Heaptalk, Jakarta – The Indonesian venture capital market needs some makeover. Especially for startups that always fail to compete in the first phase of their business. Cited from CB insights, 70 percent of tech startups fail within 20 months of their first funding round. It indicates that it has to build more a thriving startup-investor ecosystem in Indonesia than merely spraying capital and praying for explosive growth from newbie founders.
Bold Investment, a newcomer investment group from Japan, is offering new alternatives for funding. They come with ‘Earnout’ models. It typically an investment approach with a contractual provision stating that the founder of a company is to obtain future compensation if the business achieves specific financial goals.
“Bold Investment come as a Sponsor, not a Venture Capital. We don’t employ an exit plan but build a long term relationship with founders. We have the vision to build a great team up together, sharing founders’ experience to win, and concentrate on what founders love,” Said Max Nakanishi, Indonesia Managing Director of the Bold Investment, during the Kadin Startup Sharing Session event on 17 September 2020.
It’s a Family Investment Group
Having run for more than 40 years as a business, Bold Investment comes to Indonesia with a large and established portfolio. It offers a fresh concept of constructing the startup, even from scratch.
As an investment group, Bold was first founded five years ago, and today it has around 17 companies funded. Mostly it is a digital-related business. While starting from last year, they expand globally to the United Kingdom (London), Singapore, Pakistan (Karachi), Thailand (Bangkok), and Indonesia (Jakarta).
They are managing a group of affluent families’ funds and assets in Japan, the Yanagida Group. This group is acknowledged as the number one used-car exporter in Japan (SBTJapan) that has already exported to America, Middle East, Africa, Europe, and Southeast Asia. It makes them confident of winning the game since they have the in-depth knowledge to grow a business for their partners
The bold Investment group is seeking them for the strategic operations to align with their vision. They are also willing to facilitate business to build synergy by their multinational company and do collaborative growth together. As cited from Max, the bold company provides Investment and stands as a partner to maturate the business strategy by its global integrated ecosystem. They also provide founders with their long vision opportunity to be executed instead of capitalizing it.
“We plan to have 50 branches from our partners, that is one thousand by total. It means one branch for 20 partners. In Indonesia, we seek startups from big cities, including Tangerang, Bandung, Surabaya, Denpasar, Medan, and Semarang,” explained Max.
How earnout works
The Bold Investment is offering an earnout model. It refers to a pricing structure in mergers and acquisitions where the sellers must “earn” part of the purchase price based on their performance following the acquisition.
This method involved the potential buyers in determining whether it is cautious in tough economic times and might not meet their expectations to be applied in the business. It can be stipulated that the original owners of a business are paid for their company’s sale. It is following which they are contractually obligated to stay with the company through a transition period, and they are provided with the incentive to have a demonstrable effect on the company’s financial performance as we advance.
Achieving or exceeding a certain level of performance – criteria are typically set over several years – means the original owners will earn a much larger profit from the sale. For buyers, an earnout can offer the owner protection against overpaying for a company that doesn’t end up thriving or growing in the way its original owners expected. It can also smooth the period of ownership transition.
Here is the Bold Investment differentiation comparing to the standard venture capital rules. To keep on the excellent track, founders should learn and run some of these earnout parameters. It includes business focus, historical performance, future projections, and the growing price that will be calculated. Thus founders can focus on the goodwill, mapping the Future value. It means founders and Investors will work together to find the agreed KPI. Then if they are achieving, the Investor will inject another money.
Run with an unusual approach
It is unusual to see that most Venture Capital only follow the minority shares when injecting a startup. But in Bold Investment, they are setting the bid on 51% percent in which it is the majority.
“There are many reasons, and maybe it is controversial. Because we believe in our power, that it will separate ourselves to others with keys to growing.” Said Max.
Max also emphasized that most startups didn’t have flexibility in their focus. Like too many things to do, overcapacity, not optimized on the business strategy, and insufficient time to maintain. On the contrary, Bold Investment is trying to fully control the business by separating management, strategy, and operations. Founders will take full Concentration on certain aspects only, usually on the strategic level. Founders can delegate like managing the customer, operations, technology improvement, service improvement, and human resources to the operational levels. In merely, they can focus on what they love.
For scalability, founders can concentrate on developing a strategy for the global alliance. As Max mentions, it is necessary to collaborate with potential partners. For example from Japan, USA, and even a Muslim country like Pakistan.
Max also continues at the end that to join this, and the startup should have minimum requirements including, minimum established before 2017, technically allow to deliver shares on 51% for the capital and accept the earnout structure.
