Definition of Venture Capital

This time we will discuss the meaning of venture capital and its characteristics, functions, objectives and legal basis. Here’s the explanation …

 

Table of contents :

Definition of Venture Capital

Characteristics of Venture Capital

  1. Venture Capital Financing is Equity
  2. Venture capital is a long term investment
  3. Venture Capital Is a Risk Capital Financing
  4. Venture Capital is Temporary
  5. Benefits / Profits in the Form of Capital Gains and Dividends
  6. High Rate Of Return

Legal Basis of Venture Capital

  1. Civil Law
  2. Freedom of Contract Principle
  3. Civil Law Law
  4. Public Law
  5. Law on Public Law
  6. Regulations on Financing Institutions

Purpose of Venture Capital

Benefits of Venture Capital

  1. Increase Business Activities
  2. Increase Business Potential
  3. More Efficient Product Marketing
  4. Received Trust from the Bank
  5. Increase in Liquidity Level
  6. Better Profitability

Types of Venture Capital Financing

  1. Eguity Financing
  2. Semi Equity Financial
  3. Build New Business
  4. Profit Sharing

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Definition of Venture Capital

Venture capital is an investment in the form of financing in the form of equity participation in a private company as an investee company for a certain period of time.

 

Usually this venture capital investment is given in the form of cash which is then exchanged for a number of shares in a business partner company.

 

In general, venture capital is a high-risk investment, but also a high-return investment.

 

Investment funds from investors are managed by venture funds where investors already know that the company is being financed

 

has a high risk and does not meet the standard requirements of a public company to get loan capital from a bank.

 

Most of these venture funds come from established investors, investment banks, and financial institutions that raise funds for these investment purposes.

 

Venture capital participation is generally given to startup companies (startup companies).

 

To better understand what venture capital is, we can refer to the opinions of the following experts:

 

According to Martono

 

Venture capital is capital that is invested in a business that has risk, where the objective is to get a profit in the form of interest or dividends

 

According to Dahlan Siamat

 

Venture capital is capital that is invested in a business that contains risk, both in share capital participation, convertible bonds, and loans that can be converted into shares.

 

According to PRPRES No. 61 of 1998

 

A venture capital company is a business entity that provides financing in the form of equity participation in companies that receive financial assistance.

 

Characteristics of Venture Capital

the definition of venture capital

 

  1. Venture Capital Financing is Equity

The form of financing made by venture capital companies is by direct capital participation in business partner companies.

 

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  1. Venture capital is a long term investment

Venture capital firms do not expect a profit by trading their shares in the short term, but do expect capital gains after a certain period of time.

 

  1. Venture Capital Is a Risk Capital Financing

Venture capital is high risk because the financing is not accompanied by collateral as is the case with bank loans. However, the high risk is offset by the hope of getting a bigger return.

 

  1. Venture Capital is Temporary

Although venture capital financing is in the form of equity participation, there are preliminary principles, for example, provisions for a maximum period of 10 years for venture capital participation in Indonesia.

 

  1. Benefits / Profits in the Form of Capital Gains and Dividends

The profit expected by venture capital companies is primarily a capital gain or appreciation of the value of shares in addition to dividends.

 

  1. High Rate Of Return

The business sector generally funded by venture capital is a new breakthrough that promises high returns.

 

Legal Basis of Venture Capital

Currently, venture capital is a relatively new financial institution. Venture capital is described in KEPPRES No. 61 of 1998 concerning Financing Institutions, and also KEPMENKEU No. 1251 / KMK.013 / 1998 concerning Provisions and Implementing Procedures for Financing Institutions.

 

These two regulations (KEPPRES and KEPMENKEU) are the beginning of the basic history of venture capital law in Indonesia.

 

Apart from the two regulations above, venture capital is also described in various laws and regulations, both civil and public in nature.

 

  1. Civil Law

In business activities, what is meant by venture capital are venture capital companies and business partners (investee companies). In civil law, there are 2 sources of law as the basis for venture capital business, namely:

 

  1. Freedom of Contract Principle

The legal relationship in venture capital is always made in a written contract as a legal document that forms the basis of legal certainty.

 

A venture capital contract is the main legal document that is made and functions legally for venture capital companies and business partner companies by meeting the requirements as stipulated in Article 1320 of the Civil Code.

