What is most important is that the ecosystem has to be built first. This ecosystem includes funding because creating a unicorn-level startup requires early investment.
Jakarta (ANTARA) - The government must build a funding ecosystem to support the growth of startups ranging from unicorns (companies with US$ 1 million valuation) to decacorns (companies with US$ 10 million valuation), an expert has said.

"What is most important is that the ecosystem has to be built first. This ecosystem includes funding because creating a unicorn-level startup requires early investment," Director of the Center of Economic and Law Studies (Celios) Bhima Yudhistira stated.

The government, including state-owned enterprises (SOEs), must play a role in encouraging financial institutions in Indonesia to fund promising startups, he told ANTARA here on Tuesday.

Thus far, there have been plenty of interesting business models that have ended up seeking funds abroad, he pointed out.

There are a number of reasons why financial institutions in Indonesia are reluctant to direct their capital to startups, Yudhistira said.

First, the risk of funding a startup is quite high, which does not align with the traditional evaluation of loan eligibility, he explained.

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"This also happens in SOEs. Since startups pursue valuation, as opposed to short-term wins and losses, they worry that if they fund startups and they fail, it will become state loss savings," he added.

Another problem concerns the complicated bureaucracy which slows down decision-making involving funding, he said.

However, there are several financial institutions that are willing to break away from the traditional evaluation process by creating venture capital, he added.

"They are separate from bank operations. This can be a solution to expedite startup funding without disturbing the performance of the parent bank. This may have to be encouraged in the future," he noted.

In addition to a funding ecosystem, a regulation that bolsters innovation, such as copyright protection to support human resources, is also required, Yudhistira advised.

"When startups become bigger, especially when they expand abroad, they would a require a more advanced digital talent," he explained.

To this end, the government should also harmonize the education sector so that university graduates can join the developing startup ecosystem, he opined.

"The other required ecosystem is regarding collaboration, which means collaboration with entrepreneurs and SOEs so that startups can scale up faster," he said.

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Translator: Ade irma Junida, Fadhli Ruhman
Editor: Rahmad Nasution
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