draw an example.

Last year in grad school in America, there's a grand total of approximately 1,600 Indonesians enrolled, okay? If you look at it on a per capita basis, Singapore, which is a country of one 50th the size, had approximately 1,400 something, so ultimately it's a 50 to one ratio. So Indonesians represent 45% of the population in Southeast Asia, but they only represent 10%, I kid you not, 10% of the Southeast Asians in America, so if you run a strategy getting back to it, where you want to work with a lot of the talent, let's say globally where, like I said, one in three of Intudo's companies, no one realizes this, is actually sourced in the United States.

In light of that, we are the only firm as far as I understand, that invests early stage in Southeast Asia, that has somebody like myself that spends more than half my time in the United States on campuses like where you went to school, HBS. Every year for the last three or four years, Harvard Asia Business Conference Intudo is a sponsor. Actually it's the sole VC sponsor generally outside of global firms like GGV and others. And then also a speaker every year, so we have the privilege to really build long-term relations, really for the long haul.

People that want to be founders if they want to after a couple of years, we work with them, bring them back and deploy. Back in 2019 Indonesian, they're doing a wonderful business in-market. We backed the 2018, that's a dear friend of yours, [Levvie] in the genetic space. We backed the 2017, similarly out of GSB and I think that the moral of the story is that if you run a Southeast Asia strategy, if you hold an event, you have to meet 10X the volume of the people.

So it's very not focused in that I'd argue maybe the Vietnamese person may not be interested in what's going on in Indonesia. The Singaporean might not be, so I think it's just Indonesians, I kid you not, like I said, 1,600 versus Singapore and so when I hold an event, arguably, 100% of the people are Indonesian, focused on technology. I've been to many Southeast Asia events that, not because they're not great. I really enjoy them, but you meet people of all different ages from all different countries.

Half the time they're there to meet a boyfriend or girlfriend. Maybe others want to get free food, and ultimately it just ends up being not very directed and kind of an epic fail, if I describe it, and I've talked to many managers that ran a program and they're very frustrated in that the quality of constituents at these events is not very good. I'd recommend that even though they run a regional mandate, they should just cut it into Vietnam-only night, whatever.

I'm not trying to be overly exclusive, but ultimately it ends up just not being really good for anyone and that's my thesis why this strategy works in that I can show up on campus at HBS. Generally there's two or four Indonesians a year. In one dinner at Mark's last year the night after I saw you, I had every single Indonesian in the whole school there, grand total of two undergrads, all at the dinner. A grand total of seven HBS people, all at the dinner in one sitting, whereas you run that strategy with China where it's 100X the volume of people in America, at HBS it's 90 people here.

I could be there for a month and not meet all of them. Singaporeans similarly, so hence that's our Indonesia rationale. Our own strategy and in part it's just a numbers game. If I try to run a Southeast Asia strategy, I could spend the whole year just meeting people.

Jeremy Au: [00:25:28] Yeah, so just to paraphrase that, I think you saw that obviously lots of emerging markets but you have a conviction that Indonesia is at an inflection point where there's a ton of great opportunities and great unicorns that are waiting to be built. Second, you saw the opportunity to build a concentrated strategy by your personal connections and professional certainty around how to do so.

And then thirdly, I think you saw the angle around talent as well, which is actually relatively unique, so I think there's something interesting here, right, which is that lots of people are thinking about Southeast Asia, lots of people are thinking about Indonesia. And even today I think we see even more and more US and Chinese companies that are coming to the region. They're setting up shop in Singapore, they're setting up shop in Indonesia, so I'm just kind of curious what are common myths that they have that you like to clear up?

I know you mentioned one of them, Southeast Asia is not Southeast Asia, but what advice would you normally give to them to clarify things so that they don't go off and start on wrong foot?

Eddy Chan: [00:26:30] Yeah, I mean, this is not rocket science, getting back to it. It's just really taking a very hyper-local mindset paired with a global mindset. And getting back into it, I think that we've taken a position that Southeast Asia's a fallacy at early stage. I'm not saying, for growth investors I kid you not, you can write a $20 million ticket. Be my guest. Sit in Antarctica, you can cover all the deals because like I said, the Indonesia investor ecosystem, keep in mind, in 2017 in January, around the time we launched Intudo Fund One, there was a grand total of 15 companies, I kid you not.

One-five companies had a valuation about $25 million. Two years later, when we launched our second fund that's focused on Series A, there was a grand total of 30 companies with a valuation over $25 million in Indonesia. Two years later, those ecosystems doubled, so I call it doubling every two years, so it's kind of like you roll 72 divided by two, so that's very encouraging. Now, in terms of the global majors coming in, absolutely.

I mean, in the quest for growth, every single business in excess of $500 million, as we all know, has taken kind of a side in the Chinese proxy wars. Call it Ali-Softbank , call it Tencent, JD, Meituan . We're certainly seeing the US majors as you alluded to, certainly Google taking positions in Tokopedia, as well as GoJek, Facebook, kind of et cetera. I don't want to belabor the details, but getting back I think that you really got to cut it and be hyper-local.

