LONDON: In mid-March, the board of directors of Go-Jek, Indonesia’s homegrown, ride-hailing, delivery and payments company, met in Jakarta to discuss one pressing item of business.
Arch rival Grab had just raised US$4.5 billion, massively strengthening its financial muscle. Just weeks earlier, Go-Jek had raised US$1 billion, an amount that originally seemed adequate but by comparison suddenly appeared puny, leaving Go-Jek with half as much money in the bank as Grab.
The dilemma for Go-Jek, said one board member, is:
If the other guy keeps putting money in, you have to do the same.
The gap in the funding behind the two regional competitors (Grab is based in Singapore) reflects big philosophical differences between their respective investors — whether market share or profitability matters more; if capital or innovation confers a decisive competitive advantage; whether consumer internet companies are natural monopolies or duopolies.
The two competing visions are playing out in Southeast Asia and beyond. The outcome will provide clues as to which template is more successful and consequently, which companies are most likely to emerge as champions from Bangalore to Beijing.
WINNER TAKES ALL
Grab’s biggest backer, SoftBank’s Masayoshi Son, believes in winner takes all when it comes to consumer internet companies. That in turn means there is no such thing as too much money; the game is all about bleeding your adversary until they either die or surrender.
The loser is whoever runs out of money first, not whoever has the weaker business model and execution skills.
It is a vision that makes sense for Mr Son who has the largest war chest of any venture investor, with the US$93 billion Vision Fund and SoftBank itself, his highly levered Japanese telecoms empire.
“SoftBank’s capital is offensive capital,” says one Singapore-based investor with a large New York buyout company.
They give their companies money meant for a rainy day — and to intimidate the opposition.
Go-Jek’s board meanwhile disputes this approach. Its non-executive directors and investors include some of the best-known tech investors in the world; such as Sequoia Capital, KKR, Tencent, Warburg Pincus, and Ray Zage, originally of Farallon and now founder of Singapore-based Tiga Investment. It also has strategic investors such as Google, JD.com and Meituan.
Most of these directors say they believe that the natural state of affairs — especially in ride sharing and other consumer services — is a duopoly.
For example, after Grab vanquished Uber in its home market of Singapore, there was a wave of complaints from consumers about the speed with which Grab’s customer service deteriorated and its prices rose. The Singapore Government then appealed to Go-Jek to expand to Singapore, according to Go-Jek executives and directors.
“Consumers will always want choice and governments will always want competition,” said one director.
TOO MUCH CAPITAL IS A 'DRUG'
Just as importantly, by contrast with Grab’s backers, which include Alibaba as well as SoftBank, Go-Jek’s directors think too much capital is a drug; it enables founders to become profligate and lazy, to burn cash at a faster rate. Having fewer resources makes entrepreneurs work harder and innovate more quickly.
In part, the fight for dominance in Indonesia — and elsewhere — reflects the ability of dedicated local businesses to execute with far fewer financial resources than their more deep-pocketed international rivals.
The gap between Grab’s valuation of US$12 billlion to US$13 billion and Go-Jek’s valuation at about US$10 billion, a third investor says, is narrower than the relative financial resources of the two, a reflection investors assert of Go-Jek’s greater efficiency — and of its good judgment.
“We want to be underfunded,” Go-Jek’s co-founder Nadiem Makarim said.
It forces discipline. We will survive through innovation and monetisation and talent. We want to under-promise and over-deliver.
In some cases, consumer internet companies Mr Son backed have survived because he helped orchestrate mergers and acquisitions.
So far, though, that has not worked in this case. Mr Son met Mr Makarim last year with an offer to invest in Go-Jek but Mr Makarim turned him down, investors said.
SoftBank denied they had made such an offer.
“Maintaining independence is most important,” Mr Makarim said.
We have turned down capital when we felt the agenda and terms pushed against our interest.
In the end, the outcome in this case will partly depend on whether SoftBank’s massive piggy bank proves essentially limitless or whether it will ultimately run out of money, as many predict is inevitable.
Competitors will be relieved if the latter proves to be the case.