David He: E-Fishery Scandal Breakdown, Investor Red Flags & Legal Risk Lessons for Southeast Asia – E579
"People are gonna be cautious, which they should be but they're not at a point where they're saying, 'Hey, we're just not gonna, we're gonna close the checkbooks and we're gonna wait four years to see what happens.' So their companies are reaching the ends of their cash runways. They're gonna need funding. These are companies that I think a lot of investors have conviction in, and I don't think this staring contest to wait for a down round is gonna be as pronounced as it was, for example, back in '23. Founders and existing investors are willing to take that markdown nowadays, from what I've seen. There's not as much stigma attached to it, I think, as there was two years ago. So at least in that sense, I think that the gridlock of this kind of staring contest between VCs and founders is getting progressively better, in a very noticeable way." - David He, partner at Gunderson Dettmer
"Let's hit the brakes a bit on expansion at all costs. Let's focus on the markets that we understand, the customers that we understand. Let's roll out products and see how—rather than just building a pipeline of products—and get to financial sustainability much quicker than we otherwise would. What that means is it will unlock different sources of capital that your traditional VC-backed, loss-incurring, cash-burning startup wouldn't do. So the moment you can become profitable or flip profitable at will, that unlocks access to venture debt, private credit, perhaps small cap PE money." - David He, partner at Gunderson Dettmer
"Hopefully interest rates gradually continue to be brought down. And I think another thing we talk about is AI, the focus on utilizing AI tools, right, as a source to not only build better products for customers but also to reduce costs and optimize internally. So all those things were leading, I think, to what you refer to as an easing of the fund winter or a spring. Personally, I saw more activity, I think, in the second half of '24 than I did in the 12 or 18 months combined preceding that." - David He, partner at Gunderson Dettmer
David He, partner at Gunderson Dettmer sits down with Jeremy Au to dissect Southeast Asia’s shifting startup and legal terrain. From the fallout of the eFishery scandal to the rise of ESG compliance and convertible notes, they explore how investor behavior and founder strategies are evolving. The discussion highlights governance gaps, tougher diligence, and why regional funding optimism may have stalled again.
07:12 E-Fishery Scandal as a Southeast Asian Theranos: David compares eFishery’s collapse to Theranos—highlighting financial mismanagement, weak controls, and how one scandal can shake an entire region’s credibility.
10:25 Due Diligence Now Takes Months, Not Weeks: Term sheets are no longer quick investors stretch due diligence timelines, run legal and commercial checks in parallel, and uncover more issues late in the process.
12:38 Surge in Use of Convertible Notes: Investors increasingly prefer convertible notes for their downside protection and maturity leverage, especially during uncertain market conditions.
19:15 ESG & Compliance Burden Rising for Founders: Startups now face investor-mandated ESG, AML, and governance standards originally meant for large institutions—often without the internal capacity to manage them.
24:32 Tariffs Trigger Global Uncertainty, Slow Exits: Trump-era tariffs hit Indonesia and Vietnam, affecting investor confidence and delaying IPOs and M&A despite startups themselves not being directly impacted.
27:11 Shift in Regional Investor Focus: Philippines Up, Indonesia Down: The Philippines is gaining momentum with underexposure and English fluency, while Indonesia cools down from overinvestment and post-eFishery fallout.
30:05 Down Rounds Are Less Stigmatized: Founders and investors alike are more open to valuation markdowns, with flexible deal terms helping break the deadlock in difficult fundraising climates.
(01:06) Jeremy Au: Hey, excited to have you back on the show and in person now.
(01:10) David He: Yeah. Oh, likewise. I've seen this room many times on the recent episode, great to be here. Yeah.
(01:14) Jeremy Au: I'm glad to have you on the show because I think there's a lot of questions about Southeast Asia, the legal scene. And people really enjoyed your episode the last time around talking about startup law and your perspective as a partner at Gunderson.
(01:25) I would love for you to introduce yourself.
