Indonesia continues facing the problem of funding its tech firms despite having the highest number of startups in the region with around 2,000 companies.
By 2020, startups in the Southeast Asia’s largest economy are predicted to increase more than six-fold, making the country a very dynamic market.
The Indonesian government is now mulling a plan to tackle the issue, saying that it would use the universal services obligation (USO) fund to financially support tech-based startups. This is also part of efforts to grow employment in the small and medium enterprises sector, thus reducing economic inequality, the government said.
Communication and technology minister Rudiantara told reporters that his ministry is still discussing the matter with players in the industry, on how to effectively support the ecosystem. If everything goes well, his ministry will release a ministerial regulation to channel the fund into startups.
“There is a willingness from the government to use the USO fund to support startups in the USO-dedicated areas,” Rudiantara said recently.
The fund was originally intended to provide telco infrastructure in the rural areas of Indonesia where private investment is scarce. It started in 2005 when the government began charging telco operators – about 0.75 per cent of gross revenue at the beginning but later grew to 1.25 per cent of gross revenue.
Since its launch, the fund had reached Rp 2 trillion ($150 million) annually. However, only 41 per cent of the fund had been used for its core purpose. This leads the government to halt the program in 2015.
“The fund has never been fully disbursed to build what it originally intended to build – the base transceiver stations (BTS). And so maybe we can instead modify the program and channel the fund to the things connected to startups,” said Rudiantara.
Under the current law, only 122 districts and cities are eligible to receive USO funding. They include Aceh Singkil, Nias, Sumbawa, Bima, Alor, Nunukan, Buru and Jayawijaya in Papua. Jakarta, Bandung, Yogyakarta, and Bali and other areas deemed accessible to private investments are not included in the list.
Up until June, 28 Indonesian startups pocketed Rp 2.09 trillion ($160.7 million) in investment. This number shows a stable quarterly growth of more than 100 per cent within the last 12 months, with e-commerce and marketplace being the most sought-after sectors by global investors.
Indonesian association of venture capitals and startups (AMVESINDO) had earlier predicted that about Rp 200 trillion ($14.6 billion) of investments were expected to pour into the startup sector starting this year, as the government is carrying out a tax amnesty program which it says could bring Rp1,000 trillion ($73.2 billion) worth of evaded tax and assets back to the country.
Other than venture capitals, Indonesia is also seeing some growth in angel investing – an alternative to traditional funding. Last year saw the forming of a new angel investor club, Angel-eQ with 15 initial members, in addition to the existing Indonesian angel investment network (ANGIN).
The trend of angel investing is expected to keep increasing, not only in Indonesia, but also in the region after the creation of an angel alliance from 7 ASEAN countries.
The alliance, with participation from Malaysia, Singapore, Indonesia, Thailand, Philippines, Vietnam and Cambodia, is aimed to promote co-investment support and intra-ASEAN investment in startups.