The VC playbook for preventing another eFishery scandal

The eFishery scandal has shaken Southeast Asia’s startup ecosystem, exposing deep governance failures that investors can no longer afford to overlook. Once celebrated as a regional success story, the Indonesian unicorn is now unraveling under one of the most severe fraud cases in the region’s venture history amid allegations of revenue inflation.

If Southeast Asia wants to mature as a venture ecosystem, it needs stronger governance structures that evolve in tandem with startups as they scale. The VCs that invest in companies across the region could lead that charge by focusing on these three areas.

Image credit: Timmy Loen

Due diligence deeper than the surface

In a founder-friendly fundraising market, there can be a temptation for investors to rush due diligence, lest they miss out on investing in the latest trending company. Reports on eFishery suggest that there were fundamental flaws in its tech and business model – aspects that should have been detected by the due diligence process.

At its core, investment due diligence should focus on two risks:

• Does the tech work and is the market size real? Many startups position themselves as disruptive technologies solving billion-dollar problems. Confirming whether the technology and business model deliver on their promise should be a priority.
• Is the traction real or inflated? Startups can use aggressive pricing strategies and non-standard credit terms to gain traction, effectively passing on “free money” to customers rather than providing true value. If these practices go unchecked, revenue can be misleading.

In Southeast Asia, each country has a distinct operating environment, so late-stage due diligence should involve local industry experts working alongside the fund’s investment team. These experts bring domain knowledge, cultural familiarity, and language skills, allowing them to spot inconsistencies that outsiders might miss.

See also: Gibran Huzaifah addresses eFishery fraud scandal for the first time

With the region’s growing funding ecosystem, expert networks and fractional professional platforms such as Gerson Lehrman Group and Guidepoint can serve as valuable resources to identify local, independent experts by country and industry.

Financial oversight overhaul

It might be tempting to assume that annual financial audits conducted by dedicated auditing companies offer sufficient checks and balances, but as the eFishery case shows, audits alone do not catch fraud.

Traditional audits check compliance with accounting standards, but they don’t verify if revenue is legitimate or inflated through the likes of fake customers or round-tripping schemes. Investigative audits, focused on high-risk areas like revenue recognition, can help uncover issues and inconsistencies.

EFishery co-founder and former CEO Gibran Huzaifah / Photo credit: eFishery

Certain early warning signs can indicate when an investigative audit is warranted:

Wanted: more whistleblowers

How can these be funded?