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).

Best practices

The guide is built on five core pillars: active due diligence, such as on-the-ground checks and stronger internal audits; utilising technology to deliver performance-related dataflows; developing external advisor ecosystems; creating robust governance frameworks, including whistleblower policies; and improved cross-border enforcement to match capital flows with targeted regulatory involvement.

It is described as a “maturation map” to capture how governance standards evolve throughout a start-up’s life. At the pre-revenue stage, the focus should be on defining the board and organisational structure and delivering regular financial updates. By the growth stage, companies are expected to add independent directors and move towards listed market-level disclosure regimes.

Enforcement is a sticking point. Singapore serves as a hub for regional start-ups, but Southeast Asia comprises markets at differing stages of development and with distinct business practices and legal systems. To Chesson, this is why cross-border cooperation is so important – and why investors must push for transparency that might be hard to get elsewhere, such as real-time cash visibility.

“You might have board-level sign-off every time there’s a cash transfer from the Singapore investco to the local opco – you know why it is going there, and you have accountability as to why it is being shifted,” he explained. “When I think about the fraudulent situations I’ve seen, having real-time cash visibility would have helped identify problems earlier.”

It is also incumbent on early-stage investors to lay governance foundations because implementing reforms at a later stage – perhaps in a compressed timeline ahead of a planned IPO – is far harder. Chesson noted that process controls can take months or even years to put in place.

To some extent, the guide is intended to act as a baseline for collective bargaining, ensuring that investors in the funding round are consistent in what they ask of the company. Shareholder agreements feature all kinds of clauses, from CFO appointment rights to enhanced information access protocols. Founders are less likely to make such concessions once the capital has already been committed.

Opportune timing?

In this sense, the timing of the guide’s release is telling. Zilingo came within touching distance of unicorn status in 2019. Early and growth-stage technology investment in Southeast Asia had surpassed USD 5bn for the first time a year earlier and would peak at USD 16.5bn in 2021, according to AVCJ Research.

EFishery became a unicorn in early 2023, but this followed a dizzying two-year spell in which the company went from a Series B at a USD 100m valuation to Series C comprising USD 90m in pure equity. That was when growth investors such as Temasek and SoftBank piled in.

Tech sector activity slipped back to USD 9.5bn in 2022 and it has barely eclipsed USD 4bn in each of the last two years. The growth-stage contribution was USD 2.2bn in 2024, compared to USD 10.1bn in 2021, demonstrating how many global growth equity players have abandoned Southeast Asia. Those that remain arguably have more leverage to push for governance improvements.

“We need to use this point in the cycle to secure buy-in from founders and investors on the direction. This can evolve into a set of standards that is part of the discussion when going into a deal and when discussing progress at board meetings,” said Chesson.

“Follow-on investors should be able to look at a company and say this gets a green light, it’s done everything on the maturation map guidelines, this gets a yellow because it did some but not all, and this is a red because it had huge pushback and delays on its audits. It can’t be a reversion to the lowest common denominator standards.”

Creating start-ups that are appropriate candidates for IPO is as critical to Southeast Asia venture capital as having venues in which they can list. Earlier this year, the Monetary Authority of Singapore announced its first set of measures to bolster the territory’s equity markets, which industry participants hope will address the region’s longstanding lack of IPO options.

“This is linked to solving the risk-return relationship for Southeast Asia,” Chesson added. “We are already seeing the first moves put in place on the SGX initiative to encourage more listings in Singapore. We have seen recent IPO and M&A exits in Indonesia from our members. That’s the return side. On the risk side, it is important that we do governance better and have fewer blow-ups.”