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Can Venture Capital Boost Indonesia's Downstream Sector?

15 Jan, 2025
Can Venture Capital Boost Indonesia's Downstream Sector?

Venture capital (VC) in Indonesia is exploring opportunities to finance the country's downstream sectors, particularly in processing technology and green energy. The Indonesian Venture Capital Association (Amvesindo) is investigating how the industry can participate in financing downstream activities, aligned with the government's push for non-bank financial institutions to support this sector.

Eddi Danusaputro, Chairman of Amvesindo, noted that the current focus of venture capital in Indonesia is on early and growth-stage investments in startups. However, venture capital can support downstream sectors by funding startups that develop processing technologies, such as nickel processing into electric vehicle (EV) batteries or energy efficiency solutions.

Venture capital could also support education technology (edtech) startups that focus on upskilling the workforce for the downstream industry. In addition, venture capital can invest in logistics startups or SMEs that optimize the transportation of raw materials and downstream products.

Despite these opportunities, there are several challenges for venture capital in the downstream sector. One major challenge is the large capital required for large-scale downstream projects like smelters, which need billions of dollars. Venture capital, however, typically invests in smaller amounts for early-stage projects.

Another challenge is the long-term return on investment (ROI) cycle for downstream projects. These ventures require many years to return profits, which may not align with the short-term exit goals of venture capitalists. Furthermore, there is a lack of local startups focusing on downstream technologies, with many preferring more rapidly growing sectors such as fintech and healthtech.

The lack of collaboration between venture capital and the government is another obstacle. There is no dedicated program or incentive that specifically encourages venture capital to invest in downstream sectors. Additionally, the absence of specific regulations on downstream financing makes venture capital more inclined to invest in familiar sectors like digital startups.

To overcome these challenges, Amvesindo suggests co-investment schemes where the government and venture capital firms collaborate to create special funds for supporting downstream startups. For example, in the United States, venture capital has heavily invested in clean energy startups supporting government programs like the Green New Deal. In China, the government has facilitated collaboration between venture capital and battery manufacturing startups for electric vehicles.

Improving the local startup and SME ecosystem is another solution. The government and venture capital could collaborate to create incubators or accelerators that specifically support innovation in downstream sectors such as green energy and processing technology.



SOURCE: BISNIS | PHOTO: STOCKADOBE

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