(01:27) David He: Sure. Yeah. So, I guess for those who don't know me, I'm, my name's David. I am a partner at Gunderson Dettmer. We're a law firm based, based globally but grew out of Silicon Valley about 25 to 30 years ago. And we specialize in representing, what we call the "Innovation Economy". So, it is historically used to be companies that develop technology. I think nowadays, because of the way that technology has become systemic in just about every business in the world, it's companies that are relying on technology as well as those that, that, that propagated.
(01:58) We have offices in a (02:00) number of states in the US, internationally, Beijing, Singapore, and Asia, and office in Brazil that covers Latin. I relocated here about six, six and a half years ago. So, my practice is almost exclusively focused on the venture and venture capital and startup scene represent at any given point, maybe
(02:18) 50 to 70 startups. Not all of them are active year- on- year, but when they do fundraisings, that's usually when we're most involved. But on the company side, anything that's kind of day-to-day governance related, certainly anything commercial, contract related. And also just advising a board of directors on their fiduciary obligations,
(02:37) helping companies navigate equity planning investor relations, what they can and cannot do without shareholder approval, so on, that's largely on the company side. And obviously, if they get to a point where they can have a, either a buy-side acquisition or a south side exit.
(02:50) That's something that we guide them on as well. Awesome. And then on the investor side, mostly just your typical venture rounds in, into new portfolios.
(02:57) Jeremy Au: Great! Thanks for sharing. And I think you and (03:00) I were discussing a little bit about what has happened between the last episode that's available in the podcast library yeah.
(03:05) And today. And I think one interesting thing was that when we did our last episode, it was in the midst of the Asia tech winter. And so, we're talking about how to pick a good lawyer and some of the key things that happen. And today, which is about almost two years on, and I was just saying that it felt like spring was back for Asia but with the stuff that's happened effectively in March and April of 2025, it feels like spring is on hold again with the Trump tariffs with the eFishery scandal. How do you feel about what I'm saying?
(03:39) Yeah.
(03:39) David He: Yeah. I think that's spot on. When we last spoke in 23, obviously, we, it's very, this business is cyclical like any other, right? And so 21, 22 post COVID years, act activity just off the charts, rapid fire term sheets being issued left and right, large rounds fairly
(03:57) modest level of due diligence, investors (04:00) competing for allocations.
(04:01) Then we hit second half of 22 or most of 23. And I would say the first half of 24 was what everybody colloquially first to as defunding winter, right? And VCs taking a step back, very little new deal activity
(04:15) focusing on how do we support our existing portfolios? How do we identify the ones that we should continue to stake versus the ones that maybe, we may consider writing off. So, I think that was a, a period where very few exits, very little new deal activity.
(04:33) And that was the last time that we spoke. Now, during that period, I think what a lot of startups were forced to do and probably is, I always thought it was great from a long-term perspective for this region focused on unit economics, focused on monetization, getting to break even, even if it's at, at the cost of growth.
(04:52) Let's hit the brakes a bit on expansion at all costs. Let's focus on the markets that we understand, the customers that we understand. (05:00) Let's roll out products and see how rather than just building a pipeline of products and get to get to financial sustainability much quicker than we otherwise would.
(05:10) And optimism, I think back then was okay. A lot of these companies are refocusing on, on getting the profitability. What that means is that it will unlock different sources of capital that your traditional VC backed, loss incurring, cash burning startup wouldn't do or wouldn't have for many years.
(05:28) So, the moment you can become profitable or flip profitable at will, that unlocks access to venture debt, private credit, perhaps small- cap PE money. And the idea was, okay, given the gap in growth funding in this region which may not come back for a number of years, in the early stages, you can still rely on traditional venture capital.
(05:50) As you get to the scaling and growth stages because you're profitable or can flip profitable, you can start to look at other sources of capital like the ones I just mentioned. Yeah. And I think the hope was (06:00) okay. 22 was when everybody was trying to figure out what to do next.
