Fishy business: South-east Asia's startup ecosystem battles fallout from eFishery scandal
[SINGAPORE] Towards the end of 2024, South-east Asia's startup ecosystem appeared to be on the cusp of a bounceback.
A flurry of deals were being signed at the tail end of 2024, and more were expected to land in 2025.
Then, in January 2025, players in the region were rocked by news of fraud uncovered at the former agri-tech unicorn eFishery, where almost US$600 million in sales were found to have been faked.
The news could not come at a worse time.
Indonesia, where eFishery was based, appears to have been hit the hardest by this scandal, with anecdotes of investors being hesitant or even more cautious about deploying more capital there. However, the rest of the region has not been immune to the fallout.
'Such incidents have ripple effects across the broader South-east Asian startup ecosystem, and the Philippines is not immune to the resulting perceptions,' Dan Siazon, managing partner and co-founder at Kickstart Ventures, told The Business Times. The Philippine-based Kickstart is the corporate venture capital (VC) arm of Globe Telecom.
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South-east Asian markets outside Indonesia are not immune from the impact of eFishery said Dan Siazon, managing partner and co-founder at Kickstart Ventures. PHOTO: KICKTSTART VENTURES
Limited partners (LP) will likely scrutinise investment deals coming from South-east Asia in the short-term. While the damage from eFishery pales in comparison to others from a pure financial perspective – crypto exchange FTX bankruptcy uncovered a US$8 billion hole – it has resonated beyond the region.
The failure of eFishery was a headline that broke through to the US, coming up in conversations with LPs there, noted Lim Kuo-Yi, co-founder and managing partner at Monk's Hill Ventures.
Already, LPs have been disillusioned by the perceived peak of 2021. The promise of unicorns and large markets driving good outcomes for investors have yet to play out.
Lim said: 'There are some question marks hanging over Indonesia-specific pieces and South-east Asia as a whole, so we're really kind of coming from that sort of level of deficit, and then clearly this doesn't help.'
Singapore so far has been less affected by the fallout, owing mainly to its credibility and reputation for good corporate governance, said Tan Xin Hui, general partner (GP) at Paragon Ventures. Valuations in the island republic remained relatively reasonable, and the potential reputational fallout is less likely, as Singapore remains a small market for most funds.
'If anything, funds or investors can potentially see Singapore as a place with good corporate governance, that we may pay a bit more attention,' she said.
To be fair, no region or market is immune to bad actors; eFishery is just the latest one in the news.
Others that have made it to the headlines for wrong reasons include e-commerce fashion platform Zilingo, where potential fraud was uncovered by its investors, and crypto exchange FTX. Even in the US, bigger scandals have erupted – such as blood-testing startup Theranos, and student financial aid startup, Frank.
Counting the cost
The fallout in the short term appears contained within Indonesia; LPs and investors are generally not asking whether such fraud is happening elsewhere in South-east Asia. With Indonesia often hogging the limelight in the region due to its population size and potential, capital has not quite swung to other countries as a result of this incident.
'It's not a zero-sum game,' said Lim.
One ecosystem player noted that VC firms with a focus on Indonesia were already in a bit of a tight spot before the eFishery incident, and had trouble deploying their capital. Market talk has it that some LPs were defaulting on their capital commitments to Indonesia-focused funds.
Murli Ravi, co-founder of Tin Men Capital, said: 'I think people are finding it difficult to draw down capital. Even if they have the capital, they are being asked by the LPs for details of the deals.'
Capital has not swung to other markets outside of Indonesia since the eFishery scandal, noted Lim Kuo-Yi, co-founder and managing partner of venture capital firm Monk's Hill Ventures. PHOTO: MONK'S HILL VENTURES
The immediate fallout of the eFishery scandal may have been a higher perceived risk to investing in an emerging market like South-east Asia, and higher, longer fund-raising cycles.
However, the macroeconomic and geopolitical environment now is also more complicated than when eFishery's fraud first came to light back in January.
Anecdotally, ecosystem players and observers had noted an uptick in deal activity in late 2024, entailing deals slated to land in 2025. Now, it seems that deals have been paused or have had their timelines stretched.
