Nicko Widjaja from BRI Ventures urges VCs not to rush into the secondary market

For most startups, funding is expected to dry up during the COVID-19 crisis. Valuations will decline and investors will start to limit themselves.

Nicko Widjaja, CEO of BRI Ventures, the investment arm of Indonesia's largest state-owned lender, told KrASIA that they would not delay their investment. He saw a profit gap for companies with cash (dry powder) as he manages - they can buy at a lower price.

Nicko said that for the funds he currently manages, now is "time to buy", and that VCs should not rush to exit, as it will reduce profits. As KrASIA spoke to him via WhatsApp.

KrASIA (Cr): Regarding the spread of the COVID-19 virus in Indonesia, does this affect BRI to delay investment? How many startups will beinvest This year?

Nicko Widjaja (NW): There is no delay in the investment plan. We believe the ecosystem will improve over time. After all, the BVI was only formed last year and has tied up several deals long before the COVID-19 case hit. From the start, the BVI was not merely an impulsive investor.

However, in this time of uncertainty, we will apply the scenario stress test more cautiously though the growth of all startups — including unicorns — will be stymied and projections will be delayed. We will continue to build business and connections. Personally, I believe this year will be a year of synergy, where startups and companies work together more closely to return to the situation before the COVID-19 outbreak.

In terms of investing, this condition is an advantage for companies with cash (dry powder) like us, when valuations decline and competition thins. However, this is not the case for their predecessors in 2015/16 where they should be reaping the rewards today. However, liquidity must be achieved. Otherwise, it will be difficult to convince both existing and potential LP candidates.

Cr: How do you see the process exit in general, specifically IPOs and M&A?

NW: In terms of exit, ticket sizes and supporting activities are declining. Most valuations are significantly reduced as targets are impacted for at least the next two quarters. Those who raised Series D are now Series C2, Series C is now Series B2, and so on. Early stage startups are the most affected because they have a shorter ladder, during the growth period startups need to adjust cash burn to resume operations, and the startup's final stage liquidity plans, both IPO and M&A, will be postponed.

Funds from the previous year, 2017/18 — which were in the middle or end of their deployment period — are now entering a period of uncertainty, where they are trying to adapt their original plans to the current situation, especially as they commit major commitments in the ASEAN region. I know of several managed funds that have investment plans in the near future. Currently, they have only distributed a third or a quarter of their commitments due to the uncertain situation.

Undoubtedly even our first fund under management at MDI Ventures (including the previous one in 2016), which made it to five exit last year and two exit The previous one — the last one being ObserveIT, a US-Israeli cybersecurity firm — will face a tougher challenge to exit this year, although liquidity is still intact from previous actions.

Cr: What would be the best strategy for a VC in this situation?

NW: In the context of managed funds like ours or Tanglin Venture Partners—according to an article titled “COVID-19 Challenges & Questions” by the SEA Founder – this is a time to buy, especially for those who have just raised money and have enough cash to spend.

For those seeking liquidity, the best strategy is to enter the secondary market, although this will provide the least bargaining power, as liquidity occurs over a very short period of time. This is especially true for previously managed funds in 2015/16, or they will not be able to raise funds in the next round.

Selling on the secondary market is not something ideal for VCs. This will indicate a lack of maneuver general partner in turbulent times, for not being able to afford the most desirable returns on capital. If we consider the COVID-19 disaster to be temporary, why should we rush to sell on the secondary market at this time of uncertainty?

However, we have entered a new normal now, and the market has been too rich for a very long time. I believe they already know this.

If I can say, honestly, I believe the market recovery in the technology sector in this region is what we all hope for, separating the serious and the pretenders. I have high hopes for the VC ecosystem, and it's time for us to strengthen our business even more.

Kr: How many VCs should have reaped the rewards but failed in the end?

NW: Those who closed the fundraiser in 2015/2016. MDI Ventures is one of them but has proven to be solid, having posted seven exit of 30 portfolios in 2018 and 2019, with an average return of 300-700%.

Funds under management from the previous year in 2015/16 that have yet to close a significant second round will almost certainly be destroyed. When I led MDI Ventures, we realized that liquidity was very important, even for a corporate venture like it was then.

We have enjoyed life in a fairy tale world with unicorns and centaurs but with just 20 times the funds now it is no longer feasible.

-This article was first released by KRASIA. Re-released as part of a collaboration with DailySocial