(06:04) 23 was a period of actually executing on a pretty dramatic and quick shift right in, in a growth versus monetization dynamic. And then, 24 was when VCs would start regaining confidence and start number one, realizing which out of portfolios they wanna continue to support
(06:24) and, and start earmarking more money for new deployment. So, we talked about like the combination of factors that, that leads to deal activity, VCs have a fund mandate to deploy, right? Tremendous amounts of dry powder from funds that were announced and closed or interim closed in 21, 22, and 23 companies despite optimizing for financial sustainability, companies starting to reach
(06:47) the end of their cash runways in, in 24 and 25, hopefully interest rates, gradually continue to be brought down. And the, I think that the one thing, another thing we talk about is the AI, the (07:00) focus on utilizing AI tools, right? As, as a right, as a source to not only make things build better products for customers but also to reduce costs and optimize internally.
(07:10) So, all those things were leading, I think, to what you refer to as a easing of the fun winter or a spring. I personally saw more activity, I think in the second half of 24 than I did in the 12 or 18 months. Yeah. Combined preceding that. Yeah. And 25 Q1 was all looking pretty good.
(07:28) Yeah. And there were a couple exits in 24. I had a couple more clients that are in the process of an exit. Yeah. Starting in Q1 this year, a lot of term sheets being issued, we can talk more about the structure and nature of those term sheets very different from 21 and 22, but at least they were happening.
(07:45) Jeremy Au: Yeah, and I think that's the interesting part was that, I really was right alongside with you because I would say that in quarter four of 2024, and I would say even January and February of this year, (08:00) 2025, it felt like there was an upswing where it felt like the startups said, figure it out.
(08:05) So, those that survive were able to figure out unit economics. There's also some dry powder left in the funds that could pop up for the best companies. And I think two things happened that I love to get your point of view on, right? Obviously. So, one of course is the eFishery implosion where accusations of accounting fraud and so forth. That's one. And the second of course is the, I would say the Trump tariffs. Southeast Asia ranging from 30 to 45% across like Indonesia and Vietnam. But maybe we'll zoom in on
(08:35) eFishery first, what was your sense on the eFishery?
(08:38) Less about what happened to eFishery, but more like when, how did you first hear the news and how do you think people in the legal profession and your circles digested their certain news?
(08:48) David He: Yeah. I, I won't get too into detail about how I first heard the news. Yeah. Because I, I probably heard about it quite early on.
(08:55) Yeah. I have some clients that were involved. Yeah. But I think it was the, let's just call it (09:00) financial irregularities and mismanagement. Yeah. Is not a eFishery was a bit of a FTX Theranos type moment in this market. Just given because of the scale of the fraud.
(09:13) I, but I think there had been multiple instances of mismanagement and regularities in the years leading up to it.
(09:21) Jeremy Au: Yeah.
(09:21) David He: I don't think it's something that is unique certainly to Southeast Asia. It's the unfortunate uptake I think that we're facing here is there's fraud in every market.
(09:32) There's bad behavior in every market, especially the emerging ones. You look at them, Middle East, North Africa, India, even the US, right? Like the ones I just mentioned, FTX and Theranos, those are US companies. But I think the issue with Southeast Asia is we don't really have a track record of successful exits to offset it, right?
(09:52) And so, when you've, when you're ecosystem that has been struggling to generate returns and you keep getting headlines (10:00) of things like eFishery,
(10:01) that's a very bad combination. Yeah. And that's a very, and it wasn't Southeast Asia.
(10:06) I think there, there's it, it was always gonna be a struggle to compete as a region with other large venture markets like China and India. I never really understood the comparison of, hey, the Asian countries or the six major economies of Southeast Asia being comparable to an India or China. There, there's just too much fragmentation,
(10:27) political differences, cultural differences. It's the population size and the GDP may, you could put that up on a graph and it look starts to look a little bit like India but it's not. It's much harder to expand from Indonesia to Malaysia to the Philippines than it is to expand from one part of India to another.
(10:45) And so, it was already gonna be a challenging sell to global investors to continue deploying the way they did in 21 and 22 in this region. But the timing of the funding winter, the (11:00) slowdown in capital markets coupled with the fact that there's all these bad stories out there that's really tough to overcome.
