Northstar Looking for "Gem Barn" in Indonesian Market

In April, Singapore-headquartered Private Equity company Northstar announced the closure fund the five. Since its debut in 2003, Northstar has been actively investing in the Indonesian market. One of their newest portfolios is giant ride hailing, Gojek.

With a growing population of young people and a growing consumer base driving the country's economy, Indonesia remains the largest market for investors in Southeast Asia. This was clearly stated by Northstar's Co-Chief Investment, Sunata Tjiterosampurno, in an exclusive interview session with DailySocial. Whenever investors are looking for opportunities in Southeast Asia, Indonesia should be on the map.

While discussing the investment landscape in Indonesia and other countries in Southeast Asia, he emphasized not to generalize the VC and PE landscape. In the PE scheme, he continued, Indonesia is said to be quite an attractive market due to the large number of mid-market deals ($50-100 million).

Singapore, on the other hand, has its own market. The landscape is relatively similar to Thailand, Vietnam and the Philippines. He also highlighted the fact that there is not much potential in natural resources or community-related sectors in Singapore. In addition, there is a manufacturing base in Thailand, compared to Indonesia which mostly serves consumer mass market transaction types.

Historically and in the future, providing exposure to consumption growth in Indonesia (which is based on the growth of the middle class) is an important theme at Northstar. Especially in this digital era, where everything is starting to shift to non-conventional ways.

"Digital has become a larger component of the economy and is invading mass consumer and financial services markets in a different way. The evolution of business models that capitalize on these markets has resulted in investment in more digitally oriented businesses or combined online-offline businesses," he added.

Focus on market the big one

In terms of investments, Northstar has three focus areas, consumer mass market, financial services and digital. This strategy has been implemented in funds IV and will continue to be adopted in fund V. It is confirmed that the company's largest market so far is Indonesia. From a geographical perspective, Indonesia will capture 60% - 70% of the total, while other markets will get a share of up to 30% - 40%. In regional markets, Northstar has seized opportunities in the Philippines, Thailand, Singapore and Vietnam.

Investing is not an easy task. There are several key qualities to pay attention to or focus on. For Northstar, the first and most important thing is the entrepreneur himself. Until they finally met the management team, the founders were indeed the most important people who could move this business and make it big.

Next, how big is the market size they are pursuing? There are many digital startups, but if they are looking for a small market then it's time to reconsider. As a company committed to investing in growing companies, it is natural to target a large market.

Third, the business model is sustainable, meaning they have an attractive way to make money. Additionally, they can create a defensive mode to manage the competition as it gets tougher.

DailySocial also touched on Northstar's journey in finding and investing in one of Indonesia's treasures, Gojek. Long story short, as the founder of Northstar, Patrick Walujo was one of the first involved in the early days Gojek. Its affiliated venture capital firm, NSI, which has now changed its name to Openspace Ventures, invested in a Series A round in 2014. At that time, Gojek not digital at all.

When Openspace invested into Gojek, the goal was to take the company online and create an app. Within six months, the company successfully launched the app and gained tremendous traction. With a number of connections to the company, a Privilege when Openspace was one of the first to be contacted about funding. However, with its late-stage investment focus, it was natural for Northstar to invest at Series B. With an average ticket size between $50 - $60 million, the company invested progressively until it reached $60 million.

Sunata also mentioned that Northstar observed Uber's rapid global growth starting in 2014 and anticipated this trend would come to Indonesia. Northstar sees opportunity in the segment ride hailing and transportation. They supported Nadiem when he started Gojek as a local version of Uber.

Work closely with the management team

The pandemic has been a disaster for some businesses that have a large offline component, but for businesses digital native or large digital businesses, are actually experiencing a lot of growth, as people working at home try to get access to things they did before through mobile devices. Last year, Northstar invested in the company EdTech named Zenius, and has shown very strong growth over the past year. Especially during the pandemic, more people are looking to study at home because they cannot go to school.

Due to Covid-19, digital adoption has increased. Therefore, some businesses are experiencing exponential growth like e-commerce and many different sectors are benefiting from increased digital behavior. At the same time, overall macro conditions are difficult in Indonesia, making it difficult for businesses with a large offline component. Companies realize that it is very difficult for them to grow at the same scale during the pandemic.

Northstar Group is confirmed to be an active investor in all business portfolios. They hold board seats on the Board of Commissioners and work very closely with the management team, especially during crises. Some of his businesses have been hit hard by the pandemic. As we have heard many times, the travel and tourism industry has declined significantly, and globally.

"Given the COVID-19 pandemic, in some cases, we have had to make some strategic decisions at our portfolio companies to refocus business strategies on potential growth areas. We are working very closely with the management team on these changes," said a Northstar representative.

For founders whose businesses have taken quite a hit, here are a few insight regarding current issues. Many foreign investors find it difficult to invest without involving people on the ground. In other words, it is correct to assume that it will be difficult for Indonesian companies to obtain foreign capital until the pandemic is over.

“One of the most important things for founders is to ensure that they can fund the business for as long as possible without requiring external capital. In terms of business model, how do you continually innovate, adapt and evolve according to rapidly changing consumer needs. For most businesses, it's about adapting to different climates and learning how to shine through the times new normal," he continued.

Flavor of the year

Regarding long-term strategy, mostly private equity or a venture capital fund already has its own asset allocation, focus area, and geography. Also the type of business that will be invested in while raising funds. In terms of implementation, Northstar will stick to a long-term strategy, but calibrate depending on the business cycle. Therefore, what will change is actually in terms of valuation, specific sectors, but the high-level focus remains the same.

"What I mean is that our investment strategy in the financial services, digital and consumer sectors remains the same, whether there is a pandemic or not, we think this remains an attractive sector and will continue to focus on this," added Sunata.

He also mentioned that the long-term strategy is different from flavor of the year. In 2020 it is Covid-19. Therefore, private equity needs to be more optimistic and careful in terms of capital deployment, focusing a lot on optimizing existing portfolio companies. Every year has Key different. The situation is dynamic and companies will continue to look for opportunities that suit the circumstances.

“We remain active in seeking deals and everything is case-based, depending on valuation, business performance. "However, in general we are very active in looking for good opportunities," said Sunata.

To date, The Northstar Group has invested more than US $3,3 billion in the Southeast Asia region. These funds were channeled through more than 35 companies in the banking, insurance, consumer/retail, manufacturing, oil and gas, coal and mining, technology, telecommunications and agribusiness sectors. Not long ago the company disbursed funds for eFisheries, Indonesia's leading aquaculture intelligence company.

-The original article appeared in English, translated by Kristin Siagian