 

Since contract law is made legally, contracts apply as law for venture capital companies and business partner companies (Article 1338 paragraph (1) of the Civil Code).

 

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  1. Civil Law Law

The legal basis for venture capital in the form of laws in the field of civil law is the Civil Code, Law Number 40 of 2007 concerning Limited Liability Companies, Law Number 25 of 1992 concerning Cooperatives, and Law Number 8 of 1995 concerning the Capital Market.

 

  1. Public Law

As a financing service business, venture capital is closely related to the public interest, especially those of an administrative nature. That is why laws of a public nature are applied to venture capital businesses.

 

These laws include; Laws, government regulations, KEPPRES, and ministerial decrees.

 

  1. Law on Public Law

The main legal bases for venture capital are:

 

UU no. 5 of 1960 concerning Basic Agrarian Regulations and implementing regulations

UU no. 3 of 1983 concerning Compulsory Company Registration and implementing regulations

UU no. 12 of 1985

UU no. 7 of 1991

UU no. 8 of 1991 and its implementing regulations.

  1. Regulations on Financing Institutions

Regulations regarding financial institutions that regulate the venture capital business, namely:

 

Government Regulation No. 18 of 1973 concerning the Establishment of PT. Bahana Business Development Indonesia (as the first venture capital company in Indonesia

KEPPRES No. 61 of 1988 concerning Financing Institutions (has been amended into Presidential Regulation Number 9 of 2009 concerning Financing Institutions)

KEPKEMENKEU No. 1251 / KMK.013 / 1988 concerning Stipulation and Implementation Procedures for Financing Institutions, amended and refined by Decree of the Minister of Finance No. 468 in 1995.

Purpose of Venture Capital

  1. Bahana Business Development Indonesia is the first venture capital company in Indonesia. The following are some of the goals of venture capital:

 

Grow and develop the capabilities of MSMEs (read: understand MSMEs) by seeking financial assistance without ignoring the rules of a healthy company.

Helping to increase the growth rate of SMEs by seeking equity capital, providing long and medium term guarantees, as well as helping small businesses to improve their skills and management.

Help create a healthy business situation for SMEs to grow into reliable businesses.

Partnership in the context of poverty alleviation, with the aim of helping entrepreneurs who are undercapitalized and do not have material guarantees, make it difficult to get loans from banks. With the investment of venture capital can help overcome financial difficulties.

Helping companies that lack liquidity.

Help establish new companies, where the risk of loss is very large.

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Benefits of Venture Capital

  1. Increase Business Activities

Usually partner companies are small businesses that need funds to increase business. Financing from venture capital can help increase business activity.

 

  1. Increase Business Potential

Individuals and groups who have succeeded in creating something new generally need financial support.

 

Venture capital in this case acts as a business partner that can help develop a product or a bigger business.

 

  1. More Efficient Product Marketing

The marketing process in the pilot business is generally inefficient because the amount of production is still small.

 

With the help of funding from venture capital, business partners can improve product marketing efficiency.

 

  1. Received Trust from the Bank

In general, startup companies find it difficult to get funding from banks because their management is still ineffective.

 

With the entry of funds from venture capital, this will increase the bank’s confidence in start-up companies in providing venture capital.

 

  1. Increase in Liquidity Level

Beginners who get funding from venture capital do not have to pay interest and debt repayments. That way, additional investment capital will directly increase the company’s liquidity. stub

 

  1. Better Profitability

Funds and management assistance containing experienced and professional staff will make the pilot business more effective and efficient.

 

That way, marketing costs and production costs can be minimized and in the end help increase the ability to get profit (profitability).

 

Types of Venture Capital Financing

  1. Eguity Financing

This is a type of direct financing created by a venture capital company by investing in a business partner company and taking a share of the total shares owned by the business partner company.

 

  1. Semi Equity Financial

This is a type of financing by purchasing convertible bonds issued by business partner companies.

 

  1. Build New Business

Venture capital firms work with partner companies in building completely new businesses.

 

  1. Profit Sharing

This is a type of financing for small businesses that are not legally incorporated or have a legal entity, where both parties get a portion of the profits generated by the business.

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