Harianto, Ceceh (2020) Regulating Equity Crowdfunding in Indonesia. PhD thesis, Victoria University.

Abstract

The equity crowdfunding industry has grown significantly in recent years in many countries around the world which provides capital to start-up and small and medium business enterprises (SMEs) at the early stages of their development. To benefit from crowdfunding, the World Bank suggests that developing countries should remove the barriers to its development and, if necessary, change the laws and regulations to enable it. As a result, several developing countries, including Indonesia, have introduced equity crowdfunding regulation to address entrepreneurs’ unmet need for capital that cannot be adequately served by the existing funding bodies such as banks, lending financial institutions, angel investors and venture capitals. Legislative reforms in crowdfunding in advanced countries may serve as the stepping stone in assisting developing countries to regulate their equity crowdfunding industries. Although transplanting regulatory framework from developed countries are common and have been advocated by the World Bank as good practice to improve the business environment in developing countries, however, a mechanical ‘legal transplant’ without adaption to the institutions of the host country may be ineffective and fail due to resistance and reluctance of stakeholders to support implementation of this policy. Different levels of economic development, complexity, and maturity of economic institutions, as well as different legal and regulatory systems, are problems that need to be addressed by policymakers in developing countries if new policies are to be successfully adapted and implemented. To mitigate these challenges, this thesis analyses whether the current expansion of equity crowdfunding regulation in advanced countries is suitable for Indonesia as a developing country. This research aims to fill the gap between the national economic need for specific regulations to support equity crowdfunding and industry need for legal certainty and better regulation of equity crowdfunding in Indonesia. This thesis employs two research methods. Firstly, it uses qualitative methodology to understand the development of start-up funding in Indonesia. Semi- structured interviews were conducted to understand the perceptions and experience of government, venture capital, angel investor, and start-up company stakeholders. They were also asked about the new equity crowdfunding regulation in Indonesia, their understanding of the regulatory barriers and what made them confident about investing capital in equity crowdfunding. There are very few studies focusing on the role of venture capitals, angel investors and equity crowdfunding in start-up funding in Indonesia; therefore, this thesis is among the first to explore this area. The second method uses a comparative law approach to examine issues identified in this study concerning the barriers in existing laws and regulations and to determine how different legal systems solve the same problem. Such analysis can enable refinement of existing regulation. This study contributes to knowledge in several ways. First, investing in start- up companies is generally linked with discussion of agency theory, information asymmetries, and the start-up stages of funding. This study contributes to these theories by enriching their implementation in equity crowdfunding, especially in Indonesia. It also contributes to the discussion of legal transplant theory within the Indonesian context by borrowing and adapting equity crowdfunding regulation from developed countries. From this perspective, the thesis provides suggestions for policymakers on how the process of adapting regulation from advanced nations to developing countries can be achieved and made more effective in the implementation process. In addition, the research is innovative in adopting a process view which focuses on answering the why and how equity crowdfunding regulation may work and complements the outcome perspectives of crowdfunding in the existing literature.

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