Luthfi Juharta of UMG Idealab to Seek

Compelling Startups Amid Ever-Changing Technology Markets

By Paul Jorge Tagle

Seeking collaboration with external ventures to achieve mutually beneficial conditions from both parties, UMG Idealab foresees how technology-enabled start-ups that have exponential growth potential can cause a meaningful social impact in this technology-driven era. As new dilemmas continue to emerge among societies, entrepreneurs also continue to create helpful innovations that would make a change in the overall aspects of human lives. When the pandemic has hugely disturbed the societal equilibrium, massive devastations have affected not just a single sector in society but in fact, almost all of them. 

From education, health, employment – the landscape of the humans' normal lives is still in hope to turn back into a normal state. With the mission to guide the finest generation on making entrepreneurs and innovators turn their ideas into reality while helping society to rise again and to combat the compelling hindrances, UMG Idealab aims to be part of the substantial change to give solutions. Below, Luthfi Juharta, UMG Idealab Associate, with expertise in event management and community development, will share with us how the company has led the unwavering endeavor towards entrepreneurship and innovation support amid these trying times through seeing the power of startups collaboration.

Can you tell us more about yourself and your background?

I am Luthfi, a civil engineering graduate back in university. I initially worked in a contractor business, but after six months, I realized that this is not the thing I want to do in life. Eventually, a good opportunity arrived for me. An association named AMVESINDO or Indonesia Venture Capital Association. After knowing about this association, I immediately joined them. Knowing there is a rapid growth in the technology space in Indonesia. As a bridge between the government and the local affairs of venture capitals in Indonesia, our main job is referring to new rules/policy that the government released to the local venture capitals under Indonesia Financial Authority (OJK). The main topics and concerns are primarily about tax and capital gain. 

After that, I decided to join the UMG Idealab. UMG Idealab is a corporate venture capital and venture builder based in Indonesia. It is part of the UMG Group, a group of companies founded in 1998 and based in Myanmar. In Myanmar, we have 40+ companies with various different vertical businesses. One of the biggest ones is called Matador. Matador is a heavy machinery company for the agricultural sector. The business already penetrated in 10 countries, including the Philippines, Thailand, and other countries, mostly from Southeast Asia region and also China. Eventually, we decided to make an investment arm. That is the birth of UMG Idealab Indonesia. Currently, we have already invested in 60+ startups globally, but most of them (40+ startups) are based in Indonesia.

The good thing about working in tech is you are the first to know whether there's some kind of upcoming trend in technology. You are part of the first communities to know whether there’s some kind of new business model or new technology that will be huge in the near future. I think that's the most exciting part, in my opinion, working in the technology space.

What is UMG Idealab's investment philosophy?

We have three main businesses in UMG Idealab. The first one is venture capital. It is when a potential startup comes to us and makes a pitch. Later, if the startup has a good potential in the future and aligns with our main focus, we are going to invest in the startup. For those verticals, we usually prefer AI-technology-enabled startups, even though we are open to another potential industry that enables technology as a great solution.

The second one is venture builder. The venture builder is usually initiated by our Founder, Mr. Kiwi Aliwarga. However, some startups that are potential but still in the idea stage or early stage, we help them through from A to Z, to build the technology and the business. For this one, our appetite is in deep-technology verticals. 

The third one is a research center. For the research center, we are collaborating with universities and our goal is to make new products or services. One of the examples is when we collaborated with the University of Indonesia, one of the best universities in South East Asia. We founded this startup called Artificial Intelligence Research Center. It is basically a learning center for everyone to learn artificial intelligence, whether you are still elementary school students or high school students; if you are interested in learning artificial intelligence, you can go there and learn something new and futuristic.

To summarize, there are three different philosophies in three main businesses. The first one is venture capital with agnostic verticals. The second one is venture builder, it is mostly deep-technology verticals. And the third one is a research center, it is also in deep-technology verticals.

 But beyond that, our founder himself is quite interested in issues like climate change, inequality, safety and security, and SME development.

Most of the companies were affected by the pandemic. Can you share how UMG IdeaLab dealt with the pandemic to make sure your portfolio companies are in good health?  How do you extend your support to your portfolio companies?

