Indonesia eFishery Unicorn Scandal Q&A, Fraud, Due Diligence & Governance Failures & Toxic Founder Pressure & Temptations - E534

Jeremy Au and Gita Sjahrir discussed:

Indonesia eFishery Unicorn Scandal Q&A

Jeremy and Gita analyzed the fraud involving eFishery’s co-founders, including Gibran Chuzaefah, who allegedly falsified financial statements to show $750 million in revenue for the first nine months of 2024, when actual revenue was only $157 million. They also fabricated metrics, such as reporting 400,000 active fish feeders, though only 25,000 were verified. The fraud hid over $35 million in losses, falsely portraying profitability and attracting high-profile investors like Temasek and SoftBank. Gita highlighted that the damage was not limited to eFishery, as the scandal undermined investor confidence in Indonesia’s agritech and broader startup ecosystem. A listener argued that many investors lacked an understanding of agritech’s technical and hyper-local challenges, leading them to misjudge risks. Jeremy agreed, pointing out that the scandal is reshaping how international investors view the region, with many pausing future investments.

Fraud, Due Diligence & Governance Failures

The discussion explored how due diligence failures allowed the fraud to go undetected through several funding rounds, despite the involvement of seasoned investors. Gita noted that the lack of on-the-ground validation—such as direct visits to rural fish farms and checks on vendors—created blind spots. Fraudulent activities, including round-tripping funds through multiple shell companies, could have been caught with stronger local diligence. Jeremy dismissed this as unlikely, explaining that the inflated metrics were so extreme that many investors were likely unaware until whistleblowers raised the alarm. Both agreed that hiring and training local talent, along with a focus on hyper-local checks, are critical to preventing future scandals.

Toxic Founder Pressure & Temptations

Jeremy and Gita discussed how the pressure to achieve unicorn status creates dangerous incentives for founders. The inflated valuation of eFishery, which had raised hundreds of millions of dollars, pushed its founders into unsustainable growth strategies and ultimately fraudulent behavior. Gita explained that many founders, particularly younger ones, struggle to handle large amounts of funding and the accompanying expectations. Jeremy reflected on his own early startup experiences and how founders often conflate their personal worth with their company’s success. He emphasized the need for emotional resilience, disciplined governance, and mentorship to help founders navigate the pressures of high-growth environments.

Gita and Jeremy also discussed the role of whistleblowers and internal audits in uncovering the fraud, media investigations led by DealStreetAsia that brought the scandal to light, the failures of Series A and B investors to identify risks during early funding rounds, Indonesia’s evolving legal framework and how it could impact future cases, and advice for agritech founders to prioritize profitability and operational transparency to rebuild trust with investors.

(01:06) Jeremy Au: Hey, Gita. How are you?

(01:08) Gita: Hey, I'm good. How Are you? Happy new year and happy lunar new year and all the new years to be.

(01:13) Jeremy Au: And big new year happened because we jumped straight into the eFishery debacle.

(01:20) It's been a big issue that everyone's been asking me about. Everybody kept messaging me. It's like, when is Gita going to share a point of view in this? And I was like, Gita's on holiday with me.

(01:30) And then, we've processed our feelings as well. And so I think what we'll do is maybe I'll share like a recap of

(01:36) what we saw, and then maybe Gita, maybe you can share your own point of view. And then also we have some listener questions and feedback, to efishery topic.

(01:46) And so we can recap that and can address them point by point. Yeah. So what happened was that at the start of the year, eFishery founders were suspended because they were accused of embezzlement. And about one to two weeks later DealStreetAsia, who had initially broken the story, (02:00) later on reported, which was corroborated by other leaks slash newspaper outlets that the allegations also cover fraud, right?

(02:08) And most significantly would be that it was a very significant amount of revenue inflation. So there was two sets of books, one for internal bookkeeping and the other one for external stakeholders. And the external stakeholders was massively overrated. For example, for the first nine months of 2024, eFisher reported about 750 million of revenue, but actual revenue was only 157 million.

(02:30) That's about 5X. Acceleration on top of bonus revenue. Do you call fraudulent?

(02:36) Gita: There you go.

(02:37) Jeremy Au: fraudulent revenue

(02:38) Gita: get massive bonuses. The employee,

(02:41) Jeremy Au: yeah and as a result of that there were other metrics that were also falsified supposedly. So for example, they said at 400, 000 active fish feeders at different fish farms, but only

(02:51) 25, 000 of them were actually verified and then there were like companies where you know, money was being used to rotate the money around to book (03:00) that fictitious revenue.

(03:01) They booked other expenditures, capital expenditure really high to make it be a good way to explain why the cash balance was low.

(03:08) And so for example, 2024, 60 million profit, but actually they had at least 35 billion of losses, right? So a 50 million swing from profitability, which they were very much celebrated for last year, 2024, they were celebrated for achieving profitability which was a big surprise to everybody because agritech is really hard.

(03:27) And yeah, that's the recap of some of the facts and figures. What are your thoughts, Gita, in terms of the situation?

(03:33) Gita: First of all full disclosure, I was never an investor at eFishery either as an angel or when I was in an institution. So I was never an investor in eFishery. I have come across eFishery, but that's natural because they've been around the block for a long time. So I think for me, as someone who has never invested, I'm mainly just very disappointed with how it has impacted the entire ecosystem because what ended up happening (04:00) now is not just, the fallout of one company.

