Indonesia’s eFishery scandal sparks fears of broader reckoning for agritech

[JAKARTA] The alleged fraud at Indonesia’s aquaculture unicorn eFishery has shaken the agritech sector, with the once-thriving industry, driven by fast growth and overblown valuations, now rattling investors and poised for a reckoning. The next big question now is: Who is next?

Market players are also not ruling out a broad cleanup or major overhaul in the ecosystem as focus turns towards sustainable profitability.

Harsh Rajpal, the founder of Capital Code, said: “My concern is that eFishery may not be the only case. Many businesses in the food and agritech sector are significantly overvalued.”

Warning that the eFishery saga may just be the tip of the iceberg, he expects a wave of write-downs in venture capital portfolios, which he deemed long-overdue.

Rajpal added that unrealistic valuations have distorted the way many startups are built, preventing founders from developing sustainable business models.

“Because of this massive overvaluation by a lot of investors, founders are not able to build the businesses in the manner they should be built. So, they are distorted from reality,” he told The Business Times.

He also argued that agritech startups should not be held to the same standards as pure tech companies, as they operate within complex supply chains where factors like physical logistics, farmer relationships, and market fluctuations are just as important as innovation.

“What’s happened over the last five years is that people focus too much on the ‘tech’ in agritech and forget the ‘agri’ part,” he said, calling for more realistic growth metrics and better checks and balances in venture capital investments.

Snowball effect

The eFishery scandal is still in the early stages of investigation, with reports revealing that the company stands accused of allegedly inflating its revenue by as much as US$600 million as of September 2024.

The ripple effects could extend beyond agritech startups, with market players warning that the fallout may erode confidence in businesses built on aggregation models – those that connect farmers and smallholders to larger markets.

The case has drawn intense scrutiny from the industry, with many concerned that it could further strain the already struggling startup ecosystem, which has been facing a slowdown in fundraising in recent years.

Valerianus Ian Sulaiman, vice-president of Investments at Trihill Capital, said that the saga has dampened investor confidence in Indonesia’s agritech sector, prompting a shift in focus for startups from pursuing valuation growth to prioritising profitability.

“We have been pushing portfolio companies to reach profitability,” he said.

Trihill Capital currently backs three food and agriculture startups in Indonesia – EdenFarm, Eratani and PasarMikro.

Still robust, more scrutiny

Despite the turmoil caused by the eFishery scandal, it’s unlikely that all investors are pulling out. While trust has been shaken, the sector’s potential remains robust – though it is now under much closer scrutiny.

As the global focus on food security grows, investors are increasingly recognising that agritech is not just a sector of interest, but a cornerstone of future food strategies.

Sulaiman said that while investors continue to recognise the significant potential of South-east Asia’s agritech sector, they are mindful of its inherent risks.

“We believe that capital will continue to flow, but with higher expectations for prudence and governance,” he said.

However, Sulaiman said that the agritech sector is increasingly difficult to navigate, with executing a high-growth agritech business becoming a greater challenge.

Indonesia’s agritech sector has grown rapidly, fueled by the country’s digital leap during the pandemic and the surging demands of its 280 million population, eager for better nutrition and protein-rich diets.

Tech in Asia reports that Indonesia’s agritech startups experienced a dramatic surge in funding in 2022, with investments tripling to nearly US$380 million compared to the previous year. However, the landscape has shifted dramatically in 2024, with funding dropping to just US$33 million.

The decline mirrors the broader slowdown in the tech sector, compounded by the fallout from the eFishery scandal and the collapse of TaniFund – a peer-to-peer lending platform tied to agritech giant TaniHub.

TaniFund collapsed last year following a liquidity crisis caused by borrowers defaulting on loans and lenders failing to receive repayment. The industry regulator is now probing fraud allegations against the platform.

Takes two to tango

While some suggest that the eFishery scandal could lead to stricter regulations for agritech startups, others argue that the rules are already in place and the real challenge lies in their enforcement.

Rajpal said: “What we need is better and more effective implementation, not necessarily stricter regulations.”

The eFishery case serves as a reminder of the vital need for balanced governance between investors and founders, observers said.

Dr Sam Garg, professor of management at Essec Business School, Asia-Pacific, said that venture governance is not a one-sided affair. He said it should be a shared responsibility where both investors and entrepreneurs must work together, ensuring transparency, alignment of goals, and mutual trust.

“CEOs and venture board members must engage in open, transparent communication that allows CEOs the autonomy to lead while giving investors the transparency they need to influence key decisions,” he said.