(11:07) Yeah. And I think it's caused, we can talk a little bit more about the repercussions of an eFishery type event. But it's not, it's nothing that hasn't already been happening.
(11:15) Jeremy Au: Yeah. Now, the bonus rounds of due diligence that are happening which sounds so painful. And I think that's the interesting dynamic, right? Which is there's always that balance between too little due diligence which I think some people may argue.
(11:28) Cost or. Allowed for eFishery scandals to develop, I think on one side, and obviously, there's too much due diligence or too painful due diligence. I'm just curious, like you said you're noticing a change in the due diligence patterns that VCs and investors are doing. Could you share a little bit more about what those differences are?
(11:43) David He: Yeah. I think that on the business side, a lot more commercial due diligence. Yeah. And then I, it used to be you could get to a term sheet pretty quickly with minimal diligence, and then once you sign a term sheet, it's a rush to get. The deal closed. And we used to estimate amount six to eight weeks for a traditional equity round.
(11:59) (12:00) Nowadays, easily couple months before that term sheet even gets issued. Yeah. And then, by the time it does get issued it's legal due diligence and commercial due diligence continuing to run in parallel. And that can still take two, three, sometimes four months to get done.
(12:15) Yeah. And as the, as a lawyer who's negotiating the trans, the principal transaction documents, your subscription agreement, shareholders' agreement, it's hard to get to a point where you can start seeking internal approvals, other hoops that you have to jump through once you finalize with the lead investor.
(12:32) And the reason for that is because, findings keep coming out of due diligence. And then the documents keep getting supplemented. Yeah. So that, I think that delay in transaction as time, as a timeline gets stretched out, transaction costs continue to increase.
(12:46) And I'm fine.
(12:47) I think a lot of investors are no longer comfortable completely conducting the business side of the diligence exercise in-house.
(12:54) So, they're bringing in professional accounting firms to help out. And that, that's also,
(12:59) Jeremy Au: (13:00) yeah. And I think a lot of the immediate feedback was like, we need to do more forensic accounting to PS like any obesity by bad faith actors.
(13:10) But of course, I think what's happening is that everybody's getting forensic accounting as part of the due diligence and I have been on both sides of the transaction. I've been a person doing the due diligence on a startup and I've also been a startup going through due diligence, and it is not an easy process.
(13:26) Yeah, for sure. It's a lot of paperwork and I think your business can actually slow down the crawl because you are so busy generating documentation for, based on the compliance requirements. But I think what's interesting is that we're also seeing some changes as well for the transactions as well. I think we're seeing, for example, convertible notes being very much part of the mix. And I think we're also seeing ESG like pumps and compliance also being injected as part of the funding process. Could you share your thoughts on those two ways of changes that you've seen as well?
(13:55) David He: Sure. Yeah. So, I think the convertible notes, the feature of a convertible note is it's (14:00) senior to all equity, right? Until it converts. It is usually unsecured, so, it's gonna be subordinated to any secured debt instruments. That includes venture debt, includes most traditional bank debt. But a, as with most debt instruments, there is a maturity because it's convertible.
(14:16) There's maturity date, there's interest that accrues some other features. You have some pretty stringent covenants, usually convertible, no, it's unlike venture debt and traditional bank debt, you don't get into things like that, equity ratio maintenance and minimum cash balance maintenance.
(14:31) But there are, there may be some covenants, right? And then does it event of default. So, if if you breach any terms, if you fail to make payment at maturity, events of default are pretty, pretty draconian against the company. I think 23, 24, a lot of companies relied on convertible.
(14:47) No, there's few reasons for that, right? It's a better instrument for investors. It's a liability, so it increases your cost of borrowing. But it, from an investor's perspective, it's automatically senior to all equity, right? It's like immediately I don't have to go through the (15:00) song and dance of negotiating all these downside protections because I can just rely on the fact that I'm already a senior, right?
(15:06) But notes usually have pretty short maturity dates. Yeah. And so two years, three years, the expectation is, hey, this is a bridge instrument, get through a very challenging period of time. But you eventually have to raise a qualified equity financing and then we'll, we will convert the notes.
