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.