'Investors are placing more focus on due diligence and testing valuation models and assumptions, all of which extend timelines and increase deal costs,' said Ang Lip Kuan, principal for mergers and acquisitions and private equity at Baker McKenzie Wong & Leow Singapore.
The impact on deals with larger ticket sizes is more pronounced because the stakes are higher, said Ang.
This incident is more of a short-term speed bump, which may be a good thing for the ecosystem. It makes players pause and take stock.
Next steps
In the few months since the uncovering of the eFishery fraud, VCs have recognised the potential impact of reputational damage, and begun to examine their models and resourcing against governance needs. This is not a bad thing, said Lim.
'It's a safety pause, and we kind of just got to make sure that it doesn't happen again, or if it happens again, that you do the right thing and manage it before it becomes too big,' he added.
The VC ecosystem has stepped up in this regard. The Singapore Venture Capital & Private Capital Association (SVCA) has, with its counterparts in Indonesia, Thailand, Vietnam and Malaysia, released a White Paper to create frameworks and catalyse action for corporate governance in South-east Asia's private markets; VCs and other partners in the ecosystem contributed to the report, making it an industry-wide effort.
To strengthen governance in South-east Asia's private markets, the White Paper is proposing a five-pillar approach:
Active diligence;
Utilising of technology;
Enhanced adviser ecosystems;
Stronger governance frameworks;
Enforcement.
SVCA said in the paper: 'One of the goals of improving corporate governance is to pave the way for more companies to transition from private to public markets.'
Ang described the paper as the 'first in a series of efforts by the SVCA to help improve standards and restore confidence in corporate governance practices in the region'.
Lim said there is a need to confront fraud in cases like eFishery, and ensure that the perpetrators are held to account. Because while these things happen in all ecosystems and locations – mature or emerging – it is important that the rule of law is being shown to work and is applied.
'I think it's absolutely important that collectively, we don't let it slide. We don't avert our gaze and try to have it go away by not letting it surface or by sweeping it under the rug,' he said.
Siazon echoed this view, saying that the eFishery case is potentially an inflection point for a more mature and resilient ecosystem. Founders who invest early in internal controls and transparent reporting will be better positioned to build trust and capital.
Investors looking to exit the region because of the incident could well be missing out on riding a region with a growth potential that makes it a priority market for many businesses.
Diamonds in the rough
Investors will need to fine-tune their risk-management approach in South-east Asia, or risk losing out on potential gems, said Siazon.
'Those who are experts in their field may appreciate that local knowledge is likely the best antidote to the eFisheries of this world,' he added.
Local knowledge could very well be the edge that investors need when investing into emerging markets like South-east Asia. Rather than investing from afar, a case can be made for working with local VCs to find out whether a potential target is kosher.
Recounting a conversation with a local VC in Vietnam, Murli noted that tapping the local knowledge of such individuals would make a difference in understanding a company better.
'(We can) just check on people's antecedents, even if we're not invited to the deal; we can share our views, because we know these people,' he said.
South-east Asia as a region will continue to be a priority market for many businesses, said Amy Tan, who heads innovation economy in the Asia-Pacific at JPMorgan.
The Philippines, Malaysia and Thailand have been showing promise in the fintech and consumer-tech sectors; Singapore continues to draw investor interest in deep tech, artificial intelligence and life sciences.
South-east Asia still has the right ingredients for success, said Amy Tan, who heads innovation economy for the Asia-Pacific at JPMorgan. PHOTO: JP MORGAN
Even Indonesia continues to be an important market in the region, courtesy of its size and growth potential.
Despite the hiccup and the current uncertain macroeconomic environment, JPM's Tan expects strong financing activity in the region, especially for early-stage companies.
'While the fund-raising environment may be challenging, high-quality companies can still secure funding to accelerate their growth,' she added.
The region still has the right ingredients for success, with a large digital native population, a growing middle class and an educated workforce, noted Tan.
Promising businesses will continue to be funded, particularly by investors with a deep understanding of the region – 'though the bar is higher and valuation multiples are lower than a few years ago', she said.
As the region's ecosystem treads cautiously post eFishery amid uncertain macroeconomic conditions, investor interest is likely to return to the region.
'We expect global investor interest to accelerate as macroeconomic conditions stabilise and the roster of successful, scaled businesses grows,' said Tan.
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