Indonesia’s Ideosource may soon dole out venture debt to the country’s burgeoning startup ecosystem as the venture capitalist looks to move from equity-based financing to venture debt funding.
Even as the concept of venture debt is increasingly gaining steam in Silicon Valley, India, and Europe, it is still at a nascent stage in Indonesia.
“We are restructuring our financing scheme and turning it into the venture debt funding scheme for early-stage startups. We will do this also to our film financing,” Ideosource managing partner Edward Chamdani told DealStreetAsia.
Funded by 10 high-net-worth individuals, Ideosource has two business units. The first one is called Ideosurce Entertainment that is into film financing, while the other one is focussed on seed and early-stage investments in startups across sectors.
The VC firm has so far invested in 27 early-stage tech startups. These include prominent names such as aCommerce (Bangkok-based e-commerce and e-distributor services provider, Orori (jewelry ecommerce store in Indonesia), e-Fishery (Indonesian aquaculture startup), and Bhinneka (which is considered Indonesia’s pioneer of eCommerce website).
“Now, we are still operating the equity-based funding for early-stage startups and for films financing. But, by the end of the year, we will implement the venture-debt funding. In Singapore, this fund structure is common. For us who are now focusing our investment in agriculture and maritime sectors, this structure is suitable for us,” Chamdani said.
Experts tracking the Southeast Asian market say that venture debt is increasingly becoming an integral part of funding in the region, with Singapore leading the trend.
According to Chamdani, venture debt is suitable for sectors that are heavy on cash flow, such as logistics, maritime, energy, agriculture, and waste management.
“In Indonesia, we see that there is a gap between venture capital, who understands innovation and understands what is on the field, and private equity, who mostly are non-operating people and who understands primarily on how the capital market business works,” he said.
Chamdani said any VC firm that embraces venture debt as a form of investment can combine a part of both VC and PE funding strategy. Venture debt, he added, can push companies to be more productive as investors not only provide loan, but also help entrepreneurs through innovation, technology and business strategy.
What’s more, “Through venture debt, we can grow together with startups by giving them ‘facility’ so they would not go [asking for loan] into the third party anymore,” he added.
On the contrary, in an equity based-funding scheme, when a VC firm gives a $10 million in equity to a startup, it goes straight into the latter’s balance sheet, explains Chamdani.
The loan is usually short-term, which the startups are able to repay in the span of a year or two. Meanwhile, the investment cycle of equity-based funding is typically for seven to eight years.
What it means for Ideosource
Chamdani said through the venture debt mode of funding, Ideosource is looking at a profit-sharing scheme with startups.
“We give them the option of converting it into equity, but if they turn down the offer, they just need to repay the loan,” he added.
Sectors that Ideosource has set its sights on are maritime and agriculture since the government is also pushing its incentives and innovation in these areas.
Indonesian President Joko ‘Jokowi’ Widodo has an ambitious mission to push for more infrastructure development in the maritime sector. The government has been building new sea toll projects and is expanding the existing ports across the archipelago to cut the period of customs handling and increase the cargo capacity.
“We wanted to have this momentum. With challenges in agriculture and maritime, along with the government’s help, this has huge market potential and brings impact to the many parties. We wanted to disrupt these sectors,” Chamdani added.
Apart from that, the government, through Indonesia’s Creative Economy Agency (Bekraf) has been providing incentives for startups since 2017, wherein selected firms are able to receive up to Rp 100 million ($7,047) to develop their businesses and their products.
Besides, Chamdani also pointed out that the Financial Services Authority (OJK) regulation that was issued last year is also set provide a fillip to startups. The regulation stipulated that digital startups are now allowed to go in for equity crowdfunding.
He said that while the VC firm is still depended on high-net-worth individuals for funding, there are also a plethora of retail investors and medium-high net worth individuals who are increasingly evincing interest in investing in startups.
“We have so many retail investors who are active in startup association that could get involved in giving these startups directions or innovations. Through equity crowdfunding, it is possible,” he added.
For the past five years, startups that focused on agriculture have been mushrooming in the country. The government initiated a movement called ‘Indonesian Farmers and Small Business Go Digital’ in 2016 to make 1 million farmers and fishermen ‘go online’ throughout this year.
The initiative is also to develop the creative economy to address the agricultural gap and challenges in the country.
On Investors backing Ideosource
Chamdani said the debt transaction that the firm will follow is different and is not comparable to peer-to-peer (P2P) lending as his VC operates under ‘Penanaman Modal Ventura’ or venture capital investment license.
The ticket size through venture debt scheme is usually larger than equity-based funding and starts at around $30 million.
Chamdani said there is one investor – a high-net-worth individual- who has agreed to join the venture debt scheme. However, he did not divulge any details.
“Now we are looking and intend to invest in this one agriculture startup,” he said, refusing to mention the name of the startup.
Investments in Films
Ideosource Entertainment, which helmed by another managing partner Andi S. Boediman, is currently on the road to raise more than $15 million by the end of this year.
So far this year, it has raised $7 million funding through an equity-based scheme.
“We will set aside additional funding around $10 million through a venture-debt scheme in the second half of this year,” he added. Next year, the firm will invest in at least 10 Indonesian films.
“We are also exploring the option to undertake an IPO for our entertainment unit. Some of our investors are really interested in participating with this action as the tax incentives are attractive to them,” Chamdani said.
The government offers 5 per cent tax reduction for companies that go public, from the 25 percent of the current enforcement.
Ideosource also will target Indonesian films that have secured Intellectual Property (IP) rights, in which it usually adapted from comic books, novels, or the TV series.