(04:03) It's basically a fallout of all the near unicorns, all the unicorns. Potentially Indonesia as a whole, actually because people are questioning the governance and the system since this fraud seems to be a very systemic one, dating all the way since 2018. That's not good and more than that, it also is bringing a lot of discomfort from investors on investing into not just the country, but also any type of sector that is supposed to be impacting agriculture and aquaculture which are some of the largest revenue drivers for the country and I think that is the part That is just very sad

(04:44) Jeremy Au: Yeah, and I've noticed that myself as well because I found myself talking to American growth stage investors asking about this situation. And I have to explain that Indonesia is not Singapore.

(04:54) Gita: No, they're completely different countries

(04:56) Jeremy Au: Different countries but obviously from their perspective, if you look at Southeast (05:00) Asia as a thesis and I think it's quite fair, right?

(05:02) There's a lot of Singaporean companies that have exposure to Indonesia and Vietnam. There's a lot of Indonesian Vietnamese companies that domicile Singapore from their perspective. It's there's not just a big issue for Indonesia Agritech, but like I said, Indonesia and the whole Southeast Asia thesis.

(05:15) So a big problem for sure. Yeah.

(05:17) Gita: Yeah. I think what it does highlight though for any funds that are trying to invest into Southeast Asia to continuously see Southeast Asia as a collection of countries with very different backgrounds and strength and weaknesses, by the way. Of course, the largest one is Indonesia in terms of population.

(05:39) But again, it's just so important to not clump it, to not see, oh, if you are operating in, let's say, Malaysia, naturally, you should be able to easily expand into Vietnam because that is not the case. It gets hyper localized in all of these countries. Actually, if you really want to get down to it, I'm sure it's hyper localized, even in the different (06:00) regions of the country. But what we're having now is this big umbrella fact that it's affecting an entire region of almost 700 million people.

(06:10) Jeremy Au: Yeah.

(06:10) Gita: Yeah, sorry, which I think actually highlights one sad thing that we probably can learn, which is about governance, right? Governance and legal frameworks basically. And I think the reason why so many Indonesians. We're just rolling their eyes when they found out about a fishery saying they're very disappointed, but they're not surprises because Indonesian legal framework, especially for businesses have been notoriously not that dependable in a lot of ways.

(06:39) So much of the reform have only been done in the last maybe, Ten ish years or eight years, something like that. So not very long. And it's continuing to develop, but yeah, here we are.

(06:51) Jeremy Au: Is there a way for these allegations, obviously there's a forensic audit they've done, they started to release those findings, but is there like a legal (07:00) process where there's some kind of clawback or is it just too difficult to pursue?

(07:04) Gita: I think in the end, it depends on how far the investors want to take it. This also makes me question some of the foreign investors in them too, right? Because there are big names there. Again, the question is, how did you evade Temasek due diligence? That's actually an achievement in and of itself in some way, a sad achievement, but no, really, how did you evade this kind of due diligence in the past? And I don't think this is the first time by the way, that really large international level funds have had bad deals, not just in Indonesia, but also just around the region, including in developed markets. How did you get away for this long? And I think this again, brings into question governance and legal frameworks and

(07:50) also just discipline.

(07:52) Jeremy Au: I think it's interesting, right? Because, it does look relatively sophisticated, right? So they were doing round tripping across I think (08:00) multiple shell companies and rotating the funds around. I'm not saying that the due diligence shouldn't have caught it. Sure every last gross savings investor right now is going through the due diligence report saying, whack with, pick this up, et cetera.

(08:12) But I can imagine that, it would have showed up as multiple entities providing revenue.

(08:16) Gita: Yeah.

(08:16) Jeremy Au: Yeah. And then what's interesting is that they were also able to keep this supposedly about 10 key executives, including the internal auditors, the internal finance folks.

(08:26) So it's actually quite a large group because, they got to a large scale keeping this secret together. They did have a CFO depart after a year into the job. And then that person checked out about a year ago. So I think, those are all like, I don't know what's the word.

(08:42) Aspects. Yeah.

(08:43) Gita: It's very systemic.

(08:44) I'm not saying that it wasn't sophisticated.

(08:48) But, as someone who has done due diligence on behalf of institutions before, There are certain steps that I can say I have seen funds (09:00) not take simply

(09:01) because the question becomes, is it worth the cost? Is it worth the investment of energy and time? For example, when you're looking at companies that are, let's say, agriculture, aquaculture, those are companies that are usually not based in, Fancy South Jakarta, right? It's usually somewhere a little farther away. It's usually also in places that are hard to get to. And oftentimes if you are not an experienced person in the due diligence, you probably also don't know what questions to ask what books to see or who to double check with. Have you ever, for example done a due diligence where you visit the location without the founders there, so those types of questions, or have you ever called a vendor and actually asked them certain questions, which again, Agriculture aquaculture type of models. These questions are usually going to be in Indonesian language. So if you graduated from (10:00) Stanford, but you can't speak Indonesian, it might not help you when you're doing due diligence to really get down to the gritty level of it all. And I think that's what makes working in all these countries really challenging because again, you have to go deep. It's not just about understanding the macros because there's macros and then there's execution. Then there's actually practice, right? And that's the part where people often get very angry about Southeast Asia because they have a certain kind of expectations due to our macros, our large population, our very young population, our quick adoption for some technologies.

