‘Chilling effect’: Here’s what an Indonesian startup scandal means for the region struggling with fundraising

Southeast Asia’s startup ecosystem has been braving a multi-year funding drought, and a recent scandal has delivered yet another blow to investor sentiment in the region.

Indonesian agritech unicorn eFishery — backed by investors such as SoftBank Group and Temasek Holdings — was among Indonesia’s top startups, but a preliminary, ongoing probe suggests that the company may have been involved in financial malpractices.

The company did not immediately respond to a CNBC request for comment.

EFishery’s board of directors announced on Tuesday that it has appointed business advisory firm FTI Consulting as acting management of the company, according to an official company statement obtained by CNBC.

FTI Consulting also issued a statement saying that it “aims to support ongoing efforts to conduct a thorough and objective business review of the company’s true financial and operational position.”

That comes amid an ongoing investigation, initiated by a whistleblower’s claim about the company’s accounting, which estimates that management inflated revenue by almost $600 million in the nine months to September 2024, Bloomberg reported.

The company also reportedly presented a profit of $16 million over the same period to investors, but the investigation alleges the startup actually made a $35.4 million loss, according to the report.

“[EFishery] was supposed to be reflective of what the local ecosystem could do, what Indonesian founders could do. This was supposed to be one of the better companies from Southeast Asia. This was supposed to be a winner,” Justin Hall, partner at Golden Gate Ventures, told CNBC.

The company, which deployed a smart feeding system for fisheries, reached unicorn status in 2023 after a $200 million Series D funding round. However, today, backers of the company are reportedly considering liquidation or buyout, among other options, according to Bloomberg.

Southeast Asia’s startup ecosystem had already been facing years of painful and costly recalibration since the Covid-19 pandemic, when funding in the region soared.

In 2024, total deal volume in the region fell 10.3% from the previous year to 633 deals, while deal value sank by 41.7% to $4.56 billion, according to a January 2025 report by Deal Street Asia.

“To put this in perspective, the 2024 figure represents just 54.6% of the capital raised during the first year of the Covid-19 pandemic in 2020, and a mere 19.5% of the 2021 peak,” according to the report.

So where did things go wrong?

For context, some will consider the region’s startup scene to be relatively young, having only begun to develop more rapidly in the last decade and a half.

“We are just at the start of this entire asset class, if you will,” said Jx Lye, founder and CEO of Acme Technology and former COO of Endowus. “I would say that the early 2010s were the golden ages of Silicon Valley … everything was happening — Uber, Airbnb, Dropbox are all happening there.”

“But what happened in the mid 2010s was that suddenly, Southeast Asia became interesting as a growth story,” said Lye.

That was also when the first wave of startups in the region began to emerge. Companies such as Gojek, Carousell and Grab were among the first to provide strong opportunities for investors to exit, or a way to sell their stake for a profit.

Along with the first wave of successful startups, other factors surfaced during this time frame that accelerated the growth of the region’s tech and startup ecosystem, which consequently brought an influx of investor interest.

“There was a giant explosion of the middle class … in the early 2000s to the mid-teens,” Kevin Aluwi, co-founder of Gojek and venture partner at Lightspeed, told CNBC. “There were a lot of projections that the consumer market in Southeast Asia will look like a mini China, but that didn’t pan out.”

Investors were expecting a very “vibrant, high spending power consumer market to emerge” and thus, overshot their predictions on the pricing power that companies would have, the frequency of transactions that would take place, and overall, the average revenue that startups would be able to bring in, said Aluwi.

“There were business models that many thought would be viable, but weren’t viable,” he added.

Ultimately, investors began to realize that some companies in the region may have been overvalued, and it became clear that exit opportunities were few and far between.

“The biggest problem is … there are very few exits in this market, so investors have no way of getting their money out,” Krish Sridhar, founder and CEO of Know, told CNBC.

