Measuring Corporate Funded CVC Performance

Growth corporate venture capital (CVC) describes the phenomenon of open innovation (open innovation) which has occurred in recent years. CVC is one of the strategic options for corporations in facing the era of digitalization and disruption, with the hope that funded startups canleverage technology into the company's business.

CVC has a specific role outside the company's main business. It performs the function of investing into startups so that the entities must be separate. In addition, CVC also has a team to analyze prospective startups that can fulfill the company's strategic vision.

Currently, more than seven companies in Indonesia from various business verticals has formed CVC. They are telecommunications companies, banking, media, to conglomerate groups. There are even some company startup portfolios that have exit.

In fact, with the rapid development of technology, anyone can develop innovation. However, in the corporate context, the development of new innovations cannot be realized immediately.

There are several possibilities, namely that corporations do not have capabilities in technology and digital, limited human resources, or are hindered by regulations so they cannot simply develop innovations. This is where CVC plays a role in being a vehicle for exploring disruptive company business ideas.

In the case of Bank BRI, the presence of BRI Ventures is the company's external innovation vehicle. So far, banks have been slow todeliver products to the market because their movements are closely monitored by the Financial Services Authority (OJK) and Bank Indonesia (BI).

According to VP of Investor Relations and Strategy at BRI Ventures, Markus Liman, the banking sector must submit a report one year in advance to develop new products or business ideas. To overcome this issue, BRI Ventures is here to help accelerate the development of innovation without getting off track corporate strategy company.

"At some point, internal development must be limited because there are innovations that banks cannot do. Get stuck in the process compliance because they have to report to OJK and BI, risk management, and following the SoP. If the product fails, we will lose trust, and this is what we want to avoid," Markus told DailySocial some time ago.

Profitability is not the only metric

Then, how can CVC be a strategic option for the company's innovation and business development?

According to Senior Partner & Managing Director of The Boston Consulting Group Middle East Marcus Massi, the motivation for CVC formation can vary. However, most companies do focus on innovations that provide Return on Investment (ROI). So, rather than building an R&D company from scratch, funding a startup or acquiring it makes much more sense.

Some of these reasons were also shared by several CVCs that we interviewed. From the information gathered, all agreed that this corporate action had two main objectives, namely toleverage technology owned by startups to strengthen business lines or business operations and reap capital benefits from investments (capital gain).

To achieve the results the company wants, there are several metrics that can be used. MDI Ventures Principal and Head of Investor Relations Kenneth Li said that this metric varies, depending on the funding stage, business model, and business vertical.

For example, measurement based on funding stage. Startup portfolio performance metrics in stages early stage and series A and above, of course it will be different. Startups in the early stages may still revolve around how to find traction, while series A has to talk about how to scale up his business.

Then, the profitability metrics. Considering the MDI Ventures business has grown significantly and is no longer playing in the early stage, Kenneth mentioned that his main objective right now was Bottom line or profit. It reveals a portfolio that has been exit now it's profitable. The remaining portfolio is also already leading to profitability.

"Another example is Wavecell. Byleverage Telkom ecosystem, they have now pocketed significant growth. Wavecell at the same time brings new business to Telkom," Kenneth said DailySocial.

However, profit is not the only absolute metric. Mandiri Capital Indonesia CEO Eddi Danusaputro said that the startup's performance can also be seen from how the technology can improve the performance of the startup.leverage company, both in terms of business and operations.

Another example is PrivyID. The startup that developed this digital signature platform both pocketed funding from Telkomsel Mitra Innovation (TMI) and Mandiri Capital Indonesia.

According to Eddi, the solution developed by PrivyID is very effective in accelerating the service business process at Bank Mandiri. The PrivyID solution is applied to the process of opening a new credit card account. Because it can be done online, companies no longer need a wet signature.

"Well, this metric can be measured by how many customers get approval Bank Mandiri is in the process of applying for a credit card," said Eddi in an interview with DailySocial.

Eddi considered that startup performance should not be seen directly from its profitability. To achieve profitability, startups do not have to immediately pursue profits. On the other hand, this profitability can be seen from the extent to which startups carry out “burn money” strategies continuously.

In Amartha's case, the metrics used are of course different from PrivyID's considering that they both have different business models. As a loan distributor for the micro segment, Amartha's performance can be assessed from the amount of funds that have been disbursed (loan disbursements).

"In 2019, the distribution of their funds has reached IDR 1,5 trillion with the number of borrowers reaching 250.000. We measure Amartha's performance based on loan disbursement at a number of points per quarter and per year and its impact on increasing the number of our borrowers," said Eddi.

Align mindset startups and corporations

In contrast to VC, CVC is required to be able to achieve company targets, both business and financial. The journey is certainly not easy considering that startups and corporations have different work cultures and perspectives on product development.

Some say that it is very important for companies not to hinder the agility of startup work so as not to destroy its creative spirit. This point is considered worthy of understanding by the company from the start when deciding to fund a startup.

In general, Kenneth judged that the difference mindset become the biggest challenge for companies and startups to achieve the desired target. Corporations have a work culture and work pattern that is inversely proportional to startups.

“At the beginning of MDI Ventures, there were still many organizations at Telkom that did not understand startups or startups venture. Here, we can contribute toleveragemindset startups so that large corporations can adapt,” he explained.

According to him, both corporations and startups need to balance each other between innovation development and business management Existing. This is to harmonize their way of working so that there is no collision.

He revealed that currently adaptation mindset and the work culture between Telkom and the portfolio has begun to change. In fact, said Kenneth, Telkom has collaborated with many startups where the value of the synergy between the two is far from the value we invested in the beginning.