(10:37) But then if you don't do your homework and really know how things work on a deeper level with how communities behave with how people do transactions with the psychographic of customers, then it just gets very hard to do certain things like due diligence. But then again, that is why it's really important to have local (11:00) hires that are also trained well. So it's not as simple as hiring. Ooh, that's a smart, younger person, younger analyst, and then you let them go and you never check on them. That's not really how it works. But again, This is all unfortunately a really painful learning curve for everyone here.

(11:18) Jeremy Au: Yeah. And what we wanted to do, you and I was to discuss some of the listener feedback to the eFishery scenario.

(11:24) Gita: Yeah.

(11:25) Jeremy Au: So this comes from a previous episode that Shiyan and I had when the news has broke and at a time that allegations was just embezzlement. But of course we both knew that from what we knew, the subtext of what we heard on the street was that actually it was more fraud that was the biggest issue.

(11:40) All right. First of all, thanks Novamputra4120 for saying thanks for this content. And we're just going to go through row by row, the different content, right?

(11:49) Gara7446 says, Agritech in Southeast Asia needs more understanding on a technical operational upstream level and the ecosystem should provide a platform. What do you think, Gita?

(11:58) Gita: Oh my gosh. Again, (12:00) as I was saying before, it's not just about knowing the macros and how things work from the outside and from up top, you have to understand how things actually work inside and it gets very localized, not just in terms of execution by region, but it also gets localized by language, by culture, by so many things.

(12:20) And if you don't know all of those things, honestly, you're just investing into a dream.

(12:25) Jeremy Au: Yeah, I think the tricky part about Agritech is that most people don't know what farming is, actually, right? The classic VC that you have is, white collar, middle class background, they haven't seen a farm or worked at a farm. And I always use the joke where it's interesting to see how everybody was like, their grandparents

(12:44) left farming for a reason, move countries to avoid farming. And then their kids or their grandkids are like, okay, and yeah, I understand. It's they want to invest in farmers. It feels like it's giving back to society. It's a big size of the economy, but do you understand (13:00) the market?

(13:01) Gita: Yeah. Okay. I also always say to people, right? Every time inefficiencies in most developing markets, always ask yourself, why does it exist? And who's benefiting from it? Because if there are sectors benefiting, including informal sectors that are often just as powerful as formal ones, if they're benefiting from an inefficiency, you are going against it.

(13:27) Just to survive, not even win. And I'm always making people understand that these things are hyperlocal in execution.

(13:35) Jeremy Au: yeah. And I think that's where also, I think the cross country also compounds because I feel like at least if you're an Indonesian VC investing in Indonesia and agritech, for example, you're at least one degree to two degrees away from the agritech space, being able to visit. Look, it's still a hurdle, at least there's something there, but I think when you're investing agritech from Singapore, which is, we talked about it, the GDP per capita is (14:00) literally a. I know 8x difference is like night and day difference is yeah, technically a couple hours of flight away, but you don't understand.

(14:07) Gita: If you only see SCBD you don't really understand things work for aquaculture or agri.

(14:14) Jeremy Au: Exactly. And I think this gets further compounded if you are like investing in, the developed world and the US Europe and yeah, Agritech is very different from the small holder Agritech that we're seeing in, Vietnam, Indonesia and Philippines. Not an easy space to do I think at least if you're doing sass, and at least, all the financials are there, right?

(14:36) Gita: is it though? Is it though?

(14:40) Jeremy Au: It's like

(14:40) Gita: your whole segment

(14:41) Jeremy Au: is called

(14:41) is it though?

(14:43) At least you're like one order of magnitude off,

(14:45) Gita: Sure. I understand.

(14:47) Jeremy Au: the order of magnitude or cubing the order of magnitude

(14:50) Gita: By the way, there's a fantastic book on this concept in general. It's called "The Friction Project", and the concept is exactly that, which is always (15:00) think of how much friction you have between whatever issue you have at hand and the solution you need. Just think of the friction there. So basically the bigger the friction the more you have to question, are you sure your solution will work, right? Or for example, if you're so far removed from the friction, there's a good chance you don't actually understand the problem as well. And I can say that about a lot of these aquaculture, agriculture type of businesses, right? Including even, if you are from that background good for you because you probably have a deeper understanding, which supposedly the issueFishery founders were. But then the question becomes, do you stay close to the friction that you're supposedly solving, or have you moved away from it? To the level that we can still trust that you are deeply in touch with the market need and the market problem. And that, I don't know.

(15:58) Jeremy Au: The next comment. I'd like to get your (16:00) thoughts. CloudVYY asked I, as an Indonesian and very ashamed because this news honestly, it's terrible but since 2016 to 2023, startups have become overhyped and are not proper investments anymore, which has become a bubble.

(16:17) Now it's pretty much like a nuclear bomb explosion that cannot be predicted. It's hard to control and the overload and over capacity has created the leakages in terms of regulation, observation and supervision from the government. And that's why so many startups from indonesia have collapsed and are now dead.

(16:36) What are your thoughts?

(16:37) Gita: I don't know. I love how I can also always count on Indonesian netizens to really be ultra pessimistic. And I don't blame them because I am an Indonesian netizen and I know I get that pessimistic sometimes. But look, the whole idea of startups and venture capital to begin with, like the whole concept (17:00) is really to bet on extremely large growth because, venture capital is just an equity fund, but at a very early stage, that's their mindset. If you read any venture capital how to book from Silicon Valley, they all say that, which is how do you bet at an early stage as humanly possible, because you don't care if 9 out of 10 explode, as long as the 1 out of 10, return 100X, it'll make up for everyone else. And that's the game, unfortunately, right? I'm not saying that's how the game should be played all the time. I'm just saying, traditionally, venture capital has always been about how do I invest into that one unicorn, one winner out of a group of investments.