(15:20) Because of how long this winter has stretched on, I think a lot of the notes that were put in place back in NF 22, let's just say, are actually coming due. And as a note holder. As a, so compared to a preferred lead investor, you, you have a lot more leverage as that maturity date starts to get closer and closer to, to get what you want out of the company.
(15:40) With preferred equity, you might have negotiated from some exit rights, right? And I think in this region, it's not unusual to see some obligation to go higher up. A banker to run a process or to find a sale and you, it's all best efforts. And so, not too many hard obligations as an equity holder to force and exit.
(15:57) Or and as an equity holder, your (16:00) primary leverage over the company is through your negative controls. The company cannot do things on a long list of reserve matters without your approval as long as you control those matters. But sometimes these funds have a director on the board, so there's gotta be a bit of a delicate balance between what is my obligation as a fiduciary to all shareholders by virtue of my board seat versus what is my obligation as a share, as a fiduciary to my fund to, to get the best result from my investment.
(16:27) And so, there's in some sense, large preferred shareholders on the cap tables of startups don't actually have that much leverage to force things to happen, right?
(16:39) But as a note holder you have tremendous leverage because at maturity you could basically call the cash on the company, right?
(16:45) And, and many times that either means wiping out the equity or putting the company at least in a very precarious position. And you take that money from your note and you can walk, right? That the principle and interest that's yours, it's senior to everyone else.
(16:58) There's no fiduciary (17:00) obligation to look after the interest of other shareholders, right? And I think, a lot of funds that had these notes in place are realizing, oh, actually, as they're coming due, we can ask for a lot of things that we wouldn't have been able to ask for as a preferred shareholder.
(17:12) So, even new investments that are happening in this region, I think at least in my experience, a lot of them are happening through notes because investors are recognizing, like you said, Hey this might be a very cold spring, right? Like it, it might, even if things start to progress upwards
(17:28) it's not gonna be, it's not gonna be a J- curve recovery and it will take a while. So, why don't we just continue to invest in notes and that'll buy us another two, three years before they mature. It'll get the company to capital they need, but we will be in a, we will be in more comfortable position from the perspective of an investor that's trying to protect downside.
(17:47) Jeremy Au: Yeah. And I think that's an interesting piece because I think convertible notes have been historically been seen as a faster way to raise more straightforward. And I think now, I think there's a little bit (18:00) more sophistication learning by both sides about the virtues and the downsides of convertible notes.
(18:05) I think for founders would be, yes, it's easier to raise in the short term but there is that dynamic where you have to pay off at the end of that period. So it creates like a negotiation. I don't know, it's, yeah, inflection point or crisis, I think you just have to be very mindful about that.
(18:21) And for investors convertible looks even better now because if there is a downside scenario, you have a lot more control than you would've had if it was, you know, equity. Yeah. When you look at the future as well, I think there's also a big wave towards like small- cap private equity or outcomes that are not necessarily venture scale.
(18:38) But perhaps tackling like the Indonesia or Vietnamese rising middle class for those kind of outcomes, do you see the instrumentation of the legal side shaping up? Because I was talking to somebody recently and then they were like, oh, maybe there should be an equity agreement.
(18:53) But then there's a clause that after five years you can pull the money out, so there's all kinds of like conversations about what (19:00) happens if the outcome is good but not great. So, I'm just curious what you're seeing?
(19:05) David He: As in like a redemption.
(19:06) Jeremy Au: Yeah, exactly. Exactly. Yeah.
(19:08) David He: I think the danger of any redemption feature
(19:12) for equity
(19:13) Jeremy Au: Yeah.
(19:13) David He: is, number one, as an investor, it doesn't necessarily get you the protection that you want. Because it's going to be hurry pursue with every other equity holder in your class. Yeah. At least, right? So, you can't do a partial redemption of the series B and not allow other series B investors to redeem their portion.
(19:34) And to the extent the company ever raises more equity, it's usually gonna be larger check sizes coming in. That may stack on top of yours or at least be on part with you.
