Should Temasek cast net in startup waters after eFishery fiasco?

Investors in eFishery must have felt their hearts sink with the revelation that the Indonesian unicorn may have been faking its declared revenue and profits for years.

An investigation commissioned by eFishery’s board indicates that management allegedly inflated its revenue by nearly US$600 million from January to September 2024. The final investigation report is yet to be completed.

The news was a big shock to the startup community, not least because the startup, which provides feeders to fish and shrimp farmers in Indonesia, has quite a few name-brand backers including SoftBank and Peak XV Partners.

Image credit: Timmy Loen

EFishery also counts not one, but two state-linked funds among its investors: Singapore’s Temasek Holdings and Malaysia’s government pension fund Kumpulan Wang Persaraan (KWAP). It is likely their stakes in the aquatech startup are small.

All investments come with risk – something eFishery investors would have been well aware of.

But with startups, the risks are slightly different. Adages such as “fake it till you make it” and “working in the gray” are familiar phrases within the ecosystem, and investors take on a very different set of risks when backing startups.

See also: More eFishery senior execs ‘actively involved’ in fraud: audit

A common question asked whenever a startup implodes from financial impropriety is: Did the investors do enough due diligence?

Typically, venture capital firms undertake due diligence on their potential targets, but the process is far less rigorous than when a listed player invests in a business. Market players have said that due diligence for VCs tend to center more on key issues such as the share register and intellectual property rights.

A risky affair

Are state-linked investors expected to be more thorough with due diligence?

The process is a balancing act: On the one hand, investors have to move fast to secure an investment. On the other, having lawyers quiz startup founders on their operations could divert their focus away from running the business.

Finding returns is in every fund manager’s mandate, with the appropriately applied risk management framework to gauge if an investment is worth the risk. While having a startup fail is part and parcel of a VC’s experience, fund managers hope they place enough bets to come out ahead in the long run.

Temasek’s exposure to any startup failure is limited, as it has capped investments in early-stage companies to 6% of its total portfolio. So while it is likely the potential investment loss in eFishery in absolute terms is a small fraction of the assets under management of Temasek and KWAP, this is not the first high-profile failure that state-linked investment funds have been exposed to.

A different strategy