Investing in Indonesia May Be Challenging But It's Not Such a Nightmare

We recently posted some concerns regarding the state of the investment landscape for Indonesian technology startups and how it is becoming even more a challenge for them to receive foreign investments despite the abundance of capital being prepared for Indonesian startups from overseas companies. President of Ambient Digital Remco Lupker followed up with a post of his own over the weekend with his take of the situation.

Being involved in Tokobagus certainly has given Lupker a lot of insight and experience in dealing with foreign investment for Indonesian companies especially as he and co-founder Arno Egg are foreigners themselves.

Lupker cited examples from two extremes which ended up badly for the entrepreneurs and the companies and went on to describe horror stories arising from an unstable investment scene rife with corruption. Despite all this and having exited Tokobagus last year, Lupker remains in the country and decided to set up a new business venture altogether. Why is he so positive then in the face of such situation?

As Lupker said, when investing in Indonesian companies, one must be aware of the difference between a locally owned and invested company (PT) and that which has foreign investment component (PMA). The Investment Coordinating Board (BKPM) has set a rule that the minimum amount for a foreign investment is USD 1 million. While this may be manageable for large sized companies, when it comes to startups or small businesses, it's going to be a challenge.

The million dollar investment does not all have to be in cash, the paid up capital for such an investment need only to be USD 250,000 although even that amount can be challenging for small Indonesian businesses that's just starting out. If such an investment involves equity, the deal will immediately fall into foreign investment territory but if this were to be conducted as a loan or through a convertible debt, then there are ways to keep things clear off foreign investment regulations.

Lupker said that the regulations governing local or foreign owned companies are practically the same, the difference lies in the set up stage, "So if you make sure you structure your investment or company in the right way and comply to all the rules and build in the usual investor protection [measures], you should be safe".

He concluded his post by saying that all the challenges in investing in the country is incomparable to the rewards that can be reaped through a successful business undertaking.

But, based on my personal experience, it’s definitely not a Wild West in Indonesia. I’m basically putting the majority of my “marbles” in the basket called Indonesia and so did and still do a lot of other global VCs. Things might be a tad difficult, but considering the huge potential in many industries in Indonesia I would say that’s a low price to pay for the upside in the end.

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