Venture capital firms help small entrepreneurs

Venture capital firms help small entrepreneurs

By Prapti Widinugraheni

YOGYAKARTA (JP): Dirman is a salak (snake fruit) farmer who
owns a well-established a salak farm on several hectares in
Sleman, Yogyakarta.

He has a market, a distribution network and is a member of a
salak farmers cooperative which want to see business grow.

Dirman says he has no financial problems. In fact, he says the
asphalt road in front of his house connecting Sleman to
Yogyakarta was jointly funded by farmers in the surrounding area.

"What we really need here is know-how on the most advanced
ways to manage our salak farms. We want to know how our products
can be accepted by our customers and why it is often rejected by
supermarkets and other retail stores," he says.

The salak grown here, a variety called salak pondoh, is known
for its sweetness.

"We need people to motivate us and tell us what we must do if
we want to get better results," Dirman said.

Achmad Dahlan, a final-year student at Solo's Sebelas Maret
University, faces a different problem in managing his unique
wood-batik business.

Achmad employs about 50 people at his small wood-batik-
painting and makeshift shop in Solo which he started two years
ago.

The business is unique because batik motives are painted not
on cloth but on wood carved into masks, statues and jewelry
boxes.

Recently, after joining an exhibition, he met some potential
buyers from Turkey and Taiwan. He is considering exporting to
those two countries but has limited knowledge on export
procedures, negotiation skills and marketing.

Dirman and Achmad are examples of small entrepreneurs who
would do better if they had a little help from people with
experience and money to help them get through the tough times.

Fortunately, they were discovered by venture capital firms.

Dirman said Sarana Yogya Ventura, a venture capital firm based
in Yogyakarta, managed to find some agricultural experts from
Yogyakarta's Gadjah Mada University to help the salak farmers.

"Sarana Yogya Ventura helped us meet these experts. They have
also provided us with Rp 500 million (US$217,390) as part of
their capital in our business," Dirman said.

The fund has a three-year investment period, during which the
venture capital will get a share of the profits.

Meanwhile, Achmad gets his help from the Solo-based Sarana
Surakarta Ventura. The venture capital firm invested Rp 20
million for a four-year term.

"We get 60 percent of profits while the venture capital gets
40 percent," he said.

Sarana Yogya and Sarana Surakarta are among the 20 venture
capital companies established since 1994 by PT Bahana Artha
Ventura and businessmen.

Bahana Artha, which is owned by the Ministry of Finance and
the central bank, Bank Indonesia, was established in early 1994
to help put into action the government's call for partnerships
between big and small businesses.

The partnership, in the form of venture capital programs, aims
to nurture small and medium businesses.

The 20 venture capital companies are spread across most
provinces and have Bahana Artha as their main shareholder. The
rest is owned by 705 business tycoons, corporations, cooperatives
and foundations.

Sarana Yogya's shareholders include President Soeharto, who
owns 2.64 percent of the firm worth a nominal Rp 100 million.
Other shareholders include the president of state oil company
Pertamina, Faisal Abda'oe, businessmen Setiawan Djody, Steve
Sondakh, Henry Pribadi, Anthony Salim, Soedarpo Sastrosatomo and
Arifin Panigoro. Foundations and companies with a stake include
PT Lippo Bank and the Bimantara Foundation.

President Soeharto also owns 1.9 percent of Sarana Surakarta's
shares which is worth Rp 100 million. The firm's other
shareholders include businessmen Hutomo Mandala Putra, Robby
Sumampouw, Sukamdani S. Gitosardjono and Ongki P. Soemarno and PT
Gudang Garam, PT Lippobank and PT Bank Central Asia.

As of January, the 20 venture capital firms had Rp 85.9
billion in equity, of which Rp 19.7 billion came from Bahana
Artha and Rp 66.2 billion from the private sector.

The venture capital firms have so far injected Rp 27.9 billion
in financial assistance to 600 small and medium enterprises.

President Soeharto is scheduled to open an exhibition and
conference on the development of venture capital firms tomorrow.
The events will take place until Wednesday.

Profit-sharing

The president of Bahana Artha, Hafiz Arief, said earlier this
month venture capital firms applied different profit-sharing
schemes, depending on the needs and strengths of the small
businesses.

Venture capitalists may choose equity-financing, obligation
conversion or profit-sharing schemes, he said.

"Most of our venture capital firms opt for the profit-sharing
scheme because a lot of small-scale businesses are not limited
companies," he said.

Most entrepreneurs supported by venture capitalists are in the
agricultural sector. These entrepreneurs have received Rp 4.9
billion so far. The rest are in the home industry and the trade
and services sector.

Although venture capital schemes have managed to support most
small entrepreneurs, there are instances when the venture
capitalists -- as shareholders in the business -- have had to
give extra help to protect their investment.

Sarana Yogya, for example, although requiring no collateral
from entrepreneurs, opts to invest in more established, medium
businesses that need only a "finishing touch".

Meanwhile, Sarana Surakarta, whose partners are mostly small
businesses just starting to develop, compensate by requiring
partners to have a small amount of collateral.

It also requires entrepreneurs to pay a monthly loan repayment
to offset profit fluctuations and ease the burden of having to
pay Sarana Surakarta large dividends in one go.

The president of Sarana Yogya, Amelia A. Yani, says finding
the right partner is not easy.

"Many times, the entrepreneurs don't even know what they need.
An elementary school teacher once asked for Rp 350 million from
Sarana Yogya but all he had was a small eating house. After we
made financial assessments to his business, we decided to give
him Rp 10 million, telling him he wouldn't have been able to
repay Rp 350 million. Now the eating house is thriving into a
small grocery shop," she says.

"I think he's even thinking about leaving his job as a teacher
and seriously going into the retail business," she said.

The general manager of Sarana Surakarta, Bambang Widiatmoko,
said some partners have had trouble paying their loans on time or
meeting the profit-sharing deal's requirements.

"We would like to make sure that they repay Sarana Surakarta's
investment in the business. But if their business fails, we will
still stay at their side and find out -- with them -- where they
went wrong," he said.

He said venture capitalists should use persuasive means to get
such entrepreneurs back on their feet.

"Leaving them is not a way out because helping them through
their tough times is what it's all about," he said.

Bambang acknowledges venture capitalists are in a very risky
business.

"A survey shows that we bear four times the risk of a bank,"
he said. If one of the entrepreneurs walked out on a deal the
venture capitalist might consider taking the case to court, he
said.

"We have never had to do this so far. And I wouldn't know how
the court would handle such cases because the government does not
have rules on venture capital firm yet," he said.