The Financial Services Authority (OJK) has tightened capital requirements for venture capital (VC) firms and now categorises them based on whether they provide more equity or more debt funding. Ruth Dea Juwita (The Jakarta Post)
JAKARTA: The Financial Services Authority (OJK) has unveiled a five-year venture capital (VC) road map with the aim of making the industry’s growth more sustainable and positioning it as a driver of wider economic activity.
VC will be the fourth financial service industry to be supervised on a risk-based basis after insurance, pension funds and finance companies.
The road map puts VC firms into two categories depending on whether they provide more equity or more debt funding.
It also tightens capital requirements, requiring that VC corporations have at least 50 billion rupiah, venture debt corporations 25 billion rupiah and syariah-compliant venture capital firms 10 billion rupiah.
The minimum capital rules were part of a broader plan to “develop and strengthen the VC industry,” OJK chairman Mahendra said at the launch event for the VC road map in Jakarta last week.
“Let’s keep building and expanding the venture capital sector,” Mahendra remarked, “but with (the OJK) in command, to ensure it aligns with our goals and so that the target numbers are met quickly.”
The industry was experiencing conditions that were “too good to be true”, considering the cost of accessibility, he pointed out, until the macroeconomic conditions shifted to an environment of higher inflation and higher interest rates, requiring VC firms to reform their strategies.
The road map, which covers 2024 to 2028, prescribes a phased approach: foundation strengthening and consolidation in the first couple of years, then momentum creation and then adjustment and growth in the final phase.
Agusman, who oversees VC corporations at the OJK, said at the same event that the road map would push business players to focus on funding the “unbankable”, early-stage ventures as well as micro, small and medium enterprises (MSMEs), and “avoid overlapping” with other financial institutions engaged in similar financing activities.
“The road map is a joint effort between the OJK and the venture capital industry,” OJK commissioner Agusman said.
“We aim for a healthy, integrated and start-up focused venture capital industry that supports MSMEs, consumer protection and national economic growth.”
The first phase, from 2024 to 2025, will focus on prioritising foundation building and consolidation of the VC industry with the aim of “resolving gaps and consolidating the industry to ensure that the development and strengthening of the industry is not hampered.”
By the end of the initial phase, according to the plan, equity participation should account for at least 51% of VC disbursements and at least 40% of debt.
Beyond consolidation, the OJK seeks to mitigate risks by incorporating additional funding sources like pension and insurance funds, alongside improved exit strategies and business sustainability by adding credit insurance underwriting institutions and incubator institutions.
“Today, (the system) is still incomplete, but we want a sustainable business ecosystem with clearer profitability paths. We will see it in the consolidated financial statements,” he said.
Association of Indonesian Venture Capital and Start-ups chairman Eddi Danusaputro welcomed the road map, hailing it as a “breath of fresh air” for both start-ups and investors.
“Under the previous regulation, all venture capital firms were grouped together, regardless of their specialties,” Eddi said. “Now this new system recognises the diversity of VC partners in the ecosystem, not just tech startups, but also non-tech small and medium businesses across Indonesia.”
Currently, eight out of 54 financial companies under the OJK’s watch have explicitly stated their intention to focus on VC rather than venture debt, according to Eddi.
They include state-owned Bank Mandiri’s investment arms PT Mandiri Capital Indonesia, state-owned Bank BNI’s investment arm PT BNI Ventures, state-owned Bank BRI’s investment arm PT BRI Ventures and the investment arm of publicly listed Bank Central Asia (BCA), PT Central Capital Ventura.
Experts that The Jakarta Post has spoken to generally deem Indonesia’s VC road map a good starting point but note that execution of the plan was crucial to moving the sector forward.
Nailul Huda, digital economy director with the Centre of Economic and Law Studies, lauded the road map’s guidance for VC business actors but also emphasised a need for local VC firms to “go beyond funding” and provide mentorship to ensure the start-ups’ success.
“This is what distinguishes venture capital financing from banking, for instance in terms of business assistance. Investors can’t just wash their hands after giving out investments,” Nailul told The Jakarta Post.
University of Indonesia professor of economics and business Rofikoh Rokhim said that the road map should address the bigger role of venture capital in tech innovation and development by bridging the gap between student innovations at universities and the general market.
“There are amazing ideas stuck on (university) campuses that are not yet mass-produced, because innovations are deemed too expensive and the market is price-sensitive,” Rokhim said.
“This is our big task: to synergise venture capital companies, businesses and universities. There is still a long way to go.”
Domestic VC saw a surge with outstanding disbursements reaching 17.39 trillion rupiah in November 2023, according to OJK data, more than double what they were five years ago.
While the number of OJK-registered VC companies dipped from 64 in 2018 to 54 in 2023, disbursement channels have diversified over the same period.
Private funds reached 2.28 million business partners with a focus on MSMEs. Over 98% of firms supported by VC receive the funds in the form of debt rather than equity, indicating a strong emphasis on loan-based ventures in the domestic VC market. — The Jakarta Post/ANN
