INDONESIA Trends and Developments Contributed by: Alvin Suryohadiprojo and Dimas Nandaraditya, KARNA
there were relatively sizeable and notable deals, such as the acquisition of GoTo’s e-commerce platform, Tokopedia, by the giant social com - merce platform from China, TikTok, with a trans - action value of around USD1.84 billion and IPO conducted by Mr DIY, a homecare products retail company, with a total raised amount of IDR4.15 trillion (around USD276 million), transactions on the scale of Bukalapak’s USD1.5billion raised in its 2021 IPO or GoTo’s USD1.1billion raised in its 2022 IPO are no longer as common. On the positive side, Indonesia benefits from a robust and sizeable domestic market. Many businesses that survived the COVID-19 pan - demic have shown strong recovery. The Indo - nesian government has also taken active steps to support the start-up ecosystem by launching incubation programmes, relaxing exit require - ments (including those for IPOs, which will be discussed further in this article), providing tax incentives such as reduced rates for eligible SMEs, and strengthening state-backed venture capital entities. Nevertheless, the industry still faces key challenges, including regulatory hur - dles, prominent instances of managerial fraud, limited access to funding, and the competitive - ness of local venture capital companies, who must contend with banks, finance companies, foreign venture capital companies, and unregis - tered domestic players. These challenges will now be examined in more depth, discussing their impact on investment structures and how VC transactions are typically documented. Venture Capital Structure Before deciding on the most suitable structure for venture funding, venture capitalists typi - cally evaluate several key factors, such as their investment goals (including risk tolerance, target
returns and exit timeline), applicable regulatory frameworks, tax considerations and prevailing market conditions. The following will examine how these elements influence and shape the optimal investment structure. Venture capital companies in Indonesia fall under the supervision of the Indonesian Finan - cial Services Authority ( Otoritas Jasa Keuangan , or OJK). Based on OJK Regulation 25/2023, venture capitalists have the following options to consider: • venture capital corporation (VCC); • the newly introduced venture debt corpora - tion (VDC); or • venture funds. These choices accommodate different invest - ment strategies and risk preferences, allowing investors to tailor their approach based on their investment goals. VDCs primarily focus on debt and non-equity financing, such as purchasing of notes/bonds issued by start-ups. On the other hand, VCCs focus on equity and quasi-equity financing, such as direct equity participation and purchasing convertible bonds, and can also act as managers of venture funds. Venture funds managed by licensed VCCs pool capital from multiple investors through a collective invest - ment contract to invest in a portfolio of start- ups, diversifying risk and maximising potential returns. VCCs managing venture funds are subject to stricter governance requirements, including the need for an investment manager representative licence and dedicated functions such as risk management, IT and internal audit. While VCCs can engage in financing activities conducted by VDCs, the reverse is not permit - ted for VDCs seeking direct equity participation.
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