The pandemic is fairly affecting our portfolios. Despite that, we help to manage our portfolio as much as we can, from mentoring and networking. We help them fundraising by introducing them to other VCs, incubators, or an accelerator to lengthen their runway. 

We can also help them to get a convertible loan from us as long as their plan and projection are visible. That's the key point, as long as their plan and projection make sense. I mean, scaling and expansion are natural growth strategies for startups before the pandemic, but as of now, I think it's safe to assume that the focus will be more on building unit economics. It is needed to be profitable, streamlining revenue streams, and strengthening the team. 

Investors are now becoming more interested in many tech companies because businesses are shifting to the digital transformation brought by the pandemic. Is there anything in particular that investors should look out for? 

I cannot say much on the behalf of other investors, but I guess what we're learning the most during the pandemic is that the startup needs to have these four factors. 

The first one is agile. The founder needs to see the opportunity despite the pandemic. I mean, the founder might pivot their businesses if necessary. Some of our portfolio companies are pivoting their businesses during the pandemic due to the difficulty of making money from this condition. 

The second one is how to manage cash flow. The startups need to spend money conservatively. If a hard decision like cutting off some employees or salary adjustment needs to be made in order to be able to survive and live longer, then they should do it 

The third one is a clear business model, which is still needed even before and after the pandemic. Startups need to have a strong business model with a proven revenue model and good retention rate. 

The last one is a strong, unique selling point. They need to have clear differentiation. This will make them different from their competitors which will create some kind of improvements.

What are the qualities of startups that you are looking for?

We are investing in pre-seed until pre-series A. Because we are focused on investing in the super early stage, what we're looking for the most is the founder: what is their expertise, experience, and attitude, and how to make the startups work. We are always questioning ourselves about this particular reason, does the startup founded by the right founder, the right guy behind the gun? Does he or she have the experience doing the same or similar thing to what they are doing now?

After that, we're looking at the product, whether it's still in the R&D stage or not. Our concern would be: how far is the roadmap until the product is ready? How much capital do they need to get their product? How advanced and practical their product is? Do they already have traction? How big is their user base; monthly recurring revenue? 

The third one is retention. We like startups that have a high retention rate because it means that they’re solving the customer pain point and obviously more sustainable. 

The last one is we also need to see if the market is big enough, and whether the timing is ready or not. And if it's not ready, when will it be ready? Do they have enough capital until the market is ready?

What is your outlook for startups in 2021?

Again, I cannot say on behalf of other investors. But I think for UMG Idealab, we believe that these sectors will do well in 2021. 

The first one is, of course, health technology for many obvious reasons. Even though there's a lot of big players in Indonesia, and perhaps in Southeast Asia, but I think the potential market is still there. The pie is still huge and there's still room for improvement for everyone. 

The second one is related to improving productivity in remote areas like home. For example, software for productivity or collaboration, or online meetings, etc. 

The third one is a marketplace in e-commerce as they will surely attract investors. But there are already some big power houses like Shopee and Tokopedia as main competitors in Indonesia to look out. We cannot invest in those startups because they’re already too big for us. Instead, we are seeking the SME enabler itself, especially a software as a service that helps the SMEs to go from offline to online.

The next one is edutech. Remote studying still seemed like a choice for major universities and schools. Even though the pandemic will be over eventually, I think there'll still be some kind of hybrid, online and offline education. So, the edutech  sector is still gonna be something that we're looking for in 2021. 

The next one is smart cities: digitalize the contact services, chatbot usage, and  the tracking of the patient or the suspect of COVID-19 . 

The last one is, of course, agrotech. There's still room to grow for the sector, especially in Indonesia. Most of the workers in Indonesia are farmers. And this pandemic will help them realize the importance of using technology like online delivery, using IoT to minimize contact, be more efficient and effective, and many more. 

Can you give one sentence to describe UMG Idealab?

UMG Idealab is a corporate venture capital and Venture Builder; to seek good collaborations with external ventures to achieve mutually beneficial conditions with the aim to support tech startups addressing issues like climate change, inequality, food safety and security, and SME development.

To learn more about UMG Idealab Indonesia, you may visit their website here.