Thank you eFishery, Southeast Asia is officially off the kool-aid
eFishery is the latest scandal rocking Southeast Asia's tech scene. It isn't the first and many will fearfully admit, not the last.
This article first appeared on my Linkedin page on 21 January 2025.
As if a startup scandal or two wasn’t enough for Southeast Asia, the tech ecosystem has delivered yet another stinker. This time it’s eFishery, an aquaculture unicorn from Indonesia, found to have committed financial irregularities. The company’s founders reportedly kept two accounting books and “round-tripped” its transactions to inflate revenue figures.
A total of $315 million was raised by eFishery’s founders from the likes of Singapore’s Temasek Holdings, Abu Dhabi’s G42 42X Fund and SoftBank Group Corp. Vision Fund and others on a towering $1.3 billion, making it one of the largest unicorns in the region.
It’s also the biggest and probably the most embarrassing of startup blowups in the last two years.
What the fish?
Founded in 2013, eFishery started as a fish feed company by Bandung natives, Gibran Huzaifah and Chrisna Aditya. The pair developed an electronic fish feeding device aimed at helping small-scale farmers lower operating costs, improve farm yield and ultimately raise incomes.
But similar to many other tech-enabled businesses in Indonesia, eFishery was operating in a highly informal sector. Fishing and aquaculture is a traditional business. There are somewhere between 30 to 40 million fish and shrimp farms across Indonesia’s sprawling archipelago, most of them small family-owned enterprises and farmers in far-flung islands who lack access to technology and capital.
The challenge here wasn’t simply a matter of execution. How do you verify the amount of produce these poor fish farmers were cultivating hundreds of miles away? How do you do that at scale by the thousands? And do it over and over again?
“There’s no real way,” acknowledged one investor in confidence. Not unless you manually inspected every aquaculture farm, counted every single fish, weighed every bag of feed. “Maybe there could be a business opportunity to conduct inspection audits for investors in Indonesia,” joked the Jakartan resident.
But the uncomfortable truth no one wants to publicly admit is that these sorts of financing shenanigans are a lot more common than people think. Many of Indonesia’s early tech giants and fintechs often resorted to such methods to boost toplines. They were just lucky to have never been caught red handed, say investors and operators.
eFishery had a great story. Huzaifah and Aditya were graduates from Institut Teknologi Bandung, one of Indonesia’s most reputable universities. Both came from modest backgrounds and started tackling big problems right out of school. They weren’t the typical Ivy League, overseas-educated sons of real estate or mining tycoons like so many other “successful” founders of their generation.
But eFishery’s investors were razor-focused on one thing — its massive TAM (total addressable market). Indonesia is the world’s second largest aquaculture producer after China. It’s a $9.7 billion industry growing at 13.7% a year on just 7.38% of Indonesia’s total potential area for aquaculture, according to eFishery’s Sustainability Report 2023.
On paper, the founders claimed eFishery was already profitable on the back of hundreds of millions in revenue. In reality, none of it was real. What was more damning was how far the aquaculture unicorn got away with its story. The fabrication of numbers began way back in 2018, during eFishery’s $4 million Series A round.
Wake-up call
The eFishery scandal is forcing many local investors to take a very hard look in the mirror. This is not a good picture in the eyes of foreign investors, many of whom were persuaded over many years that Southeast Asia’s time had come, and that it was a market worth taking the risk.
“At least in Zilingo, the funds were being used to drive growth,” said another investor requesting anonymity, as if there was any meaningful comparison to be made at all between the two misdeeds. But if both institutional and local investors can get bamboozled like this, how can anyone else be completely insured from such incidents happening again?
The unfortunate truth is that Southeast Asia is no longer short of founder fraud stories, and there seems to be a gnawing expectation that more such spectacular blowups may occur. Many of the exposed culprits are still not held accountable today.
Adrian Gunadi, the founder of troubled peer-to-peer (P2P) lender Investree, is rumoured to still be at large and escaped to Doha. Pamitra Wineka, founder of fellow P2P lender, Tanihub, got himself a new job. Today he is the independent commissioner and audit chairman of MIND ID (Mining Industry Indonesia), an Indonesian state-owned mining industry company.
Both companies face lawsuits for suspected fraud or embezzlement of funds.
In other cases, AI founders were caught for faking Ivy League PhD certificates, while others like Vietnam’s Sy Phong Bui was found to have creatively repurposed former company intellectual property into a completely new venture (Telio).
If too many bad actors get away scot-free, the concern is that these may send the wrong signal and hold the region back even further. It’s also worth questioning if Southeast Asian investors were simply not up to the task of due diligence in their own home markets?
Many venture capitalists are already voting with their cheque books.
Startup funding hit its lowest point in 6 years during the first nine months of 2024, according to DealStreetAsia’s latest data report. Only 134 equity rounds were recorded in Southeast Asia across $979 million, signalling a 24% drop from the previous quarter.
There is a growing pattern in the types of startups that investors are looking for now. I keep hearing the same tag words among early-stage investors. "Cash flow positive", "growth-stage", "monetising", "near profitable". AI companies? Forget it. AI-enabled, sounds more like it.
“We have become SME investors now,” confided one Southeast Asian tech investor.