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he Financial Services Authority (OJK) has issued a package of regulations on venture capital to support alternative financing for the country'€™s small enterprises and startups.

The financial regulator issued on Dec. 31 last year four regulations on venture capital that require investors or companies wishing to finance traditional and non-traditional small businesses to establish legal business entities.

The policies regulate four matters related to the venture capital sector, namely licensing and institutional matters, doing business, good corporate governance as well as direct supervision by the OJK.

In order to establish a venture capital fund, an investor or institution is required to provide minimum paid-up capital of Rp 50 billion (US$3.6 million) for a limited company (PT) and Rp 25 billion for either a cooperative or a limited partnership (CV).

An investor or institution wishing to establish an Islamic-based venture capital company is required to provide minimum paid-up capital of Rp 20 billion for a PT and Rp 10 billion for either a cooperative or CV.

OJK deputy commissioner for non-banking supervision Dumoly F. Pardede said the new regulations were expected to help boost the venture capital sector in the country, where small entrepreneurs seek alternative financing to support their businesses.

'€œA venture capital company is a form of up-to-date and progressive financing firm that will adapt to the creative and innovative needs of small businesses and start-ups in the country,'€ he said Monday.

Dumoly said that based on the OJK'€™s study, small businesses and startups had demonstrated positive potential in many economic sectors and subsectors across the country, such as technology, culinary, travel and tourism as well as fashion.

The OJK has coordinated with the Investment Coordinating Board (BKPM) and discovered that many so-called '€œangel'€ investors, mostly foreign ones, were already shopping around in many business incubator centers across the country.

With their creative nature, venture capital companies were expected to help fund innovative breakthroughs for small businesses and startups that were struggling to expand, Dumoly said.

He said angel investors who had global experience and networks could use local venture capital funds to help acquire small businesses and startups that were struggling with their expansion.

Venture capital firms are also allowed to develop their fee-based income through their services, including by offering consultative help in terms of administration and distribution matters for their clients.

'€œVenture capital firms in Thailand have grown significantly from their consultative services offered to various clients, such as food manufacturers. They'€™ve helped Thai food producers to market their products globally,'€ Dumoly said.

At least 95 percent of all companies in Indonesia are micro, small and medium-sized enterprises, including online app-based startups that have blossomed recently, but are often considered '€œnot feasible'€ for financing by banks due to tight banking regulations.

In order to refine the regulations, Dumoly said the OJK was actively discussing with dozens of angel investors and the Finance Ministry on the next step of its policy, including taxation and exit mechanisms for venture capital investors when they wanted to divest their shares in startup companies.'€œThey want a secondary board in the bourse, where they can have easy exit procedures for divestment,'€ he said.