How Venture Capital Firms Evaluate Indonesian Start-Ups For Financing

Proceedings of the 33rd International Business Information Management Association Conference, IBIMA 2019: Education Excellence and Innovation Management through Vision 2020

7 Pages Posted: 22 Jan 2021

See all articles by Hanif Widyanto

Hanif Widyanto

University of Indonesia (UI)

Zuliani Dalimunthe

Universitas Indonesia

Rachmadi Agus Triono

Universitas Indonesia

Date Written: November 13, 2020

Abstract

This study discusses the investment evaluation criteria employed by venture capital firms in deciding to invest in potential Indonesian start-up companies. Based on the literature, we observed 12 investment evaluation criteria commonly used by venture capital firms (VCFs) around the world. In this study, we evaluate whether VCFs investing in Indonesian start-ups employ the same criteria. This research was conducted using a questionnaire that employed a Likert-scale of 1-4, applied correspondingly to the answers as irrelevant, desirable, important, and essential criteria. The unit of analysis is Venture Capital Firms (VCFs) investing in start-ups as business partners in Indonesia, mostly in the Jabodetabek and Bandung area. Study participants were representatives of VCFs who occupied a strategic position in the firms and were therefore able to understand the condition and point of view of each VCF. Out of the 35 VCFs accessed, 19 were willing to fill out the questionnaire. We found that six criteria are considered important in Indonesia. They are (a) capable of sustained intense efforts, (b) able to evaluate and react to risk well, (c) thoroughly familiar with the market the VCF targets, (d) demonstrated leadership ability in the past, (d) have a track record relevant to venture capital investment, and (t) the target market has enjoyed a significant growth rate. Meanwhile, the property right aspect is an important aspect in the USA, but not in Indonesia. Instead, VCFs require that the product demonstrates market acceptance and has been developed to the point of a functioning prototype.

Keywords: start-ups financing, venture capital firms, Indonesian start-ups, evaluation criteria

JEL Classification: G23, G24

Suggested Citation

Widyanto, Hanif and Dalimunthe, Zuliani and Triono, Rachmadi Agus, How Venture Capital Firms Evaluate Indonesian Start-Ups For Financing (November 13, 2020). Proceedings of the 33rd International Business Information Management Association Conference, IBIMA 2019: Education Excellence and Innovation Management through Vision 2020, Available at SSRN: https://ssrn.com/abstract=3729847

Hanif Widyanto

University of Indonesia (UI) ( email )

Jl. Prof. Sumitro Djojohadikusumo
Depok, DKI 16424
Indonesia

Zuliani Dalimunthe (Contact Author)

Universitas Indonesia ( email )

Indonesia

Rachmadi Agus Triono

Universitas Indonesia ( email )

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