Indonesia’s Largest-Ever IPO Began With a Bruising Overhaul

(Bloomberg) -- When Teddy Oetomo joined Bukalapak.com three years ago, the Indonesian e-commerce startup was reeling. Hard-charging rivals were getting money from investors and raiding talent. Rumors swirled the company could go under.

This week, in a remarkable turnaround, Bukalapak went public in the country’s largest-ever initial public offering. The company, an Indonesian hybrid of Amazon.com Inc. and Shopify Inc., raised $1.5 billion, kicking off what could be a coming-out party for startups in the world’s fourth most-populous country. Shares surged by the limit of 25% Friday, pushing it market valuation past $7 billion.

The overhaul was bruising. Jakarta-based Bukalapak laid off about 200 employees as it streamlined the business; all three founders left. But the strategy paid off, with surging sales and now an historic IPO.

“I’m quite amazed at how the company transformed,” said Oetomo, a former Credit Suisse Group AG analyst who is now president. “If I knew then what needed to be done, I probably wouldn’t be here now.”

The management team, led by Chief Executive Officer Rachmat Kaimuddin and Oetomo, started the IPO process around May with the goal of raising $300 million to $500 million by selling a 25% stake. Demand was strong enough they eventually tripled their goal.

Institutional investors including Schroders Plc, Morgan Stanley Investment Management and GIC Pte offered to buy several times the amount of shares available, according to people with knowledge of the matter.

In addition, Bukalapak received 4.8 trillion rupiah ($334 million) of bids from some 95,000 retail investors, a record in a country where just 2.5 million out of 270 million people trade stocks. The company doubled the retail allocation to 5% or about 1.1 trillion rupiah.

“This is a watershed moment in Indonesia,” said Anderson Sumarli, co-founder of Ajaib, a mobile app that lets consumers buy and sell stocks and mutual funds. “Bukalapak is likely to trigger a spate of tech IPOs as well as interest of millennials who want to own a piece of their favorite tech companies.”

Investors have begun to see the promise of the emerging tech scene of Southeast Asia. Sea Ltd., the first tech startup to go public in the region, soared after its 2017 IPO and quickly became the most valuable company there.Read more about the change of leadership

Bukalapak -- which means “open a stall” -- was founded in 2010 by Achmad Zaky and two of his engineering college friends Fajrin Rasyid and Nugroho Herucahyono. They got their start by registering the www.bukalapak.com domain for the equivalent of $5.60.

The company, with Zaky as CEO, got its start as an online marketplace for consumers, called Bukalapak. In 2017, it launched a sister service called Mitra Bukalapak, which allowed merchants to buy goods wholesale.

As e-commerce and smartphones took off in the country, sales boomed. The startup raised money from Chinese financial giant Ant Group Co. and Singapore sovereign wealth fund GIC, hitting a valuation of more than $1 billion in 2017.

But competition was getting brutal. Japan’s SoftBank Group Corp. invested money in local rival Tokopedia, while China’s Alibaba Group Holding Ltd. added financial support for its local player, Lazada. Sea, originally focused on games, began expanding aggressively in e-commerce. Bukalapak could still grow revenue, but it was burning through cash.

The debate over the company’s future came to a head in September 2018 when some 30 managers congregated for a quarterly performance review over lunch. Growth was still robust, but Chief Operating Officer Willix Halim questioned whether that was something to celebrate.

“Hang on a minute. Is this too good to be true? What is the quality of our growth?” Oetomo recalled him saying.

The questions triggered reflection. The company couldn’t go on burning through money, fighting competitors on all fronts. Instead of battling richly-funded rivals in metropolitan cities, Bukalapak pivoted to serving neighborhood mom-and-pop kiosks known as Warungs in rural areas.

With the Mitra Bukalapak app, shop owners were able to order instant noodles and other goods when their inventory was low at competitive prices, all delivered to their doorsteps. The Mitra platform also allowed them to help customers without access to internet and banking services to pay electricity bills and send money digitally.

The overhaul was painful. Bukalapak’s job cuts were the first among Indonesian unicorns. It also became the rare founder-less technology startup when the three co-founders, who took the startup from zero to one, exited to make way for executives with more experience.

“The standard playbook was fundraise a ton of money, use aggressive methods to gain customers, hoping to dominate the market at some stage and reap the benefit,” Kaimuddin said in an interview. “That wasn’t the way we wanted to do it. We decided to build a sustainable business.”

Natalia Firmansyah, who cut teeth as country chief financial officer of Norvatis Indonesia, joined as CFO in 2018. The following year, Oetomo was promoted to president and Kaimuddin, a former banker, replaced Zaky, the charismatic CEO who became an adviser.

Total net revenue rose from about $21 million in 2018 to $96 million in 2020, driven by growth in Mitra Bukalapak. Total processing value at Mitra Bukalapak quadrupled to $1.6 billion in 2020, making up 26% of Bukalapak’s total TPV of $6 billion.

“When you go on a different path, you hear a lot of noises about how others are growing faster than you,” Oetomo said. “We needed to have strong discipline not to get sucked into the fear of losing out.”

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