Venture capital firms in Indonesia have been increasing in prominence. This is not a surprise because such firms have been gaining in prestige and importance around the world. This article provides further information on the role these firms play within the Indonesian corporate landscape.

Venture Capital

Small and upcoming businesses with the potential to grow usually lack funds to jump start their operations and might not easily get access to banks for the same. Hence, there is a need for external non-bank financing. The financial aids that investors offer to startup companies and firms are known as venture capital. Often, the venture capital firms which provide such funding believe that the ideas, products, and other startup dealings in which they are investing will eventually give them a return on their venture investments. These venture capital firms include banks, well-off investors, and other financial institutions.

It is also worth noting that venture capital does not only include monetary boosts but can also include ideas, technical advice, and business planning assistance. Though the investors are at risk when giving private equity, the potential returns are often attractive as they gain equity, implying that they can become key decision-makers in such companies.

In general, we can define venture capital as a high-risk, high reward business industry.

How Venture Capital Helps Startups

Venture capital gathered from investors usually by venture capital firms, and then deployed to startups, help those startups to:

Obtain Finances

Financial support is crucial for startup businesses. They need the initial capital to market their operation through advertisements, acquisition of employees, and other early-stage business requirements including assets.

Spread Risks

Venture capital helps upcoming businesses to spread risks. It implies that when investors and business angels step in to offer their private equities, after these are added to the owners’ share they will bear losses in the proportion of their contribution. Losses which are not mitigated by venture capital will often be too costly and risky, thus discouraging ventures into a new area, especially highly competitive areas.

Improve Management

Venture capital firms offer not only financial support but also managerial skills to upcoming businesses. This is because the management and incorporation of workers is essential for the success of the firm.

Plan

Venture capital firms help in planning. A business plan can be tiresome and challenging to a new operation. The processes of creating ideas, managing people, and operating assets require proper planning and operational strategies. In such areas, venture capital firms can be of assistance.

Grow Talents, Economy, Innovation

Tech hubs have risen with the Internet economy projected at US$100 billion by 2025, according to Google-Temasek. Jakarta, the country’s capital, is a startup hub in Southeast Asia.

Reasons for the Increase in Indonesia’s Venture Capital Firms

Indonesia has not been identified with startup innovation because the nearby country of Singapore has traditionally been referred to as the “Silicon Valley of Southeast Asia.” However, the venture capital firms in Indonesia has been in the rise, recording US$3 billion in collected venture capital in 2017, which was twice the amount that was collected in the previous year. According to Kearney’s study, the Indonesian startup ecosystem is exponentially growing, although it is younger compared to other Asian countries’ VCs such as those of China, Japan, and India. Sebastian Togelang, an investor in Kejera Ventures, confirmed that Indonesia was little-known in Silicon Valley as it was not spoken much about. Furthermore, other Asia-Pacific investors did not have much interest or simply did not take notice of the Indonesian venture investments as they do today. Some of the reasons for this include the following:

High Technological Demand

Due to the world’s need for technological improvement, the demand has led to the need for new ideas which need sponsors. When such an idea in the fields of Internet and other technological areas that Indonesians are interested in pursuing comes to fruition, the market size increases. Sebastian noted that fintech is one of the leading areas of interest.

Data mining and management

Due to the world’s need for technological improvement, the demand has led to the need for new ideas which need sponsors. When such an idea in the fields of Internet and other technological areas that Indonesians are interested in pursuing comes to fruition, the market size increases. Sebastian noted that fintech is one of the leading areas of interest.

Existence of wealthy groups

Since venture capital comes from individual wealthy investors who are willing to sponsor sprouting ideas with the potential to gain market penetration, the existence of these able and willing individuals in Indonesia has also been one of the reasons for the growth of venture capital firms.

Increase in number of startups

Finally, Indonesia has a rising number of startups, especially those dealing with Internet and technology products which require investors in their early stages. Many Indonesians are exploring new ideas, leading to the rise of venture capital firms.