(19:44) Jeremy Au: Yeah.
(19:44) David He: Redemption is also subject to a lot of solvency requirements, so you can't actually, in Singapore or another companies, act, you can't. There, there are solvency requirements to do any kind of share buyback by the company, right? So, if the redemption is gonna drive the company into insolvency or (20:00) render the company functionally insolvent,
(20:02) It's not gonna be permitted or it's not gonna be fully redeemable. So, just a lot more uncertainty around the enforceability of a redemption provision for equity.
(20:12) That's different for dead instruments.
(20:13) Jeremy Au: Yeah. Makes sense. And I think that the other part that we talked about is that there's a lot more ESG compliance requirements. That's, I think, emerge over the past one to two years. Yeah. What's going on there and how do you see that shaping up further?
(20:29) David He: So I, I think when we talk about ESG to me, it's usually the G that people focus on. And I think in recent years, G being governance, right? So, having just there, there are pretty large sets of standards out there put forth by, by institutions like IFC, ADB and that's usually a starting point I think for a lot of, a lot of funds that require ESG policies, they can always look to that and layer on or redact.
(20:57) But for, I think the consequence for (21:00) founders is a lot of those ESG policies are meant more for large established institutions that run owe machines have departments that handle these. For example, HR is a very obvious one, right? Yeah. What are certain employee policies that you need to have in place to comply with various jurisdictions and their labor requirements?
(21:21) But on top of that, what are standards that institutions want to see apply globally? Those may not actually be required by local labor law, but it's a standard that they want you to implement everywhere you, where you have a presence. And it's just for startups that are sitting on a few million dollars in a bank and trying to do what they're trying to fulfill their mandate of break even.
(21:41) And at the same time, scale, it's where do you find the internal resources to focus on complying with the ESG requirements that your fund may require. That, that's very challenging. And on top of that, in recent years, and this was something post, let's just say Russia, Ukraine, sanctions and anti-money (22:00) laundering.
(22:00) And for many years now, corrupt practices, right? Corruption, corrupt practices export, import, export controls. These are also regulations that, that stack on top of your, what people usually think about when they think about typical ESG, right?
(22:14) And so, regulatory compliance and these, these are regulations that are not specific to regulated industries.
(22:21) If you're a regulated industry, if you're operating in a regulated sector, you're a FinTech, you're direct to consumer, you're life sciences, there's additional regulations on top of that right around it. Maybe around foreign ownership, maybe around other things. So, if you think about just like the bodies of regulations that have become more and more stringent and applicable to startups, we get into AI data privacy, right?
(22:43) You have IP and so it, it's a lot of internal expense and resource, both human and cash. That it's gonna be needed to be allocated toward just internal compliance.
(22:56) And when you have policies that are not even (23:00) strictly regulatory requirements, they're just standards on top of that, it's an entire another body of compliance.
(23:07) So, I see these policies, sometimes investors just across the board. It's a fund mandate, it's in their LP agreement. They need to have it. I understand that. But when you drop it into the shareholder agreement as a covenant,
(23:19) as a founder, I would say if there's not at least some commercially reasonable or practicable standard or qualifier in there, you're gonna probably immediately be in breach which is not a good thing, right? Yeah, that's right. Yeah. And , and in this subscription agreement, you have to deliver warranties, right?
(23:38) You may have to deliver indemnity, sometimes it's joint in several between you and the company. So, the founders are backstopping it especially in the early stages. It's not unusual to see founders backstopping these warranties.
(23:49) So, if you're a series seed or a stage company and you're raising 2 million, $5 million and you're personally backstopping these warranties and there's a warranty in there around ESG, you (24:00) should be very careful before you just go and agree to it.
(24:03) Okay. Questionable whether any fund would really actually enforce that. Yeah. Against the company or the founder. That's their own investment. They're destroying in some sense. Yeah. But warranties are not always, they're not always qualified by commercially reasonable. It's just a flat warranty or clean Yeah.
(24:16) We call it a clean rep.
