INDONESIA Trends and Developments Contributed by: Alvin Suryohadiprojo and Dimas Nandaraditya, KARNA
required to fulfil a minimum paid-up capital of IDR10 billion (approximately USD700,000). This requirement applies regardless of the amount of investment or shares ownership by foreigners. Not all start-ups are able to meet this require - ment at the outset of their establishment. Thus, a thorough assessment of the upsides and down - sides mentioned above are necessary before deciding the right investment structure. Having considered the right investment struc - ture, there will now be a brief overview of the dif- ferent documentation stages of venture funding, starting from initial investment to exit. Venture Capital Investment Documentation In general, the implementation of investments by venture capitals to their potential portfolios, whether tech start-ups or not, typically begins with the issuance of a term sheet containing key provisions regarding the proposed investment. A term sheet typically includes: • the amount of investment; • the investment structure; • the returns received by the investor; • the prerequisite conditions for investment, including due diligence process; • the rights to be held by an investor, especially if the investor becomes a minority sharehold - er in the company; and • the definitive documents to be executed in connection with the investment. A term sheet is usually not legally binding on the parties, owing to preliminary requirements that must be fulfilled, including the signing of defini - tive documents. However, a term sheet may be legally binding when agreed by the parties to protect the interests of investors – for example, through provisions related to exclusivity and confidentiality.
After the term sheet is executed, which can be assumed as the initial step in the investment process, investors will conduct due diligence on the target company. The duration and complexity of the due diligence process will largely depend on the condition of the target company and the industry it operates in. If the company operates in a heavily regulated industry, the due diligence process will need to pay extra attention to compli - ance aspects. Likewise, if the company has just started, the due diligence will be more limited and more focused on business plans/projections and also the shareholders’ arrangement. Essentially, due diligence is conducted to uncover any poten - tial issues within the company. Once the due diligence process is completed, the parties will negotiate the definitive documents that underlie the investment. These definitive documents will detail the key provisions previ - ously mentioned in the term sheet. Findings from the due diligence may also influence the par - ties in drafting the definitive documents. Inves - tors may require the target company to address any issues identified during the due diligence process before the investment amount is dis - bursed. Investors may also request certain war - ranties from the target company that the issues identified during the due diligence process will not adversely affect the investor upon entering the target company. The definitive documents will also outline the form of accountability in the event of any breaches of representations and warranties made by the target company. The usual suite of definitive documents for a VC investment (both at VC establishment level or VC funding to a target company) may include: • constitutional documents that govern the relationship between a venture capital com -
279 CHAMBERS.COM
Powered by FlippingBook