Capital is the ultimate optionality play (or how to get $100 million exit)

Why election for a country of 270 million people can feel like a cute dinner

I fundamentally believe that shaping the world the way you want it to be and building the future requires massive amount of personal capital. Capital is the most versatile form of power and is infinitely scalable. It also has to be personal capital so it can be deployed in maximum discretion. It is the ultimate optionality play.

However, there is still limited amount of creative deployment of capital by the current Indonesian oligarchs beyond self-preservation / wealth defense (to borrow the term from Oligarchy by Jeffrey Winters). The next generation should contest them and be the better capital steward for the very long term by embarking on more high-risk high-return mega projects to build up national capabilities and institutional apparatus required in a bid to become one of the global powers. This may take some time.

Enormous amount of work will be required to translate those to detailed plans. But we know for sure we need capital. Personal capital is at least required to bridge the journey before one obtains the authority to mobilize nationwide resources. What should be the number and how to get it? Let’s examine officials in the executive branch through publicly-disclosed official net worth data of Indonesian president and his ministers below:

Some interesting observations:

• The big ones: Sandiaga Uno leads the pack at $700 Mn+, Prabowo at $135 Mn, Nadiem at $78 Mn, Luhut at $48 Mn. The rest of ministers have comfortable net worth, but by no means truly massive. Joko Widodo (Jokowi) himself as the president only has okay-ish net worth at nearly $5 Mn.

• Voters turnout of 2019 presidential election: Based on this data, Prabowo & Sandiaga Uno at 44.68% (68.3 Mn votes) vs Jokowi & Ma’ruf Amin at 55.32% (84.6 Mn votes).

• Campaign spending: Based on some reports, Prabowo & Sandiaga Uno spent ~$14.2 Mn (IDR 213 Bn), Jokowi & Ma’ruf Amin were outspending them with ~$40.4 Mn (IDR 606 Bn). (side note: this seems to be on par with Series A or Series B investments?)

• Jokowi & Ma’ruf Amin spent more than 7x their combined net worth, while Prabowo & Sandiaga Uno spent merely 1.7% of their combined net worth. Only 1.7%.

• If we make up an artificial metric to measure their ”voter acquisition cost” as a ratio of campaign spending per vote, we get $0.48/vote for Jokowi & Ma’ruf Amin and $0.21/vote for Prabowo & Sandiaga Uno - they are more “effective”, but why did they not decide to outspend Jokowi? (side note: startups will be willing to die for CAC this low)

• This is a very rough calculation and definitely does not account for the full complexity of the election. I don’t know how reliable is this data and how much did it account for the full picture of capital deployed on behalf of each side.

I don’t think material power converts fully to political success. But Jokowi will need to gather enough support to raise campaign fund as much as 7x of his net worth and compromise a lot of things to be able to run in the first place. It is very hard to execute your entire vision while dependent on a lot of outside interests.

Sandiaga Uno? If we apply his spending-to-net worth ratio to average person’s net worth, the entire thing set him back for the equivalent cost of one cute dinner. Damn.

How one might plan to get to that level?

Operationalizing net worth milestones

In one of my class discussing some topic that I forgot about, the discussion touched the area of personal wealth. I was asked by my inclusion professor: “What is your number?”. I just flat out whispered “$10 billion” (joke answer with reference to Billions Season 5 Episode 1).

That seems far off for now. In a more serious note, how can we really operationalize the plan to get to certain net worth milestones? Will the mechanism be different for each “tiers” of net worth? Consider a very very rough, simplified model of building a generic business to be sold with four scenarios:

• (i) $3Mn exit

• (ii) $10Mn exit - 2x the $5 Mn threshold for VHNWI (Very High Net Worth Individual)

• (iii) $30Mn exit - threshold for UHNWI (Ultra High Net Worth Individual)

• (iv) $100Mn exit

What are the financial and operating metrics required to justify such exit valuations? Back-of-the-envelope calculations below:

The $3 Mn scenario is within line of sight. “Sell something priced at IDR 100K every month to 25K customers, ensure you earn 30% EBITDA margin on those sales, retain 100% ownership of the business, and finally find a buyer that’s willing to pay for 5x EBITDA to acquire your business”. I know someone who got an offer of $3 Mn (9x EBITDA) for their consumer brand business in Indonesia (2 years of running the brand, 5 years of total consumer experience). A well-compensated middle-level employee in a top company in Indonesia will need to work 1000 months (83 years) to earn similar amount (need Lailatul Qadar’s level of compounding).

Here’s the fun thing. Once you bootstrapped to $3 Mn liquid wealth after your first acquisition, you can recycle your own capital to start your next business. You don’t exactly need to be “privileged” in the sense of having wealthy family or friends to bankroll you”. In fact, it seems that privilege only matter at the initial stage of the business? For example, Jeff Bezos parents gave him “only” $245,573 investment in 1995 to start Amazon. The next round of investment to Amazon was from Kleiner Perkins for $8 Mn and Amazon went straight to IPO and raised $54 Mn. No parents on their right mind will let you burn $8 Mn. Large ticket size investment will need to come from institutional investors. But before you get there, you either need to recycle capital from easier businesses or rely on personal savings, families, or friends.

For the scenario of $30 Mn liquid wealth (~IDR 466 billion), if you can earn 5% annual return on those capital, you can afford annual burn rate of up to $1.5 Mn (~IDR 23.3 billion), or monthly burn rate of up to $125K (~IDR 2 billion) without eroding the initial capital. From personal consumption perspective, this is way more than a safety net. This is a safety tectonic plate. You will live like a king. You really *cannot* lose. You have infinite attempts for moonshots.

If you can execute the $100 Mn exit scenario, you will beat Nadiem Makarim’s official net worth (surprisingly small vs Gojek / Goto’s market cap due to VC dilution?). This is similar to the exit value of Native to P&G for $100 Mn (more capital efficient, only raised $500K of outside capital). Of course, you need to calibrate US-Indonesia PPP-adjusted GDP per capita for potential consumer spend, abundance of liquidity events (if applicable), degree of entrenchment of existing players you are competing with, etc etc etc. Executing this also needs significant amount of hard work and luck. But the probability of building $20 Bn company is way smaller than that of building $100 Mn company. Is the dilution worth it? Who knows.

The model has implicit structure that reflects B2C recurring revenue business model. While we need to adapt the logic for other types of businesses (if it’s B2B, or SaaS, or a financial services, export-oriented manufacturing, etc.), but the overall message still stands.

Getting to next tiers of capital accumulation (e.g., $1 Bn, $10 Bn, etc.) requires deeper analysis, such as how much valuation the market can rigorously support given its fundamental & macro situations, exposure to foreign capital markets, and a wide range of other stuffs that’s beyond my knowledge for now.

But I have time.