VCs propose governance framework to counter SE Asia’s start-up fraud problem
Southeast Asia can curtail start-up fraud through a standardised approach to due diligence and investment management, five VC industry associations in the region claim.
The move to create a regional governance benchmark follows the emergence of large-scale falsification of sales at Indonesia-based aquaculture business eFishery. The company had raised more than USD 300m in funding from the likes of Peak XV Partners, Temasek Holdings and SoftBank Investment Advisors.
However, frauds are characteristic of emerging start-up ecosystems. Singapore fashion commerce platform Zilingo was another high-profile blowup in 2022, prompting Peak XV – also an investor – to condemn “wilful misconduct” in the early stages “when there is hardly a business to diligence.” Industry participants point to other less-heralded examples across the region, from Vietnam to Thailand.
“Companies at different stages need different levels of diligence and governance; you can’t have a one-size-fits-all rule,” said Shane Chesson, a founding partner at Southeast Asia-focused Openspace Ventures and vice chair of the Singapore Venture & Private Capital Association (SVCA).
“We can’t expect founders to spend all their time on governance, but we don’t want to see situations where companies are raising big dollars, are nearing IPO, and haven’t fixed their issues. Holding this line when capital comes again in volumes in an up cycle will be hard, but it is key for our region.”
SVCA led the development of the Southeast Asia Governance Improvement Guide for Startups, working alongside the Indonesia Venture Capital Association for Startups (Amvesindo), Thai Venture Capital Association (TVCA), Vietnam Private Capital Agency (VPCA), and Malaysian Venture Capital & Private Equity Association (MVCA).