Building the Entrepreneurial Ecosystem Part 2: Angel Investing

A major piece of the entrepreneurial ecosystem that has yet to be fully developed here in Indonesia is access to early stage funding. There is a gap between the funding provided by friends and family and the much larger investments most venture capitalists are looking for that causes issues for a number of entrepreneurs. Some VCs have been moving to earlier stage investments, but this comes with its own set of issues. Accordingly, one of GEPI’s biggest initiatives during my time here has been launching Indonesia’s first open angel investor network and two angel funds.

We had a big launch event in mid-July with 30-40 affluent prospective angels to teach them about angel investing, valuation, and structuring/negotiating a deal. Partially supported by the US State Department, we brought in two prominent angel investors from the US to hold a full-day workshop. It was an amazing learning experience and a great opportunity to see business tycoons go through a negotiation simulation similar to the ones in our MO class – I definitely still have a ways to go.

Panelists at the workshop

Pak Ciputra, the godfather of
entrepreneurship in Indonesia

I’ve also had the unique opportunity to structure two angel funds – one focused specifically on female entrepreneurs, and another more general one. Having no background in investing, it was really interesting to understand how an investment fund works, and then adapt that knowledge to an Indonesian context.

These angel investors are interested in all businesses, not just social enterprises. That being said, a number of the businesses in our pipeline that we’re preparing to pitch to our investors are social enterprises that have positive impact, but also compelling business propositions. I’ve prepared a workshop on presenting to investors,

Presenting to a group of entrepreneurs

 and spent my last day at GEPI working with 14 entrepreneurs on their investment pitches. The remaining challenge though for both investors and entrepreneurs is a lack of exit options. In the US, there is a robust IPO market and a lot of acquisition activity that lets investors earn multiples of what they invested to cover other startups that fail. However, here in Indonesia, an IPO is not a viable exit option and the lack of data on acquisition terms makes it difficult to determine whether it’s actually profitable to do angel investment. As such, entrepreneurs crutch together alternative investment terms that likely aren’t in the best interest of the business or investor (i.e. a 3-year profit sharing period with the full investment paid back at the end, almost like an income-based loan). I believe once this hurdle is overcome, the entrepreneurship scene here will grow even faster than it already is.