Venture Capital in Indonesia: Landscape & How to Start

After a successful incorporation, small and emerging firms with growth potential frequently lack finances to get off the ground and may find it difficult to obtain funding from banks. As a result, non-bank external finance is required. Venture capital refers to the financial assistance that investors provide to new businesses and firms.

The venture capital businesses that offer such funds frequently assume that the ideas, products, and other start-up dealings in which they are investing will eventually provide a profit. Banks, wealthy investors, and other financial institutions are among the venture capital firms.

It is also worth mentioning that venture capital in Indonesia may contain more than just money; it can also include:

• Ideas
• Technical expertise
• Help with business development

Though private equity investors take a risk by investing, the prospective profits are frequently appealing because they earn equity in the company, meaning that they can become significant decision-makers.

How can Venture Capital in Indonesia Help Startups?

Venture capital, which is often acquired from investors by venture capital firms and then deployed to startups, aids those startups in achieving the following goals:

• Obtain Funding

Financial assistance is critical for new enterprises in Indonesia. They require the initial funds to publicize their firm, hire workers, and meet other early-stage business requirements such as asset acquisition.

• Risk spreading

Venture capital in Indonesia assists new enterprises in spreading their risks. It means that when investors and business angels offer their private shares when they are joined to the owners’ share, they would suffer losses proportionate to their participation. Losses that are not reduced by venture capital are generally too expensive and dangerous, discouraging new enterprises, particularly in highly competitive fields.

• Improve Management

Venture capital organisations provide future enterprises with not just financial assistance but also managerial expertise. This is because the management and inclusion of workers are critical to the firm’s success.

• Plan

Venture capital firms assist in the planning process. A business strategy can be tedious and difficult for a new business. Proper planning and operational strategies are required for the processes of developing ideas, managing people, and operating assets. Venture capital businesses can help in these situations.

• Talent Development, Economic Development, and Innovation

The Internet economy is expected to grow to US$100 billion by 2025, according to Google-Temasek. Jakarta, the country’s capital, is a Southeast Asian startup hotspot.

Reasons for the Increase in Indonesia’s Venture Capital Firms

While Singapore has long been known as the “Silicon Valley of Southeast Asia”, Indonesia has not always been associated with startup innovation. However, venture capital businesses in Indonesia have been on the rise, with US$6.7 billion in venture capital received in 2021.

Kearney’s research shows Indonesia’s startup ecosystem rapidly expanding, though younger than China, Japan, and India’s VCs.

Sebastian Togelang, a Kejera Ventures investor, said that Indonesia was little-known in Silicon Valley since it was rarely discussed. Furthermore, other Asia-Pacific investors were not as interested in or as aware of Indonesian venture capital investments as they are now. The following are some of the reasons for this:

1. Data management and mining
   Because of the world’s desire for technological advancement, there is a demand for innovative ideas that require funding. The market size grows as Indonesians realize their interest in emerging Internet and technology concepts. FinTech is one of the most popular topics, according to Sebastian.
2. The existence of wealthy individuals or groups
   The existence of these able and willing individuals in Indonesia has also been one of the reasons for the growth of venture capital firms. Because 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 in Indonesia.
3. An increase in the number of new businesses
   Finally, Indonesia is seeing an increase in the number of startups, particularly those involving the Internet and technology, which require funding in their early phases. Many Indonesians are experimenting with new ideas, which has resulted in the growth of venture capital firms.

How to Start a Venture Capital Firm in Indonesia?

A recent BBBC poll named Indonesia as one of the finest areas in the world to start a business, even ahead of the United States and Australia. An idea and a willingness to try are the foundations of starting a business. There are a few requirements that a potential investor must meet to start a venture capital firm, whether as a foreign or domestic operator:

1. Registration of business
   The initial stage to starting not only a venture capital firm but also any company is registration. The process confirms the business’s capabilities for operation, and it also assures the authorities that the firm intends to operate within the stipulated country’s requirements and that it will not engage in other illegal businesses which are in breach of the law. Furthermore, registration will prove that the company pays its taxes to the Indonesian government as per its declared profit.
2. Investment plan
   Planning is critical for successful operation. To gain access to the Indonesian venture capital investment as a foreign investor, one has to present a plan of not less than US$1 million. Out of this, 25% must be paid-up capital, which does not have to be in the form of cash. Proper planning will equally lead to success in this regard.
3. Shareholders
   To get the firm running, there must be at least two shareholders. Through this, the firm’s stability is assured, and legal procedures for funds’ access are more likely to be transparent for smoother operations and management.