“It’s really hard to do business in Southeast Asia, because there is no such one thing. In Southeast Asia, we have seven different languages, seven different governments, seven different [systems of] regulation,” said Sridhar.

“It’s not like doing business in India or China, where the local market is 1.4 billion people, or 1.2 billion people,” Sridhar added.

From 2011 to 2022, the region saw a big spike in attention and in resource allocation, said Hall. “You could say that Southeast Asia saw what was effectively unabated growth up until the crash in post-Covid,” Hall told CNBC.

“You had funds that raised too much money too quickly, you had founders that raised too much money too quickly, and unfortunately, capital formation outpaced the development of the local markets,” said Hall.

Today, the allegations of fraud and misconduct by eFishery have reverberated throughout the region.

“Beyond our own Group, we would also like to acknowledge the broader implications for Indonesia’s startup ecosystem and the communities it serves,” eFishery’s board said in a statement.

“The recent revelations of alleged misconduct (including fraud) within the Group have been deeply disheartening to us all and may jeopardize the confidence in the Indonesian investment climate where the principal subsidiaries of our Group is located,” the statement added.

The aquaculture company was heralded as one of the most prominent examples of what a good startup looks like in the region.

“There was a lot of hope pinned on [eFishery] being the next generation … Having that [bubble] burst, because the poster child of that development turned out to be [allegedly] fraudulent, I think it’s really disappointing for the ecosystem,” said Aluwi.

“I think Southeast Asia definitely took a hit in its perception … But the ones that will suffer the most would be the growth stage companies in Indonesia,” said Hall. “I think it will subject every good company in Indonesia to even more scrutiny, to the point where I can see investors saying, it’s not worth the hassle to invest in Indonesia.”

“I think this could have a chilling effect for, conservatively, 12 months, but probably longer. It’s very negative right now,” said Hall.

Industry experts also echo that if the allegations are proven to be true, this scandal would not only have a negative impact on investing in the region — particularly in Indonesia — but also largely on the mid-to-large fundraising stages. This would affect not just investors, but founders as well.

“I don’t think that it’s going to impact the early stage a lot, because, firstly, your check sizes are small,” said Acme Technology’s Lye. “But I think in the middle to later stages, that’s where investors will be a lot more stringent … because that’s where the bigger rounds are.”

“And that’s the problem, because then every funding round gets a lot more complicated … Now, they want proof, they want auditability, but a lot of times you just cannot provide that. So that’s going to increase the cost of fundraising. That’s going to increase the effort,” said Lye.

“It’s unsaid and unseen, right? Because then, a fundraising round could literally kill your company,” Lye said.

Ultimately, although this scandal has sent shock waves through Southeast Asia’s startup scene, industry experts agree that there is a silver lining: the lessons learned.

“If I’m being very pessimistic, I would say that this is going to reduce the dollars invested. If I’m being more optimistic, it’s not that it’s going to reduce the dollars — it’s just going to take longer for those dollars to be unlocked,” said Hall.

“I think in the long term, this is a good thing. Companies need to scrutinize governance. Investors need to be extremely diligent with that,” Hall added.

Along with having better due diligence and governance, investors agree that seeing more successful exits happen will be key to improving the funding drought.

“There need to be local exits. There need to be global exits. There needs to be companies that can actually return money to investors and then indirectly to their limited partners,” said Hall.

Today, founders and investors alike realize their predictions were overly optimistic and now the market is adjusting and recalibrating to what is realistically possible.

“This reckoning kicked off a long time ago. EFishery did not do that … [people] were simply unrealistic in their expectations. I think if and when those expectations are rational, then, yes, this is a great place to build a business,” said Hall.

Ultimately, Southeast Asia is “still the third most populous region in the world. Indonesia is the fourth largest country in the world,” said Lye. “All of these setbacks and challenges will only make the next wave of business owners, entrepreneurs and investors a lot more savvy … we will all bounce back stronger.”