MCI president director Eddi Danusaputro said the company would provide an initial investment of up to US$5 million for creative and innovative start-ups, particularly those engaged in payments so they could cooperate with its parent company Bank Mandiri.

MCI would give out between $2 million to $5 million to acquire at least 10 percent of the startup’s shares, Eddi explained.

“We have run this business for four years and have invested in 13 startups,” he said at the Mandiri Investasi Market Outlook event in Jakarta on March 5. He previously said the company planned to invest in three start-ups this year.

Since 2016, MCI has invested Rp 1 trillion (US$70 million) in 13 startups, including Amartha, a peer-to-peer (P2P) lending platform focusing on micro-enterprises owned by women, Investree, which focuses on small and medium enterprises, and Crowde, a P2P platform focused on farmers.

Thirteen startups in four years is a relatively modest number compared to other venture capital companies’ portfolios.

Convergence Ventures, for example, another Indonesian-based venture capital company with a similar interest in primarily investing in early-stage funding, has invested in 10 startups in the past two years, according to its website.

“Investing in startups, according to our experiences, is risky,” Eddi said, noting that the investments were somewhat risky because as an equity injection, the company would lose all the money if the companies it invested in failed.

According to research by Shikhar Ghosh, a professor at the Harvard Business School, about 90 to 95 percent of startups fail, with failure being defined as failing short of meeting a declared projection.

As a risk management strategy, MCI looks at several parameters when deciding whether to invest, such as whether the start-ups are involved in providing solutions and have reliable founding teams.

The founding team of a startup is also an important factor in decision making  Eddi said, adding that MCI “will never invest in a start-up with a single founder,  it’s too risky”. Ideally, the team should consist of around three to four people, with a “hipster, hacker and hustler” all present.

The formula suggests that a good founding team consists of a creative, a tech engineer and a businessperson.

In addition, the venture capital company also looks at whether the startup has the appropriate business model to achieve sustainability and whether the projected valuation can lead to profitability. (ydp)