(17:45) You're not going for steady returns. You're not trying to just beat inflation. You're trying to 10x the inflation basically.

(17:53) And I think that's why we have this. The problem is in Southeast Asia, especially in Indonesia, when the (18:00) market is already not that deep, again, 5, 000 GDP per capita, not a lot of companies going public in general capital markets is not as deep as New York stock exchange. You also don't have a lot of wins. That's the sad part. So every time something that looks like it's about to be a win, fail, it's devastating for everybody. But it doesn't necessarily mean tech is inherently quote unquote wrong or inherently bad investment. And also doesn't necessarily mean that all new companies that have some tech in the country are bad investment. But again, it's all about what happens when an investment concept that is all predicated on betting on a ginormous winner comes to an emerging market?

(18:47) Jeremy Au: I think for myself, I'm quite empathetic with the part of feeling shame because, it does look bad on Indonesia and all the startup sector as a whole. So I think I resonate that emotion.

(18:58) And I think the (19:00) part that I also concur with you is that I think companies are okay to fail. And so it less about the issue of a company failing, but more like the fraud of this thing was systematic.

(19:12) So I think that's the nuance that is there, which is if all the startups in Indonesia, 80 to 90 percent of them fail, that'll be normal. But this level of fraud at this scale, the systematic is abnormal, right? So I think that's the nuance that we're trying to go for. And I think the last thing is, I don't know if regulation and supervision from the government. I don't know what the right nuance here because I feel like the VC investors should have been the one that should have exerted level of control and supervision at the Series A, especially in the Series B. I think the Series C and Series D investors were counting on those early investors as well because, growth stage investors tend to take the prior and inherit the prior financial due diligence report. So I think it was multiple sets of investors where their financial due diligence failed. And I think that was the key regulation because what should have happened was that (20:00) I'm just an example, right?

(20:01) At series, A or B or C, somebody said, these numbers are cooked. It's bad. Let's not invest. And let's tell our buddies that we play poker with not to invest in this joker because it's a waste of time. The market will self regulate itself by failing to give them the capital, right? So I don't think it's necessarily the government that's supposed to step in, although I think now that the financial report is out hopefully the government can help, I don't know, if there's a judicial system to take this to the final step.

(20:27) Who knows, yeah.

(20:28) Gita: Sure. From that part. Yes. I think if you know the judicial system actually works properly and then it can protect some level of investor confidence. In developed markets, for example, venture capital works well, actually, because there's less supervision from the government. Because again, remember, it is a high stakes game. Venture capital is not for steady returns. Venture capital is notoriously boomer bust, especially when it was first incepted. So (21:00) it was never met. To be a place where you invest into 10 companies, and then nine companies out of 10 ended up getting, .8. 2.3 X like that was never really the game. So it's more about how does the government and the legal framework protects certain levels of the investment, perhaps, or certain types of disclosure, right? Maybe it requires, certain companies third party audit. Et cetera, et cetera, at whatever level or stage that it needs to be. I'm not sure, but again I don't think it's a government question because it is private companies.

(21:37) It's not public equities, right? It

(21:39) is private companies. And so all of these venture funds, sorry to say, including me, when I was in one, it's called venturist for us,

(21:47) but that's why the onus is on us. Like we're supposed to do a lot of the work.

(21:52) Jeremy Au: Yeah. So I think where the government could step in is if the investors pursue a private law case against the founders, then it would be interesting to (22:00) see how the judicial system works.

(22:01) So the next question is from Jeff F9E2X said, for many of these Indonesian founders, getting a unicorn valuation is a literal luxury ticket.

(22:10) Is it any wonder the fraud per startup is so high, you'd be naive to think these founders didn't find a way to monetize their people made growth.

(22:17) Gita: they definitely did. But some of them also may not have monetized as much as you think. Because again, paper growth is not always easy. So for example, I know, 'cause I was once a founder and people said, oh my God, if your company is valued at quote unquote, insert number 10 20 million and you have 50%, can you just leave right now? And the question is always, okay, but who's buying it for $5 million? Who's coming in and saying, here's a ton of money for your that actually doesn't happen as easily as people think. But

(22:53) yeah, I'm sure they benefited,

(22:55) by the way.

(22:56) Jeremy Au: yeah. So I think again, this is what a nuance is that. eFishery founders have been (23:00) accused of embezzlement as well. So I think that is the allegation that they did monetize the people make growth. And what you said is that, but for the broader system of founders are pretty broke because a unicorn valuation is pretty worthless because you don't get paid salary.

(23:15) You can't use the equity or options for housing loans. Or assets it's very hard to do secondaries as well.

(23:23) Gita: Yes.

(23:24) Jeremy Au: I think maybe it's like the nuance here that I'm trying to say here is Huh. Yes, for the eFishery founders, there is allegation of embezzlement, but for most founders, the unicorn valuation is a very cash poor, paid, wealth, right?

(23:38) Gita: Also, how many founders ever get to unicorn valuation, like out of, no, really, I saw 500 decks last year and I'm sure it wasn't all of the decks, in the ecosystem, but let's say like a couple of thousand founders every year, how many of them really ended up with a billion valuation? It usually takes about, I don't (24:00) know, five to 10 years and then good luck with exiting.

