The recent controversy of ride sharing apps prohibition has left a bitter taste for Indonesian startup ecosystem. Not only causing a huge uproar in social media, this move sparked immediate response from members of people representative council, former Indonesian VP Boediono up to president Jokowi himself. In less than 24 hour, Transport Minister Ignasius Jonan has been forced to revert this decision due to the amount of negative reaction from the public.
On one side, the backlash showed that ride sharing apps have started to become an integral part of society especially in Jakarta. A good progress considering how recent the services was introduced in this market (Gojek started in 2010 while GrabTaxi entered Indonesia just last year). On the other side, the controversy highlighted further one of the biggest challenge in this country startup scene : uncertain regulation.
So looking forward, are there any other regulatory development that Indonesian startup founder and investors should be cautious about ? Below are some of my observation.
Jakarta provincial administrator ban on Virtual Office
Last month, provincial administrator of Jakarta has signed new bill which prohibits the use of Virtual Office (Link in Bahasa) and Co-working Space as official address for corporation. Citing fraud reduction as the main reason, the new regulation will be effective starting the 1st of January 2016. According to CNN Indonesia, this new bill will negatively impact 50 thousand SMEs including startups.
For Jakarta-based startup, this regulation will practically increased their overhead cost. Annual SOHO building rental in a non-prime area in Jakarta could cost 8000 US dollar at minimum while the one year fee of coworking space such as Comma or Conclave is only around 1500 to 2500 USD. When the regulations is enforced next year, it will be much more cheaper for startups to operate in the surrounding areas outside Jakarta such as Depok, Bekasi and South Tangerang. It will also give strong incentive for startups to move operations into other regions which has lower regional wage altogether such as Bandung or Jogja.
Several party such as Virtual Office Association (VOACI) and Indonesia Young Entrepreneur Association (HPMI) has been voicing objection on this bill and urging the government to adjust this decision.
Proposed foreign investment limitation on E-commerce
Following the E-commerce explosive growth in Indonesia, Indonesia Investment Coordination Board (BKPM) is currently drafting an adjustment proposal for foreign investment guide. One the main topics on the BKPM agenda is E-commerce. Under previous regulation, foreign investment on e-commerce company is 100% closed.
One of the proposal coming out from the discussion is to limit the foreign ownership to only 33% with the maximum amount of investment fund is capped at 15 million USD. While the ownership percentage seems to be reasonable, 15 million cap could potentially be troublesome for e-commerce company looking for late stage funding (Series C are mostly above 30 million USD). Aside from foreign VC’s, there are not a lot of options due to most of local VC and investor still mostly do seed fundings.
As of today, foreign venture capital who wants to invest in the Indonesian e-commerce industry has to do some workaround to navigate regulatory hurdle. As a primary example, Tokopedia received 100 Million USD from Softbank as a loan instead of equity. TIA’s Nadine Freischlad has written a good piece on this practice.
The proposed regulation adjustment is currently still under discussion and expected to be final on the early 2016.