EVALUATION OF CRITICAL RISK FACTORS IN PRIVATE EQUITY/VENTURE CAPITAL INDUSTRY IN INDONESIA

• Main Author: Khalil Ramadhan, Fauzan
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/73065
• Institution: Institut Teknologi Bandung

In the landscape of global uncertainty, there’s a solid push for VC in Indonesia to deliver prudent yet beneficial investment. Through the exploration of critical risk factors that pose a significant threat to investment portfolio, VCs are able determine the level of risk vis-a-vis their investment which justifies their decision-making process. Such condition presents limitless alternatives in identifying, assessing, analyzing, and managing risk. Acknowledging previous literature, books, and journal articles, this research was able to identify 7 primary indexes in VC risks, which is also derived into 28 secondary indexes, both serve as risk factors of VC in Indonesia. Risk factors in VC can be grouped into the respective stages of investment that include, early, expansion, and later. A compilation of risk factors will be processed in multi-criteria decision making in the form of Analytical Hierarchy Process method that relief the partial and insignificant judgement from VCs as decision maker. It measures risk factors based on its likelihood and impact with Venture Capitalist from Kejora Capital, Northstar, Kolibra, and MDI Venture, a combination of government-backed, corporate, and local venture capital, acting as the expert judgement. The overall ranking of risk factors was then transformed into a risk mapping that displays 7 critical risk factors, it scattered between the market, financial, strategic, and exiting primary index risk group. The research can confirm that VC in Indonesia faced uncertainty in future market growth or threat possibility, equal return with a specific collection period sales projection bases and eroding margin, excessive burn rate, company objective fulfillment, establishing exit vehicle, investment after venture listing or IPO, and investment liquidity as their critical risk factors in conducting their decision process from screening to post- investment activities. Overall, the exiting risk group and later stages investment is considered the most critical risk in VC. Real option approach is proposed as a solution to address the critical risk factors in private equity/venture capital industry. It allows adaptive decision making of VC to proactively manage risk, maximize strategic flexibility, and adapt to uncertainties.