(24:04) Look, I can think of at least five founders of a unicorn right now. No one's talking about them, which usually often means maybe they can't face anymore or where are they in their process? I don't know. And it's one of those things where. You're right. Caching out is surprisingly hard because, as it says, it is paper made growth.

(24:28) Jeremy Au: Yeah.

(24:29) Gita: how do you get out? I don't know.

(24:30) Jeremy Au: Many founders have received it.

(24:32) Gita: Yeah,

(24:33) Jeremy Au: they remind me of a joke my friend made, which is, has there been more cases of fraud than unicorns in Southeast Asia? And I was like, wow, that is the most depressing statement that I've heard.

(24:42) Yeah. Because, he was basically saying that at least in India ecosystem, there's a high level of fraud,

(24:48) Gita: there's a lot of

(24:49) Jeremy Au: of unicorns and exits, right?

(24:51) So the ratio is high in both ends, but at least it's positive versus,

(24:56) His perspective is that Southeast Asia is underwater, which is. Pretty (25:00) depressing.

(25:00) Gita: yeah, you want to be net positive and I

(25:02) think what makes it really sad about us is I have to think. Are we net positive?

(25:06) Jeremy Au: Stay tuned for the analysis.

(25:08) Gita: Stay tuned.

(25:09) Jeremy Au: Okay. Saizulifa said, it's really embarrassing. And I'm like,

(25:14) Yeah, we agree.

(25:15) Gita: Correct.

(25:16) Jeremy Au: @andydotulong1478 said, looking at the qualifications of the investors, I suspect the whole potential fraud has been noticed, but it kept it under the rug and waited for an exit way out.

(25:26) Gita: Okay. As someone whose family has been in Indonesian politics since 1945 and also who seen pretty much any level of business growth. Never ever overestimate people. Temasek can definitely make these kinds of mistakes.

(25:43) It's not the first time, by the way, this isn't the first time they've done this, There's, other ones in the past, like SPF. But again, never overestimate people. Sometimes people will go, Oh my gosh, I'm sure it's a conspiracy. And I'm like no, you'd be really surprised. how (26:00) many people. can come from very fancy schools and fail at very basic things

(26:06) Jeremy Au: yeah.

(26:06) Gita: at the highest level.

(26:07) Jeremy Au: I agree with you. I don't know any of the direct parties here, but I suspect that nobody was trying to hide it for a long time. Because it's so cataclysmically, horribly inflated that there's this, I said structurally can't see an incentive.

(26:24) If the series A investors were hiding in for the series B investors, like that's a horrible thing to do. And nobody will trust them ever again if that's what happened. And then series B to series C. It just doesn't really make sense for the incentive structure.

(26:38) Gita: No.

(26:39) Jeremy Au: And can you imagine some investors like, Oh, I found out that the inflated revenue is by 80 plus percent. Maybe if I keep quiet about this for the next five years and go through three more rounds of investments before the IPO, and no boy is going to catch them, when they go public. What?

(26:56) No, that's not believable, right? Every investor is going to be like, this is not, that's not a (27:00) thing.

(27:00) Gita: I don't know why people just don't trust that humans are notoriously good at repeating patterns. But, this isn't the first time something like this happens. Not just in Indonesia, but in the entire world. People notoriously love getting really hyped up about something, putting so much money in it, and then someone embezzles.

(27:22) It's the most common thing and it's one of those like things where never underestimate a lot of hype like ever that level of passion and excitement investors get but they find the next big thing. It's super duper real, and then you're rushing in to try to make it happen.

(27:41) Yeah, I don't know I've seen it a lot. In fact,

(27:43) Jeremy Au: Yeah.

(27:43) I, we don't think that people who are keeping quiet about that. I think that they got a whistleblower complaint. They started investigating it.

(27:52) So maybe it was kept quiet in the sense that they had to let the internal process go because it is a very big decision to let go of the (28:00) founders. So next question said, This is a very naive point from Shriya and Jeremy who have never dealt with on the ground Indonesia. You need to understand most here in Indonesia don't see it as stealing if it's international investor money.

(28:13) To them, it's only stealing if it involves public money. If Gibran the founder was smart, he would have channeled proceeds through local channels. If not, Nusa Kanbangan. Who is to blame?

(28:22) The Big Four signed off multiple times, multiple years. What was not shown is how Gibran filtered the case through the banking system, through multiple debt instruments.

(28:30) That is a bigger understanding. I don't think anyone without local knowledge would know how to catch.

(28:33) Gita: Although I sound like a bule unfortunately, I'm Indonesian and I live here. Or fortunately, who knows, right?

(28:42) But, Yeah.

(28:43) People here don't see it as stealing. Actually, the entire ecosystem does see it as stealing. I think Patrick (Sugito Walujo) made that extremely clear but yeah, is it the kind of, comment people made, because honestly, they're just so exhausted with, (29:00) fraud that happens with promising companies, probably, and it's something Indonesians say a lot. We're like, Oh it's not government money. It's not public money. It's not technically corruption.