(24:18) You, hereby warrant that at the closing you are compliant with , it doesn't need to show up as 40 pages of material. It's just one line that says you're in compliance with eSG standards, right? And then you see a definition of ESG standards. It includes a list of global standards.
(24:32) And then when you look at the list of global standards, you realize each of these are a hundred pages long,
(24:36) Jeremy Au: right?
(24:36) David He: So I think it's something to be mindful of, right? And I, I think it's also something as an investor you need to be a little bit flexible on, because the reality is if you have your fund standards, the next investor also has their fund standards, and then the one after that have their fund standards.
(24:51) And do you really want at some point, this company, yeah, okay. They're a series B or C company. They've got resources, but they have to comply with four (25:00) different sets of standards. Now, a lot of them might be overlapping but do you really want to be the one that sets the tone for every a future investor to say, Hey, these guys got their standards in there.
(25:11) And therefore, we have a right to have ours alongside theirs.
(25:14) Jeremy Au: Yeah. I think it's a tricky time period and obviously, I think everybody wants to see more ESG, right? Environment, social and governance. But of course, I think the tricky part is the compliance side of it, is the expensive part of it.
(25:26) And I think, moving to the next stage as well, we'd said that we'll talk a little bit about the reason why we think it's a cold spring is because the recent set of tariffs on like Southeast Asia, like Vietnam, Indonesia is going to cause, I think some economic distress, I think for these export led economies as well.
(25:43) And I think, yeah, I'm personally, I'm still thinking them through. Because obviously, if you are like a SaaS company selling to America, you're not necessarily impacted because these are terrorism goods rather than services, but still, what is the effect? What is the second order effect?
(25:57) Those are the kind of questions that I'm still thinking through. (26:00)
(26:00) David He: Yeah. Yeah. I think certain, maybe as a startup just the clients that I work with, I hope that they're less affected by, by these than, for example, your typical cross-border multinational corporation, right? That, that actually is affected by supply line, supply chain disruptions, right by the ability to fundraising capital markets because of volatility. I think startups hopefully are not as exposed at least immediately. I, you're right. I think if the typical tech startup is probably not going around with, trying to ship containers of,
(26:34) of raw materials or goods to or from the US, and it seems like these tariffs so far does not extend to the traditional for example, SaaS, right? Like services and but I think nevertheless it's going to cause uncertainty, globally,
(26:48) Jeremy Au: right?
(26:49) David He: And I think uncertainty has been the reason that it's been so challenging to get any exits done out of this region.
(26:54) Yeah. When you have large multinational corporation who are usually the buyers (27:00) in a trade sale, and they're focusing not on they're focusing on core, their core businesses and organic growth. Because they're worried that they don't have the confidence to go and start buying up new companies to supplement their businesses.
(27:16) That, that's a pretty big freeze on kind of M and A activity, right? For startups. In the same vein, I think when you see capital markets volatility, I think the VIX today was like 50 points, right? You can't price an IPO in this environment.
(27:28) And so, that also significant. And when you have these IPOs that are in the pipeline and you have a period of volatility, they hit the pause button and it may be 3, 4, 6 months before they can really get back to where they were again.
(27:40) I think probably for more relevant for the startups here that are not in the business of importing and exporting goods between the US and this region, the impact is really gonna come from the global uncertainty around, pulling the trigger on any kind of exit.
(27:58) And I think that's something that's already been (28:00) pretty difficult for us here. It's feels like it's not gonna get any better at least. Yeah.
(28:05) Jeremy Au: Yeah. And I think that's gonna be interesting set of challenges they have. I, i'm just curious from a, as a legal partner, obviously, you're working across the whole ecosystem.
(28:16) Do you see any trends or changes that you think are interesting for folks?
(28:21) David He: Yeah I think in, in at least up until a few weeks ago, let's see how, what the case is going forward. There, there was, there were more global investors coming back into the region. I think there were also more startups here that had gotten to a point where they could start executing on a more global go market strategy.
(28:42) And that's very important to attract foreign capital.
