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Indonesia remains Southeast Asia’s gem for venture capital
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espite the challenging environment the COVID-19 pandemic has created for start-ups seeking to raise funds, investors have signaled there is still an appetite to invest in Indonesia, albeit with more calculations involved.
During a webinar hosted by The Jakarta Post in August, Sequoia Capital Singapore managing director Abheek Anand noted that Indonesia was one of the few large economies in the region that could support multiple stand-alone domestic businesses that made sense for large investors like Sequoia to invest in, suggesting that the country’s potential for start-up growth lay in its ever-expanding domestic market.
“The reality is that the overall dollar of venture capital that is coming in for start-ups in Indonesia is far more than what’s coming into any other country in Southeast Asia,” Anand said.
According to data from start-up information platform DealStreetAsia, out of the US$2.7 billion in fundraising deals booked in the Southeast Asian region in this year’s second quarter, 45.8 percent went to Indonesian start-ups. This made Indonesia the biggest absorber of investment funds during the period. Singapore came second by booking 33.2 percent of the deals, while Vietnam followed with 7.9 percent.
However, in the third quarter of this year, deal-making in Indonesia was “sluggish”, according to the DealStreetAsia review, with fundraising dropping by more than 50 percent relative to the second quarter and year-on-year. Singapore replaced Indonesia as the region’s top investment destination in the third quarter, the report notes.
“The most important thing to understand is that there are different types of investors. Some investors are more suited to a different stage of a company’s life,” Anand went on to say, noting that start-up founders would have to pitch to different investors at each stage of their company’s journey.
Equity crowdfunding, also known as crowd-investing or investment crowdfunding, is essentially the practice of funding a private company in exchange for equity. The option is better suited for small businesses that are looking for smaller amounts of investment that can be obtained through multiple investors.
Although relatively new, Indonesia’s first licensed equity crowdfunding platform Santara, operated by PT Santara Daya Inspiratama, has seen a reasonable output, with businesses having raised funds amounting to between Rp 150 million ($10,232) and Rp 7 billion.
According to Santara CEO Avasena Reza, the platform has more than 230,000 registered members, with 71 businesses listed from the almost 6,000 that have applied. So far, the platform has raised more than Rp 100 billion.
“Like an initial public offering [IPO], businesses have to prepare a good prospectus,” Avasena said during the Capital Market Summit & Expo 2020 on Tuesday.
He explained that the platform was founded to help small and medium enterprises (SMEs) to grow as many had failed to do so. Ninety-nine percent of Indonesia’s 60 million SMEs have failed to “level up”, according to data from Statistics Indonesia.
Shinta Kamdani, cofounder of Angel Investment Network Indonesia (ANGIN), told the Post on Wednesday that ANGIN was developing an equity crowdfunding hub that was expected to be launched in the second quarter of next year.
“This initiative is focused on building a more inclusive investment environment,” Shinta said.
She noted that ANGIN would target businesses in second- and third-tier cities, including Malang in East Java and Labuan Bajo in East Nusa Tenggara, in an effort to expand access to financing.
Considered the first and largest Indonesian early-stage investment platform, ANGIN is a network of 95 investors that have funded more than 35 companies, according to its website. It focuses on investing in companies in the pre-seed to Series A stages, and has a portfolio that includes social enterprise Du’Anyam and vegan gourmet restaurant Burgreens.
“Interest in investment within the ANGIN network is still considered quite strong,” Shinta told the Post.
“Throughout the pandemic, investors within the ANGIN network have made five investments. ANGIN has also attracted 25 angel investors to our platform in the past four months.”
Different venture capital firms invest in different stages of a company’s life, from the early stage to the growth stage all the way to the late stages.
Venture capital firm Mandiri Capital Indonesia (MCI) CEO and president director Eddi Danusaputro said to increase chances of receiving funding, founders had to understand the venture capitalists and at what stage they invested in companies.
“Start-ups now have a lot of options to get funding,” he said.
MCI has invested in 14 start-ups in the financial services ecosystem so far, including software-as-a-service (SaaS) company Mekari and payment solution LinkAja.
Founders would need to offer a 10 to 20 percent share of their company through a rights issuance scheme to MCI in exchange for capital, Eddi said.