(29:10) Yeah, we say all that stuff, but are we also super aware that we're just Yeah. Pretty damn bad at these things. Yeah, absolutely. I think all of these things also show to us that we have a lot of homework to do when it comes to governance and legal framework. As for who is to blame? Yeah. I think you can blame lots of parties that should have caught it. But again. This isn't the first time, not just Indonesia, but Singapore and the United States and literally other countries that have had very similar levels, even higher levels of fraud and embezzlement happen. Again, never ever overestimate people's capacity. Never assume they went to all those great schools. They must've, I'm like, that's the problem because you assume they do, but they don't a lot of times and they get very (30:00) excited and very hyped up, very FOMO for an investment. And once all of that starts rolling, yeah, I've seen how quickly eFishery, for example, raised funding in their earlier rounds.

(30:12) I saw that was very quick. Same with a lot of other, type of companies that very fast rounds. And again, what was that based on? A lot of hype.

(30:21) Jeremy Au: Yeah. First of all, thank you for reassuring me that most

(30:24) Gita: I live

(30:25) Jeremy Au: do see it as stealing.

(30:27) Gita: Here.

(30:28) Jeremy Au: so there's that but I think it's quite important that. We discussed that which is that yeah, I think we do see that it is still stealing in terms of the allegations. And yeah, we do see that fraud has happened, for example, Wirecard in Germany.

(30:43) Germany is considered a very advanced, developer, good accounting, and there's fraud there as well, right? So that happens. I think it's fair that Big Four supposedly PwC and Grant Tauntant were involved with this. Obviously, there's very little detail about whether they (31:00) signed the audit and so forth, but supposedly they were adjacent.

(31:04) So I think we have to take a, what's the word? I think an ambivalent or, like neutral view on this situation. Because again they were sophisticated enough to also make this pass through multiple due diligence checks, right? From series A, series B, series C, series D. I think it was relatively sophisticated and systematic.

(31:20) So yeah.

(31:20) Gita: Please people should understand that the people in the investment committee making the decisions are often not the ones going to, where these aquaculture sites are and physically asking vendors. So again, there's a separation between the decision maker and what's really going on at the ground that happens very often. if you have a system that can somehow filter the information better and ensure that the information are. Accurate at every stage, that's preferable, but I'm just saying, oftentimes you look at, our ecosystem and we actually don't have a lot of governance in place yet (32:00) because also our ecosystem is very new. When a previous comments that since 2016, I'm like, yeah and how do you think this ecosystem was to begin with money did start flowing like. 2015.

(32:15) Before that, Yeah.

(32:16) before that there was, some, but not that much investment, right? It was not really a target country for investing in tech,

(32:26) Jeremy Au: Agreed. I think, what the senior person was probably thinking is wow 2024 numbers were really good because they turned a profit. they grew the revenues double, triple. So I think we now know it's fraud, but I think, as a investment committee, you have those two minds, which is one part of it is wow, it is a checkpoint. It doubled, it hit

(32:47) profitability. This is a great investment. But then I'd apply you to be like. It's too good to be true, right? And I remember hearing from people and I ran, the news came out that was profitable. I remember I kept asking my friends, I was like, Why are they, why are the numbers so (33:00) good?

(33:00) Because it's fish, where do you get the margins? And the people are like, dude, they're trading the fish and they're trading so much more efficiently because fish farmers don't know how to sell the fish, but they can sell the fish at a much better, and I was like, but so much? That's a lot of profit that's like Saying you're selling the fish for 20 cents normally, but now you're selling it for a dollar.

(33:18) There's like a crazy amount of value that's being created. Anyway. But I always told people, I was like, you know what? I don't understand agritech. I don't want to do agritech. I'm a Singaporean right now

(33:27) I don't understand. So I think that's, let's go to the next point.

(33:30) So didikkwok share the next comment, which is the general, problem startups managed by young people is that their mental attitude is often not ready for the temptation of consumerism and narcissism when managing very large funds.

(33:41) The potential for deviation is very high.

(33:43) Gita: Yeah, I'm sorry. I'm actually gonna agree on that one. And I don't think it's just young people. I think younger people may have more of a problem. By the way, I'm 43. So I'm not super young. I'm not old per se. But since (34:00) I've been in the startup world since 2010, I will say that it is ridiculously hard for people to manage very large amounts of funds if they've never had to deal with it in the first place.

(34:13) And there is a massive difference between being an investment banking analyst somewhere and quote unquote managing large transactions versus you being the founder of a company that somehow raised like hundreds of millions of dollars. It is very different. And that is the part about managing money, right? Like it's not about just getting the money, but it's also about managing the money. And that is the part that gets very hard for a lot of startup founders. Like, how do you maintain that discipline? How do you create structures and systems? Because oftentimes when you're a startup founder, which I was once you end up doing a lot of firefighting. And you're constantly battling issues that you don't realize you need to set up systems. (35:00) So either one, you end up calling yourself the chief everything officer, which is not good. That is not a thing. You should not do that, actually. It means you don't have systems. Or you're the kind of founder that just battles, battles, drama all the time, right?

(35:15) Battling one emergency after the next. And that's the part where it gets very tricky. So yeah, I don't think it's just like consumerism and narcissism. I think it's also just discipline. But the mindset part, yeah, I'm going to agree with that. Oftentimes, a lot of founders simply don't have a certain mindset and emotional maturity to deal with a lot of money and i'm saying emotions because It is very tempting to start you know Flaunting and flexing and doing all that stuff when you're still worried about what people think of you when you're still worried about being validated by Other people's opinions and that includes your investors also includes your board etc. So (36:00) I think it's about you know A healthier mindset always sticking to disciplined way of managing money, governance, and again, having emotional maturity to deal with that much growth.

