Indonesian Government Makes It Even Harder For Startups To Raise Seed Funding From Foreign Investors

Lately I’ve been paying attention to the latest hostile move by government towards seed investment from foreign companies in Indonesia. If you try to raise money for your startup with less than $250,000 in capital, from foreign investors, you’re going to have a bad time. Although there’s no specific regulation that binds this, it seems that this shadow regulation has been taken into effect for the past few months.

I’ve talked to some startups which have been having difficulties to get the money from foreign investors if it’s under $250,000. Some of the startups that are currently raising money has been dealing not only with hard-ass investors, but even after they got investors, the government is giving them more difficulties.

The question is: why do you have to raise seed money from foreign investors in the first place? Allow me to explain.

Raising money for an Indonesian startup is not easy, possibly even harder compared to other more mature tech markets. Indonesian startups have two choices to begin with, look for external investment or go solo, bootstrapping. As far as bootstrapping goes, a bootstrapped startup has to think about making money from day one. Debatably, this makes no room for innovation for the startup who now has to deal with (and possibly dictated by) brands, agencies, advertisers or whoever it is that gives them money. “Innovation and originality is overrated”, they say.

Maybe it is, but that’s not my point.

Going to the second option, raising external investment also comes with two options: local or foreign investors. Having been discussing this specific subject and having to do fundraising myself, it’s safe to say that raising money from local investors is a very hard task. Most local investors are those who are already making tons of money from their traditional business (oil, energy, forestry etc) and online business is simply a joke for them because there’s no scalable business model for revenue. I mean, how often do you see an Indonesian startup making $1 million of revenue in a year anyway? Not that many, correct?

The last option is to raise money from foreign investors from a more mature market: US, Singapore, Japan, China, South Korea. These people know the business well enough to figure out that they’re doing it for the long run. They value innovation and already familiar with the “product/customer first, money later” philosophy. Despite these investors’ interest in seed investing in Indonesian startups, it’s going to be very hard for them to do so now that the government is standing in their way.

This explains the lack of seed funding activity in Indonesia by foreign investors for the past few months as this issue also leads foreign investors to fear that the government will go further than it already has.

So the next question would be: what can these startups do to get around it? I don’t have the answer for this. As unpatriotic as it sounds, maybe it’s a good idea to move your company to Singapore to make it doable to take investments from foreign investors. As much as I don’t want to suggest that, almost all experts I talked to suggests the same thing.

(image/shutterstock)

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