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Analysis: Merah Putih Fund targets 'soonicorns' with $300 million initial funding

Jakarta Post - September 13, 2023

Tenggara Strategics, Jakarta – Five state-owned corporate venture capitals (CVCs) have formally launched the Merah Putih Fund, raising US$300 million in its first fundraiser targeting "soonicorns", or start-ups expected to soon become unicorns.

Mandiri Capital Indonesia, Telkom Group's MDI Ventures, BRI Ventures, BNI Ventures and Telkomsel Mitra Inovasi (TMI) signed the participation agreement to establish the new venture capital fund on Sept. 4. MDI Ventures and TMI are each expected to invest $100 million, followed by Mandiri Capital Indonesia and BRI Ventures with $82.5 million, and $35 million from BNI Ventures.

The Merah Putih Fund aims to provide alternative funding for late stage start-ups, specifically those ready to expand before gaining unicorn status by achieving a valuation of $1 billion or holding valuations exceeding $100 million. According to Eddi Danusaputro, who heads the project management office (PMO) for the Merah Putih Fund, the targeted valuation ranges between $50 million and $300 million.

Eddi added that the fund was targeting soonicorn start-ups across a variety of sectors including technology, education technology (edutech), financial technology (fintech) and logistics. Aside from receiving funding, the start-ups would also be involved in the state-owned enterprises (SOEs) ecosystem, potentially leading to their collaborating with SOEs that require their services or operate in the same sector.

Start-ups must meet several criteria to be deemed eligible for the Merah Putih Fund. First and foremost is that a start-up's founders must all be Indonesian citizens. It must also have a significant operational presence in the country. Lastly, the start-up must have an exit plan, whether through a merger, an acquisition or an initial public offering (IPO) at either the Indonesia Stock Exchange (IDX) or another bourse in the region.

While the Merah Putih Fund has no specific target for the number of start-ups it invests in, Eddi said the fund would conduct a rigorous selection process of start-ups. This was particularly so given the tech winter plaguing the local industry, which also prompted the fund to target a return on investment of 14-15 percent for each start-up.

Eddi added that the fund would continue with its fundraising activities alongside the selection process. Following the signing of the participation agreement, the fund would proceed with subscription agreements and only after these were issued would investors deposit their money into the fund.

The Merah Putih Fund is currently inventorying candidate start-ups, and expectations are high that it will help match start-ups with corporations to drive digital acceleration and contribute to a more conducive investment climate in Indonesia. Deputy SOEs Minister Rosan Perkasa Roeslani noted that the potential value of country's digital economy reached approximately $77 billion in 2022 and was expected to increase to $130 billion by 2030.

What's more

The Merah Putih Fund was introduced in late December 2021 by President Joko "Jokowi" Widodo and has the full support of SOEs Minister Erick Thohir. It was issued an operating permit from the Financial Services Authority (OJK) on July 18, 2022.

After holding its first fundraiser, the Merah Putih Fund will proceed with its second and third fundraisers, with the second to target SOEs interested in investing and the third fundraiser to be opened to private Indonesian companies that will participate as limited partners. The fund has disclosed no additional details regarding its fundraising agenda.

The Merah Putih Fund's focus on soonicorns has shed light on the country's start-up ecosystem. Deputy minister Rosan noted that while Indonesia had produced 12 unicorns and two decacorns to date, the majority of local investors were interested in investing relatively smaller amounts in early-stage start-ups. As a result, investing in start-ups was not an easy endeavor, he said.

Nevertheless, the deputy minister was confident that the numbers would grow in view of Indonesia's untapped potential. He added that the Merah Putih Fund would support this goal and help to build more unicorns and decacorns, which in turn would contribute positively to the creation of future jobs.

What we've heard

The source familiar with the establishment process of the Merah Putih Fund mentions that BNI Ventures CEO Eddi Danusaputro is considered the strongest candidate for the CEO position of the Merah Putih Fund. The chairman of the venture capital association has been active in the startup funding world for a long time.

While serving as the CEO of Mandiri Capital Indonesia, Eddi led the company to channel various investments into several financial technology companies, such as Investree and Amartha.

The appointment of the CEO of the Merah Putih Fund is eagerly awaited by many people, especially those involved in the startup ecosystem. They are still waiting to see whether the Merah Putih Fund's leader will come from one of the state-owned venture capital CEOs or be an independent candidate.

So far, the final approval for each funding decision of the Merah Putih Fund has been in the hands of seven individuals. These seven individuals make up the Merah Putih Fund committee.

Five of the committee members are from state-owned venture capital companies. They are the CEOs of MDI, TMI, BRI Ventures, BNI Ventures, and Mandiri Ventures.

The other two committee members come from independent backgrounds. They are Dyota Marsudi, the son of Foreign Minister Retno Marsudi, who also currently serves as the CEO of Bank Aladin Syariah. The other committee member is Rizal Gozali, Credit Suisse former Managing Director.

Another source mentions that Rizal Gozali's name was proposed by individuals close to State-Owned Enterprises (SOE) Minister Erick Thohir. As for Dyota Marsudi, he is said to be a close associate of Pandu Sjahrir, the nephew of Investment and Maritime Affairs Coordinating Minister Luhut Binsar Pandjaitan.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2023/09/13/analysis-merah-putih-fund-targets-soonicorns-with-300-million-initial-funding.htm