(36:13) Jeremy Au: Yeah, what's interesting is there's always a jokes about Forbes 30 under 30 people being superstar founders, but also being superstar criminals. And I can't laugh about it because I was recognized by Forbes 30 under as a social entrepreneur

(36:27) Gita: Oh my gosh, we were? Sure.

(36:28) Jeremy Au: for my first business. I was. I still go to the parties. Yeah, and I always remember that first sensation when I got it and I was very happy and very surprised to be nominated, I didn't self nominate. So this is a nice recognition of that time building a social enterprise.

(36:41) But I think what's definitely seen over time is that when you're still younger I say, this is an older person now, but I think that definitely is that drive, right? They're like, I got to win. My whole life is in my hands right now. And I got to succeed because if I fail, my life is over and I'm a failure for the rest of my life.

(36:59) And I think they can (37:00) create a very toxic set of conditions where you got to go all or nothing and all or nothing may include doing fraud, right? Because you see people, it's yeah, if everyone else is doing it then I should do it. And I think that set of conversations that I had with people who are really stressed out and thinking through that self, like dark path of decision making is quite dark.

(37:22) And now that I'm older, I'm like, yeah. Not worth it. I can find another job anytime.

(37:27) Gita: Yes, you can.

(37:28) Jeremy Au: If I could tell you back on time, I would be like, dude, just quit.

(37:31) Gita: Quit.

(37:32) Jeremy Au: quit.

(37:33) Gita: Oh, I'm the same. Because the amount of drama people get themselves into because they believe that their company is their value.

(37:43) Like literally they believe their value is equal to the company's value, this is actually very common,

(37:50) which is if this company doesn't survive, that means I don't survive.

(37:55) I failed forever, and what I always tell people is that you'd be really (38:00) shocked at how quickly people will forget your failures.

(38:03) Because everybody's pretty selfish, like we think about ourselves all the time. So trust me, Jeremy's failure or someone else's failure is just not top of mind most of the time, right?

(38:14) Most of the time, you do anything at all, close down, liquidate, or just quit or pivot or do anything at all. Like I think some people might care. People will talk about it, but it's really shocking how quickly people just move on to the next new cycle.

(38:33) Jeremy Au: I

(38:33) Gita: And yet,

(38:34) Jeremy Au: thing is you have to fail gracefully and your value is not a company and a company is a separate entity from you as a person.

(38:41) Gita: Yeah. Failed gracefully being the big one as in. What I tend to see is people dig deeper and deeper holes in fear of failing eventually. And then they end up sometimes in really bad situations. Including fraud.

(38:55) Jeremy Au: yeah, the worst, the least graceful of all failures,

(38:58) Gita: The worst.

(38:59) Jeremy Au: that's not like landing a (39:00) plane. That's like nose diving yourself straight to the ground there. Next question is many investors are fleeing Indonesia now, this is from apriliantoakbar4653.

(39:10) Gita: yeah, not super wrong. I think it's affecting the entire ecosystem.

(39:14) Jeremy Au: I would say that maybe it's not fleeing, but more like this is not investing.

(39:17) Gita: Flaring.

(39:18) Jeremy Au: it's not that we're leaving. We're just not investing, which is we can resume investing in two years when we think things are better, right?

(39:26) I'm just saying, it's not like they're pulling money out of the system.

(39:30) Gita: That's true.

(39:31) Jeremy Au: Yeah. I'm just saying, hopefully that makes her feel better about the situation, which is, I want to say many investors have paused investing in Indonesia for now.

(39:41) Gita: Thank you.

(39:42) Jeremy Au: Yeah, there you go. And hopefully it's two years, yeah. Yeah. Oof. Yeah. No predictions there. Okay.

(39:50) "Cut this BS. This is a hostile takeover by a shareholder wrapped under an accusation, valuations and art, and the market forces them to comply with the unrealistic (40:00) fundamentals."

(40:00) Gita: Taking over for what value? Cool. Look, I guess if you're, a very large company with a ton of assets, say Meta and there's a self takeover. Like I understand why people do it, but again, the question is with these private companies where no one really knows the actual value, because again, as people have said before, this is paper value. Sure. I'll still take over for what exactly? I think that's more of the question.

(40:31) Jeremy Au: Yeah, if I'm being charitable, I'm reading this in the most, positive version of it, I would say, yes, the shareholders have taken over the management and they are definitely hostile to the founders. So that is true because. The founders have been suspended and it's currently a audit and investigation going to them right now.

(40:49) So I think that is fair. It is a hostile takeover by shareholders. The question is it justified? And if it is true that revenues have been inflated by at least by five X, then, (41:00) yeah, I don't think it boils down to evaluations and art. I think it's just basically saying, the federation is fraudulent.

(41:05) and these shareholders overpaid by five times at minimum since it was fraud by five times. So by doing so, they have bitten the bullet, and decreased their paper holdings. By at least five times effectively. So I would say that they're salvaging the situation from my perspective.

(41:23) Gita: yeah, that's the nicest way of putting it. But again all of these, this is why I really think there needs to be better coverage also and understanding of venture capital. How does, Startup investment work. What does it mean? What is a valuation? if your company is valued at 20 million, does it mean you have 20 million in the bank?

(41:46) Just that kind of questions. People really should, understand and learn. And I think there needs to be better discussions and coverage of this from investors from the media, because the problem is when you're talking about all these paper (42:00) value we all think these are huge companies with that much in assets.

