The Role of Venture Capital for SMEs in Indonesia
Venture capital companies help drive the national economy by giving SMEs funding and management support. Learn how venture capital for SMEs works.
Small and medium enterprises (UKM, usaha kecil menengah) are one of the engines of Indonesia's economy. Micro, small and medium enterprises (UMKM) are the backbone of the economy. Small and medium businesses contribute around 60% of GDP (gross domestic product) and provide jobs for many people. UKM in Indonesia will keep growing and offering profitable opportunities to people who like entrepreneurship. Behind that, small businesses usually run into trouble with capital, which is understandable, because a small business has little of it.
Without additional capital, though, a business will not grow and may even slide backward in the years ahead. The reason is that technology falls behind when it cannot be updated, because there is not enough capital to put toward development. In this situation, venture capital companies are a great help in advancing the national economy. Besides financial support, investors often provide management support as well, so that production runs effectively and efficiently.
Capital Assistance
Venture capital companies are glad to provide capital to small and medium companies with a promising business plan. Investors often hold UKM exhibitions to screen small companies and startups in person. These events include face-to-face meetings between investors and business owners, so owners can present their business plans directly. If an investor is interested, they will contact the entrepreneur soon after for further interviews and to handle the agreement, administration and legal paperwork. The support can take the form of capital to grow the small entrepreneur's business.
Management Assistance
Besides funding, venture capital providers often give management support so that small companies take more efficient steps in production. Investors guide these businesses to carry out production effectively, which avoids wasted costs, cuts production costs and raises income.
Profit Sharing
The investor and the partner company (the business that receives the investment) can share results in the form of shares or money. Or, if there is another product that counts as a result, the investor may also have the right to use that product. The terms of this sharing can be discussed at the start, when the agreement and legal documents are drawn up.
Venture capital providers play a fairly large role for the owners of small and medium enterprises (UKM) in moving their businesses forward. They also help Indonesia's economy grow. With direct investment, the partner company can expand its business quickly. A growing business means better product quality and a higher selling price, which leads to higher profits. That way, the investor and the partner company profit together and share the results according to the agreed terms and calculations.
