When State Money Loses In Venture Capital, Is It A Crime?
Indonesia’s SOE venture capital controversy raises a bigger issue: venture investing expects failure, but state money demands accountability.
There is something deeply uncomfortable about watching Indonesia’s startup reckoning move from boardrooms and write-downs into courtrooms and sentencing demands. The country’s venture capital boom was never short of absurdity: the valuations, the bravado, the circular validation between founders and funders. But even if one believes the ecosystem was excessive, it does not automatically follow that the people caught up in its collapse deserve to be treated as criminals.
That distinction matters, because the issue now is not whether bad investments were made. Clearly, they were. The question is whether those investments involved criminal wrongdoing, or whether they reflected weak governance, inexperience, and herd behaviour.
This is where the involvement of state-linked capital changes everything. In a private venture fund, a failed investment is usually understood within the brutal arithmetic of the asset class. Investors may be furious, and future fundraising may become impossible, but the law does not normally treat every write-down as a potential crime. Once state money is involved, however, the same investment loss becomes a public loss, and in Indonesia that phrase carries legal and political consequences.
That is the contradiction at the centre of the whole affair. Venture capital requires the possibility of failure; it is hard to describe the model honestly without admitting that failure is expected. The state, by contrast, is not naturally built to absorb speculative losses, and not in a system where losses to state finances can invite criminal scrutiny. Putting public or SOE-linked money into venture capital therefore requires exceptional clarity about mandate, governance, risk tolerance, and legal responsibility. Without that clarity, the structure becomes dangerous.
If people enriched themselves improperly, concealed conflicts, or knowingly misused state funds, then prosecution is justified. The problem is that the grey area is large, and venture capital lives almost entirely inside grey areas.
A bad investment can look outrageous in hindsight while still having been made in good faith.
A manager can be unqualified without being corrupt.
A founder can mislead investors without every investor becoming a criminal.
A market can collapse without the collapse being evidence of a conspiracy.
That is why the severity of some of the sentences being proposed feels so jarring. They appear to be sending a message that Indonesia is serious about state losses and willing to impose consequences on those associated with them. The danger is that a broad systemic failure gets reduced to a few personal tragedies, while the people and institutions that designed the system are allowed to pretend the risks were never obvious.
Why State Capital Struggles With Venture Losses
Venture capital is a deliberately high-risk form of capital allocation in which failure is not a surprising outcome. The model depends on accepting that many investments will disappoint, because the few that succeed may do so at a scale that compensates for the rest.
That is relatively straightforward when the money comes from private limited partners who have chosen to allocate to the asset class. They may still complain, but they have entered the arrangement with some understanding that venture returns are uneven, and highly dependent on a small number of outsized outcomes.
By contrast, state capital comes with public obligations, political scrutiny, and legal frameworks that were designed for a different kind of financial harm. When money is lost in a procurement process, the idea of a state loss is relatively intuitive. If a public project is inflated or manipulated, one can point to the gap between what should have been paid and what was paid, and ask who benefited. Venture capital does not lend itself to that kind of analysis. A startup can fail without anyone stealing anything. It can fail because the company was badly run, or because the capital markets closed at the wrong moment.
If every state-linked investment loss is vulnerable to being treated as a potential criminal matter, then state-backed VC becomes almost impossible. The people managing it are asked to pursue an asset class built on risk while carrying personal exposure to outcomes that may be impossible to separate from that risk.
Indonesia’s challenge is that this distinction appears to be much easier to state than to operationalise. The state wants the political and developmental benefits of participating in the startup economy, but it is not clear that the legal system has been adapted to the realities of that participation.
The Limits Of Being Well Connected
One of the uncomfortable truths about Indonesia’s startup ecosystem is that a number of its leading figures were not seasoned investors in the institutional sense. Some were skilled connectors, some were good operators, some understood the local political economy, and some had the ability to move between founders, corporates, ministries, and foreign capital in ways that were genuinely useful. In Indonesia, that sort of access has value.
But access is not the same as investment judgment.
A venture investor needs to be able to evaluate risk with a degree of independence from the mood of the market. This is harder than it sounds, especially in a boom, because the mood of the market presents itself as consensus. The pressure is social, institutional, and reputational.
That is precisely why track record matters. Experienced investors are not immune to bubbles, but experience at least provides some memory of how convincing a bad deal can look at the time. It teaches caution around fashionable sectors, and founders who are much better at raising capital than building enduring businesses. It also teaches that the hardest part of investing is not finding reasons to say yes, but maintaining the discipline to say no when yes would be more popular.
Many of the people drawn into Indonesia’s startup capital machine were operating in an environment that rewarded the opposite.
Confidence was useful.
Scepticism was inconvenient.
Being early to a theme mattered less than being seen to participate in it.
That is a failure, but it is not necessarily a crime. If people without sufficiently deep investment experience were entrusted with state-linked capital, then the question should not stop at whether they made bad decisions. It should extend to the institutions that gave them the mandate, the boards that supervised them, and the governance structures that were supposed to constrain them. Someone decided that these were the right people to manage this kind of risk.
If the problem was that a group of connectors were asked to behave like professional asset managers, then the failure belongs not only to those individuals. A country cannot hand out the keys to a risky asset class and then act astonished when the drivers turn out not to be Formula One material.
The Herd Was The Strategy
Many serious investors could see that parts of the startup ecosystem had become detached from financial reality. The numbers did not work, the valuations were stretched, and the confidence with which some companies explained away their losses was… impressive.
But markets become irrational because enough institutions decide, at the same time, that caution is less rewarding than participation. During Indonesia’s startup boom, the incentives pointed strongly in one direction.