(42:04) But again, we are not talking about asset heavy companies. A lot of tech is asset light. That's the whole point. And hopefully you get value from the tech, right? But again, the question is, if that's even in question, then what are you left with?

(42:19) Jeremy Au: Yeah.

(42:20) Gita: I think that is the part that people also need to understand, like always question, how much revenue does a company make versus how much money did they raise? Raising more money isn't always a good thing. If you have raised 50 million in Indonesian market and your revenue was only, 50, 000. That year. maybe you're in trouble depending on your sector. But again, it's all about that. It's like, how much money do they actually have? And like, how much did you put in?

(42:52) Jeremy Au: Yeah. So I think overall, I think I can agree with some individual statements as well. Maybe you (43:00) can say the market has a drive of pushing them to have very high

(43:05) Gita: that yes.

(43:06) Jeremy Au: Yeah,

(43:06) Gita: believe that.

(43:07) Jeremy Au: I think I can read it that way, which is yeah, I agree. Like VCs expect a certain level of growth rate and profitability in order to invest. And so there is an incentive structure for founders to do but guess what? The founders could just maybe, Stop raising VC money and go with the private equity route. Maybe they can not choose not to do fraud. And maybe they can choose to, cut costs or go bootstrap. There's a lot of different approaches they can go.

(43:31) So I think to some extent the market obviously has a certain market structure. That's fair. But I think that the founders do have choice as well. And then I want to go into the next set of comments, which are roughly similar. So Mona's two, four, nine, eight

(43:46) Gita: Yeah.

(43:46) Jeremy Au: and add this G six, five, six, nine, all of them said the same thing, which was Indonesia, typical, not surprised.

(43:53) Embarrassing Indonesia and Indonesia standard smiley face, which is, I think the same type of, (44:00) how are your thoughts, Gita?

(44:00) Gita: No, if you're Indonesian, honestly, you're so tired of this and you've seen it happen a little too often that you're just exhausted because also in Indonesia, we don't just see fraud at the private sector level. You see it in a lot of public sector, right? And it's

(44:17) often very blatant. And not only is it very blatant, the judicial system is often not on the citizen side. So oftentimes the citizens and I think the reason why Indonesian netizens are some of the most memorable in the world is that it's just a lot of pent up anger and frustration over our systems. And just having eFishery as another example of our people taking advantage of things.

(44:44) I mean for a lot of us, we're just very tired of it.

(44:47) Jeremy Au: Yeah. So that's the tricky part of the whole process is hopefully the standards improve and, Indonesians, I don't know, feel more surprised when it happens rather than,

(44:57) Gita: We should be surprised.

(44:58) Jeremy Au: Yeah. And then the last comment that we (45:00) had was from fnur51 said, great talk. So

(45:03) Thank you. I appreciate it.

(45:04) Gita: Talking about the hopelessness part. I recently saw a really interesting talk. Like it's a philosophy talk. one of the things that this person said was hopelessness in some way is a privileged stance, because usually if you're in such a bad spot, you simply don't have a shot to feel both hope or hopelessness, you're just surviving, right? So in a way, if you can feel hopeless, you're at least in a position that is okay enough to feel something more than just surviving. therefore, if you're hopeless, in a way, you can actually switch it to becoming hopeful. It just requires action. So you can't just, oh, let me change my mindset. You actually have to take actions and habits to add hope back. For me, what this entire situation is teaching me is, man, the more I continue on my (46:00) journey as an investor, especially if I'm a mentor to other startup founders, it's Continuously teaching them how to become discipline and how to, have a healthier emotional maturity in dealing with success and failures and how to view your business in a more professional way, rather than seeing it as the reflection of your value as a human, and so all of these things.

(46:24) I've been in the ecosystem now for 15 years continuously improve upon myself and not get into this dark place of oh what's the point the point is you're here that's the point you're here so you better make the best of it

(46:37) Jeremy Au: I do want to recognize one thing that you talked about, which is that there are some heroes in this, whole story, right? I would say, I think the list for me would be, I think the whistleblower who informed the board. I think that's good. Great job by them.

(46:50) I would say that the board for taking action as decisively as they did because obviously they spent some of that money, but not all of it. So I'm just saying there's some (47:00) recovery of assets and a company's position. I think that's number two, I would say DealStreetAsia. For breaking the news as well as the journalists who did the legwork to expose this. I think good job to them. So shout out to them for doing the work, because I think we need more transparency on this stuff. Otherwise it's difficult.

(47:17) And maybe my last list on the list would be like, Indonesian and Agritech founders are still fighting a good fight. Like

(47:23) Gita: some good ones.

(47:24) Jeremy Au: I know that some good eggs that I know

(47:27) Gita: Yeah. Same.

(47:28) Jeremy Au: have been working very hard and they're still working on it.

(47:30) Gita: But for all of them, I'll still say fundamentals. Fundamentals is everything. Like in the end, you simply have to make money. Not just race.

(47:39) Jeremy Au: Yeah. On that note of make money,

(47:42) Gita: make money,

(47:44) Jeremy Au: make money. It's like Gita as a mom, it's like big money.

(47:48) Gita: That is about what did they tell you? Oh to raise revenue and cut costs.

(47:54) Jeremy Au: Yeah. On that note, see you Gita.

(47:55) Gita: See you soon.