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How startups in ASEAN can avoid governance scandals

Published on February 7, 2023

High-profile cautionary tech tales from FTX, Theranos, WeWork, and other misadventures are shining an international spotlight on what can happen when good corporate governance is not enforced in a startup. How can startups and investors in Southeast Asia avoid similar fates?

That was one of the questions considered in a group discussion led by Leighton Cosseboom, Head of PR and Communications at AC Ventures (ACV), on a recent episode of Indonesia Digital Deconstructed. Bringing personal experiences to the table in the episode were guests Pandu Sjahrir, Founding Partner at ACV, and Joel Shen, a prominent venture lawyer operating in Jakarta and Singapore.

The group pointed to some red flags for investors to always be on the lookout for. Some come in the context of observable founder spending and lifestyle, while others highlight the need for effective communications and common-sense forms of due diligence at the early stages of ventures. Here are some key takeaways from the discussion.

How can startups in ASEAN avoid governance scandals?

The transcript below has been condensed and edited for focus and clarity.

Leighton: What can we learn from prominent western case studies about disasters caused by poor governance in startups? How can we in emerging markets succeed where those in developed markets have stumbled?

Pandu: Essentially, it’s about checks and balances. You look at the company’s income statement and balance sheet. Are they making good money? Then, you check the lifestyle of the founders to see whether the narrative matches. If not, you’ve got to start asking questions. Doing this is pretty straightforward, actually. Everybody’s on social media today. The tendency to overspend can often be quite evident to the public.

Leighton: So if a founder shows up with a Porsche the next week, you might ask, “What? Where’d you get that? What’s going on here?”

Pandu: Even if your company is doing well, that doesn’t mean you need to match the lifestyle to that. Truly outstanding founders will probably be very cognizant of this. But the scary ones are the unsuccessful ones who are behaving as though they’re successful.

Joel: I think Pandu raised a good point earlier that it’s important to have checks and balances, and it’s something that we pay a lot of lip service to, right? But it’s absolutely essential, and it doesn’t necessarily come intuitively to startups that might have been founder-led in the very early stages. To my way of thinking as a lawyer, this can begin as very simple things, like mandatory periodic reports and audits.

Leighton: Are there any other red flags that would kind of sound the alarm bell for you to suspect malfeasance behind the scenes?

Joel: As an investor, an immediate red flag for me is when founders and companies are not forthcoming with information that we request in the course of due diligence. I would look at how quickly they can provide information as well as the quality of the information and the attitude of the founders in providing this information.

It would certainly tick the right boxes for me if the information comes readily to hand, if it’s been audited, if it’s been checked to stand up to scrutiny, and if it’s provided in a way that suggests the founders are cooperative and have been running a tight ship.

On the other hand, red flags would be raised if the founders prevaricate, if they employ delay tactics, or if the information they provide seems to have been cobbled together very hastily and it seems that nobody has even looked at it before. There is no single litmus test, but it’s all those factors added together.

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