Indonesian venture capital and startups association (AMVESINDO) will push for the setting up of a national VC fund this year, chairman Jefri Sirait told DEALSTREETASIA. The fund will aim to invest mainly in tech-based early-stage businesses across the country, which are believed to require about Rp20 trillion ($1.5 billion) of investments a year.
Sirait said the association has been “in talks” with the coordinating ministry for economic affairs for the past year since its formation. Ideally, the fund would backed by the public and private sector.
“There are so many ‘pockets’ of funding from the government alone. Each department has its own (programme). We are talking about, for example, corporate social responsibility (CSR) funds of state-owned companies, universal service obligation (USO) funds in the communication ministry, endowment fund for education, among others,” said Sirait.
Sirait appears to have done his research. CSR funds of state-owned firms are estimated to be a total of Rp 6 – 7 trillion ($4.5 – 5.25 million) a year, while allocation for endowment fund can reach Rp 2 – 4 trillion ($1.5 – 3 million). Meanwhile, the communication ministry said that yearly USO funds could be around Rp 2.5 trillion ($1.8 million).
Pooling these ‘idle’ monies into one national fund seems like the only logical thing to do, especially after President Joko ‘Jokowi’ Widodo vowed to create 1,000 startups by 2020, and to achieve a digital economy worth $130 billion, he opined.
The willingness appears to be there. In November, Jokowi rolled out the 14th economic package or most commonly known as the e-commerce roadmap. In the much-anticipated guidelines, the government recognized the importance of micro credit programmes as the backbone of small and medium enterprises, particularly tech-based companies. The roadmap also laid out a foundation to relax taxation rate and procedures for local investors investing in startups.
While there seem to be a strong inclination from the government, Sirait said that bureaucracy remained the first biggest hurdle in making the national fund come true. Second, the people’s mindset: Investing in startups, where failure rate stands at 90 per cent, is generally still seen as ‘charity’ in Indonesia.
“This is why AMVESINDO is working hard to change this perception. We are asking (for money) not as beggars, so to speak. These are concrete initiatives that we want to push for the benefit of everyone. We are here to help the government achieve their own targets and regulation goals. As simple as that,” he said.
Apart from public funds, AMVESINDO is also working to pull participation from private companies, particularly by connecting local startups with foreign investments. Last year, Indonesia entered the ASEAN Venture Council (AVC) for this very reason.
The council, spearheaded by the Singapore Venture Capital & Private Equity Association (SVCA), connects Indonesia, Singapore, and Thailand (Thai Venture Capital Association (TVCA) for learning and collaboration. It also provides a network that could help local founders find support in business development and expansion in Southeast Asia. Venture associations interested in the promotion of the ASEAN venture capital ecosystem will also be under the council’s watch.
Creating 200 startups per year: What it really takes
What does it really take to ‘create’ 200 digital startups a year, in order to fulfill the national dream of 1,000 startups by 2020? Sirait thinks it takes $1.5 billion a year, or about Rp 50 trillion ($4.5 billion) until 2020.
“$1.5 billion if we are talking about the Indonesian ecosystem only, from both private and public sector. This is not even counting traction overseas,” Sirait explained.
“We can also channel the money to 20 best universities, to fund their techno parks projects,” he added.
Startup investments in Indonesia are still dominated by series A, with ticket sizes ranging between $1 million, $5 million, and $10 million. As the ecosystem matures, Sirait believes that investment size will grow, and will eventually give birth to 200 new, sustainable businesses per year.
AMVESINDO had previously hoped for a flow of Rp 200 trillion ($14.6 billion) of investments flooding the industry starting this year, as the government pushed for a tax amnesty bill which it said could bring Rp1,000 trillion ($73.2 billion) worth of evaded tax assets back to Indonesia. A total of Rp 4,295 ($321 billion) had been declared as of 31 December 2016, but only Rp 140 trillion ($10.5 billion) of overseas assets were repatriated, way below the initial target.
AMVESINDO was formed in May 2016 following the Indonesian Services Authority (OJK)’s regulation about venture capital firms. Initially, the association was formed by and for ‘conventional’ VCs, or those who invest in ‘traditional’ sectors such as manufacture, CPO, automotive, printing, and so on. The association then decided to include VC firms that invest in tech-based startups. Currently, AMVESINDO has around 80 VC members under its wings.