It's not about money, like how much money you have. Are technologies better? You really got to understand on-the-ground combat. I really parallel this to the Vietnam War. Is there a doubt that the United States technology was superior to Vietnam in the 1960s and '70s in warfare? Was there a doubt about capital? Anything that requires on-the-ground combat, it's very easy to underestimate what you're getting into, whether it be my dear friends that were former Uber GMs, that I work with, out of Kargo, out of Beam, et cetera.

It's very easy to underestimate the need to take cash versus only be able to take credit card. And also Southeast Asia, A, is a fallacy in that it's eight different markets, family power restrictions and regulatory, so just popping into Singapore or whatever, once you go into these countries, there's a lot of business models that do not travel well, particularly when you talk about regulation.

Particularly fintech businesses, in my experience, don't travel too well in that there's different regulatory regimes. In-country Indonesia, if you want to get a crypto license, you want to get a broker's license, you want to get an insurance license like a lot of businesses that I love to invest in have beautiful regulatory moats. Think of PasarPolis and insurance. Think of a crypto business that we did that's still undisclosed. Think of a lot of OJK business in the P2P space where I would say finance businesses generally don't travel so well.

If it's purely over the Internet, then I would argue yes, provided that you're not dealing with regulators that block you out. Think of China, for example, vis a vis in Indo where... Yes, Facebook is dominant. Google is dominant, that's because you don't have an in-country situation where it's just blocking the counterpart of Yao, or look at India, for example.

So Indonesia, what I really enjoy to see is that the government has been very forward-thinking from an omnibus bill perspective, really making more clear what the capability on FDI, so encouraging FDI. You see the sovereign fund now getting commitments from the United States, call from Japan, call from et cetera, so I do think that for foreign companies to come in, A, Southeast Asia is a fallacy.

B, I would really just encourage them that Indonesia, to some extent, is not a homogeneous market. Everyone talks about the glory stories about, "Ah, rising middle class, mobile penetration," but you really got to dice the market themselves. Let's talk about Indonesia. We're very public about this at our annual meeting. We're really privileged to have hundreds of institutions join us globally, sovereign funds, fund of funds kind of you name it.

The best thing that I came out of that after the annual meeting, was getting many private phone calls saying, "Eddy, I'm very grateful that you just told us that Indonesia's not a 270-million person market. It's really what type of company you are." A, first is what we call the elites, call it four million people, four million people with about $134,000-135,000 GDP. I'd want to compare that to Singapore, okay?

So you got the Singapore of Indonesia. Okay, so that I get. You can sell them certain high end products, upper middle class. The next bucket is the next 50-million people. I'd argue that's called a $6,000 GDP, more akin to kind of Thailand as a whole, so one thing I'm not saying, Thailand is that blended average. I'm sure you have to bifurcate that. So yes, most of my companies, I kid you not, for the most part they can certainly service the $135,000 GDP. They can certainly, for the most part service the 50 million people.

The next bucket is the next 100 million people, so call it the middle... not to the rising middle class. Call it at $1,200. Certainly a lot of my businesses, call it TaniHub own agriculture marketplace, gets closer to the bottom of the pyramid, I think yes. And then the last bucket, which is what we call the bottom of the pyramid, which is call it $800. That's kind of below kind of the global poverty line, certainly encouraging, seen some momentum there, but I would be really lying if I told you that all my companies can get actually down to the base of the pyramid, so people telling you that it's a 200 selling million-person market, if we sold one Coca-Cola to everyone there, it's really fictitious.

So ultimately the moral of the story getting back to telling global players that, "Don't just look at populations, don't look at means. You got to look at medians, you got to bifurcate the market." And secondly, I think a lot of these ad-driven businesses and I think I read this somewhere and heard, is that you talk about Facebook and Google, about "Oh, my God! They're dominant," and a lot of people going, "There are so many eyeballs there. We should run an ads-based business," and frankly, we're pretty skeptical to date.

It's not say it will never happen. Yes, there's a lot of eyeballs, yes, people in Indonesia spend, call it four hours a day. A lot of Southeast Asia, it was top 10, but I would dive deep and understand the advertising revenue from a lot of these businesses. The total TAM, I kid you not, for revenue in advertising, my understanding is digital advertising is about $800 million per year in Indonesia.

And if you want to put that in context, I forgot the number, if it's Facebook plus Google, and just kind of their ads, $100-some billion. So Indonesia may be the third or fourth country, but in terms of what they're monetizing on, whether it be Instagram... And this is public news. I'm not sharing new information, it's less than 1%. It's a very small fraction, so I would encourage a lot of those... A lot of the businesses ultimately we find, have to be transactional at some state.

B2B businesses with very solid margins, or transactional marketplaces that ultimately really are embedded finance companies that start as a transactional model, no different than a square, understanding what your customer is, and then really getting... So, if you will, margin expansion, by launching these kind of lending products in a market that, I don't need to belabor the details, lack of bank penetration, with consumer level or even in the SME space, where I call it out of 60 million SMEs, 2% have access to a bank account.

So the moral of the story is that you really need to dig deep. Don't look at the headline numbers that look all rosy. Almost 90% of investors are going to be telling the institutional investor that it's a 600 million person market, Indonesia's 270. It's not. Sometimes I'd argue Indonesia's a 60 million person market, and you just got to tell it like it is and that's the moral of the story.

Continue the Part 2 of this interview with Eddy here.

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