(28:45) I don't know if that will be the case necessarily. It may not be the upward trend that we were hoping for in 2025. Which means there will be more reliance on regional venture capital for at least early stage startups.
(28:56) To me, Indonesia has been (29:00) quiet. Which I think it's not just because of eFishery, it was also one of the most heavily invested in, and oftentimes at inflated valuations regions in 21 and 22. Yeah. But most, if you talk to most US investors, and you talk about Southeast Asia, everybody knows in Indonesia there, there's not as much of a focus on some of the neighboring countries, because of the smaller towns. And I think the the o, let's just call it the over investment in Indonesia, back in 21 and 22, followed by the underwhelming results has caused Indonesia to be a difficult place for large global investors to continue investing into.
(29:36) Philippines is very active for me personally. I think I, I do, I've seen more deal flow there than I have seen not really counting, I don't count Singapore, because Singapore is where all the companies are based. They're right incorporated here, right? Like the operationally where the ones that are in the Philippines seem to getting quite some traction and perhaps it's because they were not as overinvested back in 21 and
(29:56) Jeremy Au: I think there's an interesting piece, right? Because what we're talking about is like the (30:00) fundamental economy versus, were they over invested in the past in the bull cycle and now that when someone in the bear cycle, what is the right, level of appropriate investor interest.
(30:11) For sure. And I think the Philippines, I agree with you continuously of strong interest, I think because, they are, strongly natively proficient in English. Which makes the market, I think, a lot more understandable to the American growth investor for exploration and obviously there's a strong Filipino diaspora group in the US as well, which helps.
(30:30) Yeah, I think bridge both the talent and investor side. So, I think to some extent I think the Philippines is benefiting from that corridor similar to how Singapore has that similar set of corridor where Singapore is a strong diaspora in America as well as English proficiency. But I think, yeah, I think the, I think Indonesia definitely in 2025 has been trickier for sure because of that deflation of the prior big hopes that people had in 2021 and 2022 for Indonesia.
(30:58) And as well as, they said (31:00) eFishery didn't help as well for that as well. On that note is there to wrap things up, anything that you're looking forward to?
(31:06) David He: Yeah I think there's, at least for me personally, there's a lot of deals in the pipeline. Yeah. And so I it doesn't feel like, it doesn't feel like recent events have certainly no investor.
(31:16) To my knowledge has actually walked away from a term sheet that they've already entered into. So I don't think it's gotten to the point where people it was a completely different case. For example, February, 2020 when COVID hit,
(31:28) Jeremy Au: right?
(31:28) David He: Like term sheets were actually being withdrawn.
(31:31) Yeah. Like rounds were not closing.
(31:33) We're not, this is not, the environment we're in today is not at that level. People are gonna be cautious. Yeah. Which they should be. But they're not at a point where they're saying, Hey, we're not, we're just not gonna, we're gonna close the checkbooks and we're gonna wait four years to see what happens.
(31:48) So, they're companies are reaching they and the end of their cash runway ways, they're gonna need funding. These are companies that I think a lot of investors have conviction in.
(31:57) And I don't think the staring contest (32:00) to wait for a down round is gonna be as pronounced as it was, for example, back in 23.
(32:05) Founders are and investor, existing investors are willing to take that markdown nowadays. From what I've seen there's not as much stigma attached to it, I think as there was two years ago. So, at least in that sense, I think that the gridlock, this kind of staring contest between. VCs and founders is getting progressively better, right?
(32:24) In, in a very noticeable way. There are, and there are ways to solve for, a disparity in valuation that I. I think in 23 and 24 people were still exploring, hey are these very viable paths, right? Pay to plays pulling up existing l pre of equity playing around with conversion prices.
(32:45) If KPIs aren't satisfied, you're effectively repricing prior rounds. There, there were a lot of things that were being tested in the last couple years that I think investors have now actually gotten quite comfortable with using as a, as, as almost like a like a (33:00) tool right out of the gate.
(33:01) And so, if a company needs money, there, there are options available.
(33:05) Yeah. It's just, what level of pain are you willing to take to?