Nurturing small firms

Nurturing small firms

They are known as venture capitalists -- two words which in
most developing countries, including Indonesia, have negative or
even exploitative connotations. But it was these capitalists and
several tycoons that President Soeharto summoned for a special
meeting on the development of small enterprises at the
Presidential Palace in Bogor, West Java, over the weekend.

The capitalists represented 20 venture capital companies from
19 provinces which were established over the last three years by
the government, through state-owned PT Bahana Artha Ventura, in
cooperation with big businesses. Venture capital, though largely
the concept of liberal economies, has proven to be one of the
most effective ways of fostering small, start-up businesses.

Venture capitalists provide the vital infusion of funds -- in
both equity and loan funds -- to help small, budding enterprises
blossom. As they also share the risks of the business, venture
capitalists usually package their financial participation with
managerial and marketing assistance as well as consulting
services. But as their name suggests, venture capital companies
are not charity organizations but are business entities seeking
profit.

The main difference between venture capitalists and other
investors is their daring operations in that they venture into
small, new businesses which have no proven track record and are
not bankable. The risks are understandably usually high but the
potential returns also are very big. No wonder, venture capital
companies raise their funds mostly from shareholders.

Venture capital really suits the needs of small enterprises
which barely own assets that can be offered as collateral for
bank loans and have no proven track record to qualify for listing
on stock exchanges.

The government therefore decided a few years ago to develop
venture capital as another effort to help accelerate the
development of small businesses and prodded big businesspeople to
become their main shareholders. The idea was to set up at least
one venture capital company in each province to help foster local
small, start-up businesses. President Soeharto himself led the
initiative by joining several of the companies as a shareholder.

As venture capital companies can thrive only if the businesses
they join as shareholders grow and turn a profit, they should be
aggressive in identifying start-up businesses with high-growth
prospects. Venture capitalists reap profit from dividends and
capital gains when they later divest their equity investment
either through private placement or share issues on stock
exchanges.

It is obviously too early to assess the performance of the
country's venture capital companies, given their relatively short
period of operations. But as reported by Minister of Finance
Mar'ie Muhammad at the Bogor meeting, their records are not bad
at all. The venture capitalists, Mar'ie said, had so far assisted
112,765 small firms with total employment of around 139,160.

Venture capital companies can not simply pour money into small
enterprises as business viability and potential growth remain the
prerequisite for their participation in start-up enterprises. But
as they gain more experience, they will become more skilled at
picking potential winners among small enterprises. Of most
importance, though, is that venture capitalists offer what has
proven to be the most effective program to help develop small
businesses -- a fully integrated assistance package.