According to the Financial Services Authority (OJK), venture capital financing or placement in Indonesia has risen 24.86 percent year-on-year (yoy) to Rp 16 trillion (US$1.11 billion) in June, almost matching the 25.47 percent yoy increase recorded in June 2020.

Edward Ismawan Chamdani, treasurer at Venture Capital and Startup Indonesia Association (Amvesindo), said the real figure was far higher than the recorded one, as the agency did not include investment from unlicensed venture capitalists or those headquartered outside the country.

Edward said a particular company could receive up to $3 billion on each investment. He estimated total venture capital assets in Indonesia were at least three times the figure recorded by the authorities.

“[The OJK’s] figure includes only licensed [venture capital] companies. Indonesia’s venture capital market is big. The trend [is expected to] strengthen,” Edward told The Jakarta Post on Tuesday.

So far, the pandemic had not substantially affected investments, he said. While some had decided to hold back on investments last year as the pandemic hit the economy, most of those investments had come through this year as investors were getting used to the pandemic.

“They will no longer wait and see [this year]. Investors agree that [the pandemic] should not stop investment. If there is potential in a good start-up, they will still invest their money,” Edward added.

Read also: Unleash the unicorns: IDX expects strong market cap growth

Boost from tech IPOs

Eric Hendrickus, investment associate at Central Capital Ventura (CCV), said the trend was underpinned by a new dawn in 2021 as start-ups planned initial public offerings (IPOs), especially those that had been around a while and had grown into unicorns (start-ups with a valuation exceeding $1 billion).

Indonesia Stock Exchange (IDX) said on July 28 that at least two of three start-ups planning IPOs would do so this year. One of the three, Bukalapak, conducted its IPO last month. The exchange has encouraged centaurs (start-ups valued between $100 million and $1 billion) to do the same. Indonesia is currently home to six unicorns and 27 centaurs.

The IPOs, Eric said, showed investors that the country's ecosystem was maturing, making them more confident about investing their money, especially those looking for a clear “exit” after a certain period of time.

“I think this will [improve] Indonesia’s ecosystem. More people will want to invest and create start-ups,” Eric told the Post on Monday.

Edward of Amvesindo said IPO exits from existing investments could help venture capital firms generate funds to plough into their next investments, thus spurring growth in the entire start-up ecosystem.

Read also: Venture capital funding for startups surged to highest level

FOMO

University of Indonesia market analyst Budi Frensidy said he saw a growing involvement of conventional companies in venture capital spurring the growth of the industry.

He said the trend reflected a so-called fear of missing out (FOMO), meaning companies were jumping on the venture capital bandwagon late in the hope of capitalizing on the rapid growth of the sector.

“I see [these investments leaning toward] FOMO. They enter for fear of being left behind in the market,” Budi told the Post on Tuesday.

“They even invest in [firms] with already high valuations,” Budi added, arguing that, traditionally, investment in start-ups was often done at an early stage, so that investors could maximize gains as companies’ valuations matured.

Some notable companies have entered the arena, including diversified conglomerate Astra International, state-owned telecommunications company Telkom and state-owned lenders Bank Rakyat Indonesia and Bank Mandiri.

State-Owned Enterprises (SOE) Minister Erick Thohir told lawmakers on June 3 that he wanted SOEs, including oil and gas company Pertamina, to become more engaged in start-up investment. He argued that SOEs had to step in so as not to leave the market up for grabs by foreign investors.

Despite the hype, Budi warned that start-up investment remained a high-risk business due to the high failure rate. He opined that start-ups in Indonesia were still unable to achieve enough economic scale to sustain themselves and as a result continued to “burn money” instead of making money.

“Many companies that dare to make these investments are likely backed by large companies and funders, or else they would be unable to endure,” Budi said.

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