Inside the mind of a VC: Eddy Chan, Founding Partner, Intudo Ventures

Eddy Chan is a founding partner of “Indonesia-only” Independent venture capital firm Intudo Ventures with over US$230 million in committed capital, that acts as the Indonesia beachhead strategy for dozens of leading institutions, funds and family offices from the United States, Europe, and Asia and supports the “digital transformation” strategy of dozens of Indonesian conglomerates. We spoke to him ahead of his session at SuperReturn Asia, about how he find the right companies to invest in, where the opportunities lie and much more.

What are you looking for when assessing investment opportunities?

For Intudo, when assessing investment opportunities, we are looking to identify early-stage moat-driven companies led by founders that:

• possess our firm’s three core values of integrity (INtegritas), sincerity (TUlus) with an appreciation for serendipity (JoDOh), which are the three components of our firm name in the Bahasa Indonesian language, hence when combined “INTUDO”.
  
  
• have a non-consensus world view and are building businesses that generally (i) are operating in sectors that are out of favor or viewed as too early for their time and (ii) have enduring competitive moats, in particular, regulatory moats (hence our focus on financial services, healthcare, education, and other regulated industries), operational dependency moats (hence our focus on B2B and B2B2C businesses) and talent moats (hence our focus on more vertical focused businesses where the companies have unique access to talent, being one of one companies versus one of many).

What’s the most important question to ask a start-up in which you’re considering an investment?

While early-stage businesses are a long-term affair; however, they are sometimes seen as a fad or vogue among certain types of founders. We always seek to understand the motivations and level of commitment by founders before we invest. Some founders may be looking for a quick payday or enjoy the thrill of being part of the startup scene, and those are not the right motivations by founders for us to consider investing. So, we look for a level of commitment by founders to see it through the entire process, those passionate about the space that they’re working in, a willingness to roll up their sleeves, and dedication to building something bigger than themselves. We generally see this once again in founders with a non-consensus world view that are building business in sectors that are out of favor or may be viewed as too early for their time.

Which regions and areas do you see the most opportunities and what strategies and regions are you actively investing in?

As the first and only venture firm investing exclusively in Indonesia, Intudo Ventures is built with the needs of Indonesian founders uniquely in mind. We are built to support Indonesian founders throughout their entrepreneurial journey—from ideation to exit—supporting them on business development/regulatory, fundraising, talent recruitment and other key areas.

Generally speaking, as a single-country manager, we are particularly excited about firms that are experts in specific geographies or verticals and can deliver outsized value for founders and LPs in those spaces. It’s often a harder path to climb, but the reward profile is much higher.

How do you conduct due diligence to ensure minimal risk and high returns?

During the due diligence process, we work closely with early-stage founders by offering them direct support before even issuing a term sheet. This always includes introducing them to customers/business partners from our LP base and network, to see how they perform and test their character. Our approach of delivering value upfront provides us with a strong sense of goodwill to negotiate on pricing and ownership as we aspire to build long-term relationships with founders built on mutual trust and good faith. Early-stage investment is a qualitative exercise as much as it is a quantitative one, so it is critical we see how they perform upfront and try to deliver value to founders during this process.

What are the biggest challenges the LPs and GPs alike are facing in venture capital?

The greatest challenge in venture over the past few years has been sizing investments and funds to the market opportunity. On the GP side, when money was abundant in recent years, many firms raised larger funds that were not sized to generate appropriate returns, leveraging heightened demand by LPs for allocation. When the market cooled, these funds were raised for a hype cycle, and no longer sized to real market conditions. That’s why some firms ultimately backtracked to reduce their fund sizes to better reflect market prospects.

For LPs, it is also about sizing checks, but in the opposite direction. LPs aspire to seek alpha among managers, but are also required to put in minimum check sizes that are often too large for smaller funds to absorb or decline to invest in emerging managers—precisely the ones best-positioned to generate alpha returns. It is harder to evaluate newer or smaller managers, which are inherently risky but often offer the highest upside.

How are you expecting the market to evolve in 2023 regarding venture, fundraising and start ups

For the remainder of 2023, we anticipate most firms will continue to be selective in deployment, while startups tighten their belts to extend runways. Many funds that have not been disciplined about their valuation methodology, will need to dramatically mark-down positions in their portfolio to reflect the general malaise among startups. On the LP side, investors are rebalancing their positions between asset classes and geographies, and are already preparing allocations for January 2024 with the turn of the calendar. A modest recovery in public equity positions has made the situation in privates a little less dire than before. Capital continues to be locked up in certain segments of private markets like China, preventing some LPs from deploying elsewhere.

What advice would you give to a founder pitching to a VC?

As a former founder myself, I advise founders to cut their own paths when building a company. All too often, we see founders coming up with ideas based on whatever is currently hot as a vertical or topic because they see it as a shortcut to raising capital or they get caught up in the hype cycle. We also see business models that look like they’re copied from a business consulting powerpoint deck and lack resonance with actual market conditions. On the flip-side, we get really excited when we see a unique one of one business, something that nobody else is doing, especially in the context of Indonesia. So, we encourage founders to think outside the box to find new business ideas and avoid hype cycle-based models, and really focus on building businesses with enduring competitive moats, in particular, regulatory moats (hence our focus on financial services, healthcare, education, and other regulated industries), operational dependency moats (hence our focus on B2B and B2B2C businesses) and talent moats (hence our focus on more vertical focused businesses where the companies have unique access to talent, being one of one companies versus one of many).