INDONESIA Law and Practice Contributed by: Alvin Suryohadiprojo and Dimas Nandaraditya, KARNA
observed in the case of venture capitalists with a greater risk appetite. In a similar manner to other industries, the due diligence process is intended to reveal the real - istic condition of the target company for the investors’ consideration before they decide to proceed with the transaction or not. Several key aspects that must be reviewed during the due diligence process include: • corporate (and constitutional) documents; • licences; • material contracts; • assets; • employments; and • disputes. With regard to an investment made by venture capital fund investors, the degree of scrutiny would depend on the development of the target company. By way of example, when represent - ing venture capital fund investors from a legal point of view, the authors would not put the absence of owned land assets in the red flag findings list for a tech start-up company. Commonly, the main focus of the due diligence process is on the operations of the target com - pany and whether the operations can justify the numbers, key metrics and/or achievements pre - sented by the target company to the investors; and whether there are crucial issues (eg, tax lia - bilities or key disputes) that may impact pricing. 3.2 Process As companies become less likely to receive funding, owing to lower valuations and ven - ture capitalists becoming more cautious amid macroeconomic uncertainties, the timeline for getting a new financing round may take longer than before the COVID-19 pandemic. However,
this primarily depends on whether the company has sufficient runway or whether there is access to funding. The relationship between investors would depend on how the management commu - nicate/manage the narrative (eg, is it a friendly co-investor or strategic buyout?) and whether or not the rights of existing investors are adversely affected in the new round. If the rights of exist - ing shareholders are adversely impacted, the dynamics would be harder to manage. Usually, each co-investor would retain a sepa - rate counsel. Most investors now also have in- house counsel managing transactions without external counsel (depending on the size/com - plexity of the deal). Most deals require majority approval unless there is a down round or a major liquidation event (eg, merger or trade sale). 3.3 Investment Structure Although the OJK primarily recognises only two types of instruments (ie, primarily equity and loan), Indonesia has also seen instruments such as Simple Agreements for Future Equity (SAFEs) and mandatory convertible notes that are usu - ally structured through investments in offshore holding companies. If the investment is made directly through an Indonesian company, Indonesian law applies a minimum paid-up capital of IDR10 billion (approximately USD700,000) for companies intending to have foreign shareholder(s) (either foreign individual and/or foreign entities) (the “FDI Co” ), regardless of the amount being invest - ed by such foreigner. Once shares are issued to foreigner, the minimum paid-up capital must be fulfilled. Moreover, under Indonesian law, a sub - sidiary of an FDI Co would be considered as a foreign person/entity when it intends to acquire shares in another company. Therefore, in order to onboard foreign investors, companies must
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