Last fortnight reports mentioned that E-Commerce firm Bukalapak has raised ~US$1.5 billion for its IPO. This makes it Indonesia’s largest ever IPO.
For context to Indian readers, this is even larger than Zomato’s raise.
This caps a remarkable decade-long journey from modest beginnings to becoming an E-Commerce giant in the world’s fourth most populous market.
Initial rejection leading to PMF with a unique segment
A decade back, three young engineers- Achmad Zaky, Fajrin Rasyid and Nugroho Herucahyono , envisioned a technological transformation for MSMEs. These MSMEs, that are the backbone of Indonesia, employ 97% of the workforce and contribute around 60% of its GDP.
At a time when no one had heard of the internet, these founders were championing the idea of financial inclusion and digitization by creating an online marketplace.
However, given the nascence of the market, this was not easy. Zaky went from mall to mall to invite retailers there to join Bukalapak. However, most of them refused because they doubted the benefits and safety of his E-Commerce business.
Instead of feeling rejected by a cold initial response from retailers, Zaky focused on a niche but trending category – bicycles.
After multiple conversations with the active bicycle community, Zaky introduced bicycle and related products. Bukalapak, an online platform, which translates to ‘open a stall’ was born.
Navigating a challenging E-Commerce landscape
There was no looking back post initial traction.
In 2011, it raised from investors on the back of being Indonesia’s biggest bicycle marketplace. However, this capital would then be used to foray into a multitude of other categories.
Fast forward today, the company claims to have over 6 million merchants, with 70% of gross merchandising value coming from non-Tier 1 cities.
It has a broad range of product categories ranging from fashion to furniture to food, widening the target user base. The company monetizes by charging take rates from stores, along with charging for advertising space.
However, it was, and has not been immune to competition.
The E-Commerce space in Indonesia is hotly competed, with the likes of behemoths like Alibaba-backed Lazada and SEA Limited’s Shopee operating. There are also locally born players like Tokopedia, which has now merged with Gojek to become even more powerful.
The company differentiated itself by venturing into an unlikely territory: offline.
It introduced the Mitra Bukalapak program in late 2017. The thesis was to enter the then existing white space of offline “warungs” aka mom and pop stores.
Warungs make up 70% of offline retail and are at mercy of limited assortment of goods-based on recommendations of sales agents and higher prices by being at the end of supply chain. .
Bukalapak, by directly sourcing a wider assortment from the manufacturer allowed warungs to sell at cheaper prices and allowed newer items to be ordered easily from their app.
A win-win for both parties.
Going offline also opened up possibilities in online-to-offline integration between its products and services. For example, the company offered customers that purchase offline goods vouchers that could be redeemed online on its app.
While the offline strategy worked well, it inevitably attracted others.
Tokopedia raised over a billion dollars to introduce a similar offline strategy in 2018. Meanwhile, other VC-backed players like Warung Pintar, Bukukas and Bukuwarung have also made successful forays into the space through different go-to-market strategies.
The size of the market and sheer number of warungs in Indonesia is so high that it is naturally not a winner-take-all market.
However, with the aim to continuously iterate, the company then looked for additional sources of growth.
To be a superapp or not
The super-app concept that many Southeast Asian unicorns chase has been well documented.
First, find a distribution model that works and gains mindshare from customers. This is typically done by zero, or very low revenue generating models, with the aim to then tag on higher value products.
This then helps drive larger wallet share from customers, making the effort and cost to acquire them (LTV/CAC) worth it.
E-Commerce players have tended to resort to this for the above reasons. Particularly, take rates tend to be very low.
For Bukalapak, it earns ~0.9% for offline stores and about ~1.7% for online transactions.
Therefore, while becoming a superapp has not been its ultimate ambition, it has looked at other offerings. The aim of these efforts being diversification of revenue and higher LTVs.
Fintech was a natural progression. It is well established that an entry for a standalone player in fintech is beset with relatively high acquisition costs.
However, in Bukalapak’s case this was never a problem, thanks to the close-knit network of mitras. 70% of MSMEs in Indonesia lacked access to credit. Bukalapak could offer loans to its stores as it has clear visibility of the sales they generate.
To top it, its shareholders also allowed Bukalapak to uniquely capitalise this opportunity. Its shareholders include Bank BRI, Bank Madrid and Standard Chartered Bank.
This holy trinity of data, technology and relationships has helped turbocharge its presence in fintech.
Today, it has a number of other adjacent offerings like BNPL, white labelled partnership offerings, and investment products.
Culmination into a record IPO
Amidst the deluge of startups announcing plans to go public in the crazy year that is 2021, Bukalapak joined the list.
However, this was an announcement that stood out.
Instead of opting for the commonly adopted path of a US listing, Bukalapak chose to list domestically. This made it the largest unicorn to go public in Indonesia, resulting in Indonesia’s largest ever domestic listing.
Timing could not have been better.
Despite the pandemic, it has managed to grow revenue at CAGR (2018-2020) by 115% and its net revenue by 2020 stood at $95.8 million. This led to an oversubscribed funding round by greater than 3x.
Similar to what Zomato could possibly do for domestic Indian listings, Bukalapak can for Indonesia.
While the IPO is the beginning of a new journey for the company, based on the story to date, it is likely to be an exciting one.