Founders wanted capital,
Investors wanted exposure,
Corporates wanted strategic relevance, and t
The state wanted to associate itself with technological progress.
Nobody wanted to be remembered as the person who failed to believe in the national digital opportunity.
The startup boom was a public mood, reinforced by media coverage, policy language, international capital flows, and the broader global belief that technology companies deserved a different kind of financial patience.
The correction exposed how fragile some of those assumptions were. When global money became more expensive and later-stage investors became more selective, businesses that had relied on repeated capital injections suddenly had to confront realities they had previously deferred. Growth that depended on subsidies became harder to defend. Expansion that had been justified as strategy began to look like overreach. The distinction between a company temporarily losing money and a company structurally unable to make money became much harder to avoid.
None of this is uniquely Indonesian. The same broad pattern appeared in many markets. What makes Indonesia’s version more legally combustible is the presence of state-linked money and the way losses to that money are interpreted. In a private ecosystem, the reckoning might remain a matter of reputational damage and financial write-downs. In Indonesia, the reckoning can acquire the full gravity of a public-loss narrative.
This is why the current moment feels like a society trying to decide what kind of mistake it has made.
Was this corruption?
Was it negligence?
Was it poor investment practice?
Was it a predictable consequence of letting state-linked institutions join a global capital frenzy without the right safeguards?
The answer may differ from case to case, which is precisely why broad moral certainty is dangerous.
The Problem Was Baked In Early
Around the world, governments have used public money to support innovation, deepen capital markets, and encourage investment in sectors that private capital may underfund. Some models are more successful than others, but the concept itself is not inherently absurd.
The question is one of design. A state-backed venture programme can be defensible when it is clear about its purpose.
If the goal is to catalyse a private VC market, the state can invest indirectly and allow professional fund managers to make decisions within defined limits.
If the goal is industrial policy, the state can accept that some returns will be strategic rather than purely financial.
If the goal is commercial return, then the vehicle should be governed and staffed accordingly, with a level of independence and expertise appropriate to the task.
A state-owned or SOE-linked venture vehicle may claim to seek financial returns, strategic relevance, ecosystem development, and national technological progress all at once. When an investment succeeds, every objective can take credit. When it fails, nobody is quite sure which objective justified the risk in the first place.
For Indonesia, the lesson should be less about whether state-linked VC is morally acceptable and more about whether it is structurally compatible with the legal and institutional environment. If the law treats state losses in a way that makes speculative investment personally dangerous for managers, then the state must either create clear legal protections for good-faith investment decisions or avoid the asset class. What it cannot do is maintain ambiguity and hope that everyone will behave wisely inside it.
Ambiguity shifts risk onto individuals while allowing institutions to enjoy optionality. During the boom, the institution gets innovation credentials. During the bust, the individual gets legal exposure.
Not Every Bad Investment Is A Crime
A person who abuses their position for personal gain deserves a very different judgment from a person who made a bad investment after a flawed but genuine process.
There is a legitimate reason for scrutiny. Startup markets are not innocent places. The combination of opaque valuations, related-party relationships, advisory fees, secondary sales, and soft governance can create opportunities for abuse. A failed company can leave behind a complicated trail in which some people lost money while others did quite well.
But it would be naïve to assume that every large loss reveals a crime. Venture capital produces ugly outcomes even without corruption.
It can enrich early participants while punishing late ones.
It can make foolish decisions look rational because everyone else appeared to agree.
It can turn a plausible thesis into a disaster through timing alone.
That is why proportionality matters so much. Harsh sentences may satisfy a demand for visible accountability, especially when the public sees large numbers attached to state losses. They may also reassure foreign investors that Indonesia is serious about cleaning up governance. But there is a risk that excessive punishment sends a different message: that state-linked commercial judgment will be judged with severe hindsight.
Indonesia does need:
Better governance around public capital.
To punish genuine corruption.
To ask who benefited from failures and whether decisions were properly made.
But it also needs a system that can absorb the possibility that some losses are the result of bad judgment rather than criminal intent. Otherwise, the safest decision for anyone managing state-linked capital will be to avoid risk altogether, regardless of whether the stated policy goals require some level of risk-taking.
One can be deeply critical of Indonesia’s startup ecosystem and still feel uneasy about the severity of the legal consequences now being imposed or discussed. The ecosystem was excessive.
It rewarded confidence too generously and scepticism too rarely.
It allowed people with networks to be treated as though they necessarily had investment discipline.
It encouraged institutions to chase the appearance of innovation without building the machinery required to manage the risk.
Sometimes excess is simply what happens when a system rewards the wrong behaviour for long enough that the behaviour begins to look normal. During the boom, many of the decisions now being scrutinised were were made because of the ecosystem’s logic.
This does not mean individuals should escape responsibility where there was genuine wrongdoing. If someone stole, concealed, or corruptly benefited, the case is straightforward. If someone was careless, unqualified, or far too willing to believe the market’s own mythology, the response should be different. And if institutions knowingly placed such people in positions where they could expose state-linked funds to venture risk, then the institutions themselves should not be allowed to disappear behind the drama of individual prosecution.
Indonesia wanted the prestige of venture capital and the promise of startup-led transformation. It wanted SOEs and state-linked institutions to look forward-facing, strategic, and modern. What it may not have wanted, or at least may not have fully accepted, was the basic bargain underneath the entire model: sometimes the money disappears even when no crime has occurred.
That is the part that makes the current moment feel so bleak. The losses may be real, the anger may be understandable, and the need for accountability may be genuine. But if the system itself was built on a contradiction, then the punishment of individuals cannot be the whole answer.
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